Gmail turns 3 this year. When announced on April 1st, 2004 people thought it was an "April Fools" joke. However at the time the one Gigabyte for email storage it offered was four times that of Microsoft's Hotmail.
Yahoo now is offering unlimited storage (up from 1Gb) and it would appear that Microsoft has upped the Hotmail storage to 2Gb.
What sets Gmail/Google apart is their ease of integration and the ever increasing products (Gmail, blog, desktop search, notebook, analytics, etc) in the Google software family.
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