Microsoft is exploring new ways to generate revenue from its widely-used Hotmail service, as the company grapples with collapsing online-advertising revenues.

The company is offering its users the chance to pay for additional email storage-space. Hotmail users currently enjoy 2MB of space for storing emails, digital photos and other email attachments.

Microsoft is offering users the option of paying $12.95 per annum to secure an additional 8MB of storage space. This service also lets users send larger attachments.

Service overhaul It's part of Microsoft's attempt to reposition all its properties to attract service-based revenues as it moves forward with its .NET strategy. The company claims to have 118 million Hotmail users worldwide.

Industry rival, Yahoo has offered fee-based services to its users for some time now. Its basic service features 6MB of storage space, with an additional 25MB available for $19.99 per year. Yahoo subscribers can also pay for personalized email addresses, domain names and real-time stock quotes.

Makeover In July, Microsoft remodelled the service with new functions, such as a beefed up spam filter, and a new user interface that resembles its other Internet properties, including the MSN portal.

The experiment begins as other mail hosting and handling services are also forced to create revenue-earning businesses, following the revaluation of the dot coms, shrinking online-advertising sales and threat of war and recession.

Nameplanet.com contacted its users last week, warning of plans to begin charging for its own service, which offers users an email domain name suffix of their choice and mail forwarding/hosting services.