Microsoft is pulling the plug on Hotmail, one of the early leaders in web-based email, and plans to transition the service’s more than 350 million users to a new email service called Outlook.com, the software giant announced on Tuesday.

The new service will, as its name suggests, tie in with the Microsoft email program of the same name that is part of the company’s popular Office suite of business software.

Microsoft touted the new system as the biggest change in web-based email since the introduction of Hotmail in 1996. Microsoft bought the company a year later for an estimated 400 million dollars.

According to a blog posting by product manager Chris Jones, Outlook.com combines contact information from emails and popular social networking services such as Facebook, Twitter, LinkedIn and Google Plus.

Featuring a minimalist design, the new service boasts powerful tools for sorting emails, including automatic recognition of newsletters, social media updates and junk mail that, according to Jones, accounts for some 70 per cent of inbox content.

The service also automatically recognises emails with photos, documents or shipping information attached and sends these to pre-selected folders.

While the free service is ad-supported, Microsoft said that unlike Google’s Gmail service the ads will not be related to the content of users’ emails.

“We don’t scan your email content or attachments and sell this information to advertisers or any other company, and we don’t show ads in personal conversations,” Jones said.

He said that Outlook.com was launched on Tuesday in a preview period and that eventually all Hotmail users would be switched to the new service. No date was given for the transition.

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