Windows blog posted a peek behind the scenes at Hotmail, “Hotmail was born on July 4th, 1996. It was the creation of a Silicon Valley startup founded by Sabeer Bhatia and Jack Smith. Microsoft acquired Hotmail late in 1997. It was the first services to offer free web-based e-mail, and originally spelled “HoTMaiL,” emphasizing its use of HTML for web user interface, and was later integrated with another acquisition – web-based calendar service, Jump. Hotmail grew fast – reaching tens of millions of users in just a few years. Today, Hotmail has provisioned well over a billion inboxes and has several hundred million active users around the world.It went through lots of changes, started with a 2 MB storage – increased to ever-growing storage. The user interface changed a lot too and there were big software changes. Starting in 2004, the Hotmail engineering team completely rewrote the Backend system. In 2005 the Frontend followed suit. Its now integrated anti-virus scanning for attachments, calendar service, built in a reading pane, and added rules, spell checking, search, web messenger, and lots more.
More info: Windows blog