How would people feel if there was a similar MSN service that did the same thing - do some just trust Microsoft more than Google? Google couldn't do this without the ads and they are far less instrusive than banner ads. Sometimes the ads are even useful.

Wait a year and see if Gmail is still going - if it is, there are people not worried about the ads and without privacy concerns. Why are people worried about Gmail but not Google Search - which also targets ads based on content. And all those websites that use Google AdWords?

At one point Passport's privacy policy had to be changed. Gmail's policy had also been changed - you can permanently delete email.

People are free to use Gmail or not (if they do eventually offer it). Just like some choose not to use Hotmail (except for one-off subscriptions or downloads that require an email account to send to).

What I do think though is that no one company should have such a large market share - Microsoft would probably innovate more if they did not have such a large desktop market share. I think this may change in the future with more companies adopting RedHat/SuSE etc.