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Yahoo! (YHOO) on Monday unveiled some mail enhancement products.

As part of its ongoing battle with


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for the loyalty of Internet users, Yahoo! said it had implemented new antispam technology for its Web-based email service.

In addition, Yahoo! added several features to its email service that blur the distinctions between its offering and Gmail, the free email service that Google has been publicly testing for most of the year.

The two Internet giants appear locked in a growing feature war, the economic payoff of which is not yet clear.

"It seems to me that we're going to see a lot of this happening over the next year or two as each of them tries to improve on its functionality," says Jefferies analyst Youssef Squali. "The question is how monetizable each one of these functions is."

Yahoo!'s shares fell 24 cents Monday to trade at $37.56, while Google's shares were up $2.72 to $184.72.

As part of its email improvements, Yahoo! said it had started using technology it has developed called DomainKeys. That system, which Yahoo! is licensing to other Internet companies, uses cryptography to verify that email ostensibly sent by a particular sender -- say, a bank -- is actually from that sender.

Separately on Monday, the Internet service provider

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said it would be testing DomainKeys as a spam-fighting tool; Google, according to Yahoo!, is already using DomainKeys to help authenticate email being sent by Gmail users.

Among other changes, Yahoo! has increased the amount of storage space available to users of its free email service from 100 megabytes to 250 megabytes. Users of Yahoo!'s premium email service continue to have 2 gigabytes of storage space, but have a new per-email attachment size limit of 20 megabytes. Previously, Yahoo! Mail inboxes had been limited to a 10-megabyte attachment size.


introduced those 100-megabyte and 2-gigabyte email inboxes in June, responding to Google's April introduction of Gmail, with its 1-gigabyte storage space.

Today's announced increase in capacity for free accounts is unlikely to increase Yahoo!'s costs on a measurable basis, says Squali. "Server cost is very low," he says. "For Yahoo! to go from offering 100 to 250 is marginally immaterial," he says.

Squali has a hold rating on each stock, and his firm has a banking relationship with Yahoo!. He has a price target of $36 on Yahoo! and $160 on Google.

In other newly announced changes, Yahoo! says it has made it easier for email users to search the Web or the content of their email boxes. A Web/mailbox search is a prominent feature of Gmail. Yahoo! says it has improved an auto-complete function for addressing emails -- yet another prominent feature of Gmail.

"It's a war to try to have a better mousetrap," says Squali, "which at some point in the future they'll try to layer on some monetization model." That monetization, Squali assumes, will be click-throughs on relevant advertising displays.

While Gmail has gotten plenty of attention, Squali says he doesn't believe Google is generating any revenue from the service. He also notes that Google has kept some services in the beta, or testing, stage, for a long time. The comparison shopping service Froogle, for example, has been in beta-test mode for nearly two years.