Microsoft had planned to release a Hailstorm, but it wasn't expecting to encounter a storm of user protest over privacy issues along the way. After a great deal of heated complaint about Microsoft's Passport service's Terms of Service, the company backtracked and rewrote the TOS, making it clearer what Microsoft will do with users' personal data.

Passport, which provides a single site for password-protected access to a number of Microsoft websites including HotMail, is set to become a key component of Microsoft's new Internet-based services, including Hailstorm, a network of servers designed to store user data and make it accessible from multiple Internet-equipped devices. The popular service boasts 160 million customers, including Microsoft WebTV users. The password service has received increased attention after the announcement that Microsoft would feature Passport in its .Net strategy. Microsoft has announced that the company will change its focus from a shrink-wrapped software company to an Internet-services based company with the new software initiative.

The Terms of Service, which have been posted since Passport debuted two years ago, came under fire after irate users charged that the company appeared to be laying claim to user data such as posted bulletin board messages, uploaded files or submitted information. The terms read:

[Microsoft is granted permission to] use, modify, copy, distribute, transmit, publicly display, publicly perform, reproduce, publish, sublicense, create derivative works from, transfer, or sell any such communication.

Privacy advocates claimed that the Terms of Service would allow Microsoft to position itself to take control of anything posted through its services including proprietary business information, a charge the company denies. The Terms of Service were merely unclear and outdated, and in conflict with Passport's privacy policy in any event, said company spokesman Tom Pilla. Pilla, who admitted, "We were in error for having that up there," said that the privacy policy would have overridden the outdated terms of service. He also said that the concerns over the use of the Passport Terms of Service with the Hailstorm service were in error, and that Hailstorm will have a separate privacy policy and Terms of Service and will not be covered under the Passport policies.

Following the outcry of protest, Microsoft revised and posted a new set of Terms of Service for Passport, making it clear that the company lays claim only to material generated in direct communication between the company and its users, The company also clarified that the Passport Privacy Policy would be the ultimate authority in case of conflict between the Terms of Service and the privacy policy.

Under the new terms:

By submitting any feedback or suggestions to Microsoft concerning the Passport Web Site or the Passport Service, you warrant and represent that you...are granting Microsoft and its affiliated companies permission to use, modify, copy, distribute, transmit, publicly display, publicly perform, reproduce, publish, sublicense, create derivative works from, transfer, or sell any such feedback or suggestions.

Some security analysts question the wisdom of Internet users trusting Microsoft with the amounts of personal data the .NET initiative will call for. Everything from e-mail to credit card information to banking would be under one umbrella, they say, and be vulnerable to hacker attacks and potential Microsoft misuse of the data. Microsoft has denied that security will be a problem, saying that the data will be owned by the user, and securely stored in a data repository under the supervision of a third-party hosting firm. There are also plans in the works to use the so-called "smart cards"--local storage for users to keep personal information secured on.

Critics also charged that the uproar over the privacy policies and the fact that it took two years before the controversy became public underscores the problems with website privacy policies, which are often difficult to find and couched in legalese that an average user can fail to understand. In any event, the critics say, Microsoft is at fault for not carefully reviewing all the parts of the Hailstorm strategy before making the announcement of the program.

Hailstorm will be in testing by the end of this year and is expected to be incorporated into Microsoft software products such as the Windows operating system, Office and the new hardware gaming console XBox. It will also be part of Microsoft websites such as Microsoft Network and BCentral.