AOL making more of its services free

updated 6:22 p.m. ET Aug. 2, 2006

NEW YORK - “You’ve got mail!” — and more money in your wallet.

Taking its most expansive efforts yet to deal with its long, steady decline in subscribers, AOL is giving away e-mail accounts along with software previously available only to customers who paid as much as $26 a month.

The strategy shift will likely accelerate the decline in AOL’s core Internet access business, but the company figures it can make it up with online advertising dollars instead. The big question is whether AOL still has enough gravitas to make it work on a Web increasingly dominated by rivals Google Inc., Yahoo Inc. and Microsoft Corp.

John Goodman, 58, a longtime AOL user who works in public relations in Crestwood, N.Y., canceled his service with glee as the free offering took effect Wednesday.

“I stayed with it for years paying, knowing I was an idiot,” he said. “I’m very pleased they are making this move.”

Jonathan Miller, AOL’s chairman and chief executive, told The Associated Press that it no longer made sense fighting an industry trend, acknowledging that AOL wasn’t competitive with its “above-market rate” offering.

Customers “were leaving us over price,” Miller said. “They weren’t leaving us because they were unhappy.”

Encouraged by such trends as its 40 percent jump in ad revenue in the second quarter, AOL figures that by making services free, it can prevent users from defecting to Yahoo, Google, Microsoft and other providers that have offered free e-mail for years.

Rob Enderle, an analyst with the Enderle Group, said the restructuring brings Time Warner Inc.’s online unit in line with “this decade as opposed to the last decade” and lets the company “hold on to the customers they had left.”

“Had they done nothing, by the end of the decade, they would have been gone,” Enderle said.

The move marks the end of an era for a company that grew rapidly in the 1990s by making it easy to connect online, giving millions of Americans their first taste of e-mail, the Web and instant messaging through unsolicited discs stuffed in mailboxes and magazines.

America Online, as it was then known, became the undisputed leader of dial-up Internet access when many people still used that method to get online. The greeting users got when signing on — “You’ve got mail!” — became so ensconced in pop culture that it was the title of a movie. AOL’s shares flew high enough in the Internet bubble for the company to buy Time Warner in 2000.

But many promises of synergy from that deal evaporated. The company’s stock plunged, key AOL executives left under pressure and now Time Warner management is firmly in charge.

“This is the final goodbye to the days when AOL was the king of the Internet,” said Jeff Lanctot, general manager of aQuantive Inc.’s Avenue A/Razorfish, an agency that places some ads on AOL sites. “They now know they are the underdog.”

The company expects to save more than $1 billion by the end of 2007 by cutting marketing, network and overhead costs. That’s also roughly the amount AOL could lose annually if all 6.2 million of its subscribers with broadband stop paying extra — generally $15 a month — for access to AOL’s content.

AOL will continue losing dial-up subscribers, perhaps at a faster rate as the company scales back its notoriously aggressive retention efforts and no longer actively markets the service to obtain replacements.

MORE FROM U.S. BUSINESS

U.S. business Section Front

Fed: GMAC will still need more bailout money Pfizer to close research plants, slash jobs GE, Comcast agree on NBC Universal’s worth Could health care reform lead to hidden taxes? Yacht broker gets 2 months prison in UBS case You’ve seen the TV ads. So what’s Ally Bank? Feds: 14 charged in insider trading case Americans worried more about personal deficit Growing PayPal may one day overshadow eBay Jobless, homebuyer aid extensions advance U.S. business Section Front   Add U.S. business headlines to your news reader: