AOL Goes Free

Time Warner's(TWX Quote - Cramer on TWX - Stock Picks) AOL is free at last.

People with broadband Internet connections will no longer have to pay for popular AOL services including its security software and email, the New York-based company says.

The move, which has been widely anticipated, is designed to make the Dulles, Va.-based business more attractive to both users and advertisers by transforming AOL into a portal that will compete against more popular sites including Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks) and Microsoft's(MSFT Quote - Cramer on MSFT - Stock Picks) MSN. Analysts also expect it will mean that thousands of jobs will be cut.

"This is the next logical step for AOL to capitalize further on the explosive rise in broadband usage and online advertising,'' says Time Warner President Jeff Bewkes, who oversees AOL, in a statement. "With its robust and rapidly expanding advertising operation, we expect to put AOL back on a growth path."

AOL has chosen a tough road since media habits can be difficult to change. The company will need to convince Internet users not only that its content is good, but that it is orders of magnitude better than the sites that they are currently using.

To be sure, AOL has won kudos for some of its efforts, including last year's broadcast of the Live 8 concerts. The company has also built up an impressive array of video content, including reruns of classic television shows. Though this helped boost AOL's advertising revenue by 40% in the second quarter, it wasn't enough to overcome the continue dropoff in dial-up subscribers, which dragged down the unit's overall sales by 2.4% to $2.05 billion.

AOL will continue to offer dial-up access service but "will no longer aggressively market it,'' the company says. Users have drooped its dial-up service in droves for faster Internet connections.

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