America Online revealed a key part of its turnaround strategy on Tuesday: Be more like Yahoo! ( YHOO). As part of the online service's effort to improve flagging finances and find new ways to appeal to users, AOL will build on its basic offering of content and features by introducing a series of premium services, AOL Vice Chairman Ted Leonsis told a group of financial analysts. Separately, AOL announced a major change in its tactics for addressing the migration toward high-speed Internet access in the U.S., saying it would start marketing AOL as a destination for people who get broadband connections from other providers, rather than simply try to get people to sign up for AOL-branded cable connections. Although Leonsis compared the premium services strategy to that of a cable TV operator selling premium tiers on top of a basic offering, the strategy is reminiscent of that of Internet rival Yahoo!, which has spent the past year developing for-pay services to supplement its weak postbubble advertising business. The supplemental consumer revenue strategy channel thus makes a lot of sense for AOL, which announced Tuesday morning that advertising and commerce revenue, which already fell short of expectations this year, would decline precipitously in 2003 . Battered by the 2003 forecast, shares in AOL parent AOL Time Warner ( AOL) dropped $1.76, or 11%, to trade at $14.81 on Tuesday morning. The stock's decline set off a broad retreat in technology stocks, reversing the sector's recent uptrend.
Pointing out the competition AOL faces for subscribers, Leonsis showed analysts a list of the top reasons why members leave the service -- the first time, he said, the company had revealed these reasons in order of performance. The most common reason, he said, was "price/value," another way of saying consumers thought AOL was too expensive compared to the service people could get from other customers.