AOL Jumps Into E-Mail Free-For-All

Its subscription business in decline, America Online Inc. is launching yet another product on the open Web: a free, ad-supported e-mail service tied to its instant-messaging platform.

Users of AOL Instant Messenger will be able to send and receive mail with "aim.com" addresses using their existing AIM screen names.

Initially, users will need the latest version of AIM software, available as a "beta" test download for Windows computers beginning Wednesday. Ultimately, they'll be able to send and receive mail from any Web browser.

Each account comes with 2 gigabytes of storage - comparable with Google Inc.'s Gmail and more generous than the free offerings from Yahoo Inc. and Microsoft Corp.'s Hotmail and even AOL's flagship subscription service.

And unlike AOL's main accounts, which keep new messages for 27 days and messages already read for up to a week unless users actively save them, AIM mail never expires.

AIM mail will also incorporate a few features unique to AOL until now: The ability to check whether AOL and AIM recipients have opened a message and to delete an unopened message from the recipients' inbox (This won't work with e-mail sent to users of other services).

The Web-based interface will also have drag-and-drop capabilities, allowing users to sort mail without having to check multiple boxes and hit a "move" button.

One key difference between the AOL and AIM mail offerings will be in ad placement: When checking mail, an ad appears on the bottom if you have the paid AOL account but more prominently on top if you use the free AIM service.

As AOL breaks from its historical "walled-garden" strategy of exclusivity and makes more of its offerings free to non-subscribers, it risks furthering declines in paid subscriptions.

In the United States, AOL lost more than 500,000 subscribers in the first quarter of 2005 and about 5 million since its peak of 26.7 million in September 2002.

"AOL continues to lose members from its paid service so it has no choice but to innovate," says CBS News Technology Analyst Larry Magid, adding that the new service "should be compelling but with competition from Yahoo, Microsoft and Google, AOL has some catching up to do."

One advantage, says Magid, is AOL's chance to sell to its existing customer base of millions of instant messaging customers.

According to comScore Media Metrix, AIM is the most popular IM service in the United States, with 21.7 million active users. Yahoo has 19.3 million and MSN 14.8 million.

Roy Ben-Yoseph, AOL's director of communication and client products, said the AOL subscription service offers much more than e-mail - it offers the ability to restrict access to kids and to share online photos, to name a few features.

"There are clearly different people that the products target," he said. "I definitely believe there is an important need for the old service, and members will continue to stay with AOL."

"It's not clear what the demand is for yet another free e-mail product, but this is certainly a very competitive offering," Jupiter Research analyst David Card said.

Card said he doubts AOL will market the AIM mail service heavily to its existing paid subscribers. Rather, he said, AIM mail is a way to keep AIM users from leaving the AIM environment - and its ads - to use Gmail, Yahoo or Hotmail.

Risky or not, AOL sees little choice but to expand its free offerings if it wants to tap the growing market for Internet advertising, estimated at $9.6 billion in the United States last year, a 33 percent increase from $7.3 billion in 2003.

The company is trying to create in AIM a one-stop communications platform that includes text chats, audio and video - all free and opportunities for AOL to sell more ads. AOL recently expanded its Web journal offerings to AIM users and is testing next-generation software to better integrate the various components.

This week's beta of the new AIM software will accommodate 250 users on buddy lists, an increase of 50. AOL expects to raise the cap to 400 by the time the final version comes out, expected in early June.

At that time, users will be able to check AIM mail from any browser by visiting AIM.com. Checking AIM mail through AOL.com is expected when AOL launches its new portal later in the summer.