AOL to Offer Free E-Mail in Bid to Build Audience

America Online plans to begin offering free e-mail accounts today to about 20 million users of its popular AIM instant messaging service as part of a bid to build a bigger audience and then profit by selling more advertising.

AOL's move is part of a broader strategy designed to offset the steady loss of subscribers to its traditional, $23.90-a-month dial-up Internet service. As part of the shift to go after more nonpaying computer users, the Dulles company also plans to take the content available to America Online subscribers and make it available for free on its AOL.com Web site sometime this summer.

Analysts said the risk is that AOL may accelerate the steady decline in its subscriber base by causing more people to stop paying for content and services since they will be able to get them for free. "Maybe this will cause the access business to wind down faster before the advertising business picks up," warned David Card, an analyst with Jupiter Research.

But Card and other analysts also praised the new e-mail product as intriguing and robust. They said the most compelling aspect of the service is the unusual way it combines AOL's free instant messaging service with free e-mail.

AIM users will be able to create an e-mail account using the same online screen name as the one they use for instant messaging. They will be able to log on to both services simultaneously, and will receive a hefty amount of free e-mail storage -- two gigabytes per account -- which is as much or more than any of the other major e-mail services, analysts said. Users will receive the same anti-spam and antivirus protections as paying AOL subscribers.

"They did not skimp," said Charlene Li, an analyst with Forrester Research Inc. "It is very smart. I have been watching AOL's very slow comeback for the past two years. They are throwing their hat back in the ring. They know they are losing subscribers, so they need to replace that with advertising dollars. E-mail is clearly one of the ways to lock people in to the service."

In certain respects, the new AOL strategy resembles the highly successful approach at Yahoo Inc., which offers many free services, including e-mail, and profits mostly from advertising sales. Yahoo also plans to begin testing a new subscription music service today, charging as little as $4.99 a month.

Users of AOL's instant messaging service will automatically be offered AIM.com e-mail accounts ( screen-name@AIM.com ). AOL officials said they are not worried about accelerating the drop in paying subscribers to the America Online service since they are targeting the 20 million users of AIM who are not paying AOL members but who are loyal customers of the company's instant messaging service. Instead of having those AIM users utilize one of the competing free e-mail services, AOL hopes that they will find it attractive to have one online identity, with their instant messages and e-mails sent and received from a single place.

America Online will not be giving away free e-mail addresses that carry the AOL.com name. Those will continue to be available only to paying subscribers, many of whom are willing to pay for those addresses, dial-up access and other exclusive AOL features.

"This is a calculated part of our strategy. We have gone very aggressively into the audience business in a way that will maximize the value of the AOL subscription service," said Chamath Palihapitiya, vice president of AOL's instant messaging services.

Analysts said that no matter how appealing it is, nobody knows how many AIM users will opt to use the new e-mail offering. But Mark Levitt, vice president of collaborative computing at IDC, a technology consulting firm, said AOL needs to be willing to try many different things to build the biggest possible online audience.

"They need eyeballs to sell advertising," Levitt said, "and so anything they can do to attract people to spend more time on any AOL service is a plus."