* America Online will begin offering a free e-mail service on Wednesday tied 
to its popular instant messaging service, ahead of a big relaunch of its 
free AOL.com <http://AOL.com> Web site later this year. * 

AOL's free Web-based e-mail service is nearly a decade behind Microsoft's 
Hotmail service and several years behind a Yahoo e-mail offering. 

But the online division of Time Warner is betting that the combination of 
e-mail with its ubiquitous instant messaging software (AIM) will create a 
more powerful service combining all electronic and phone messages. 

AOL will integrate its recently launched digital phone service this fall, 
when the AIM software will be rewritten, allowing users to retrieve voice 
mail, e-mail and instant messages from any computer. 

"AOL is a bit late to the Web mail game, but it's not too late," said Joe 
Laszlo, a senior analyst at Jupiter Research. "It's a question of 
integrating different communications channels together giving them an 
opportunity to go a bit further than anyone else has gone." 

The once prominent provider of paid online services will offer free e-mail 
to 20 million active users of the free AOL Instant Messenger as a test 
before it's final launch about a month later. 

The e-mail service, which offers 2 gigabytes of free storage space, will be 
subsidized by banner advertisements that run alongside the e-mail screens, 
similar to other free Web-based e-mail services. 

AOL's new AIM Mail service is part of an ambitious plan to overhaul its 
business model to focus on freely available services and programming from 
one that depends on subscription revenue. 

The move is a dramatic reversal from its previous strategy, built around 
assembling the most compelling package of Internet programming in order to 
get subscribers to pay about $20 a month for dial-up Internet service. 

AOL has been losing subscribers to phone and cable companies offering high 
speed Internet packages. At the same time, AOL's advertising revenue has 
exploded, jumping 45 percent in its most recent first quarter from a year 
ago, prompting the Internet service to rethink its strategy last year. 

"It's a part of our broader 'Audience' strategy that takes advantage of the 
significant increases in advertising, search and e-commerce on the 
Internet," said Chamath Palihapitiya, vice president and general manager of 
AIM at AOL. 

AOL will be up against Yahoo, at which e-mail services accounted for
53.2percent of traffic to all Web mail services in the week ended May
7,
according to measurement firm Hitwise. 

It will also be up against Google. Google's e-mail
service<http://news.zdnet.com/2100-3513_22-5205554.html?tag=nl>,
Gmail, helps marketers target e-mail users by serving ads linked to key 
words in e-mail text. Google uses technology to sift through e-mail for 
relevant text and has said no humans actually read users' e-mail. 

"That's creepy," Palihapitiya said, referring to Google's use of technology 
to target e-mail users with ads. AOL has a lucrative partnership with 
Google, which provides the search engine foundations of AOL's search site. 

An AOL executive said AIM Mail will also include junk e-mail fighting 
features, like AOL. 

AIM users will automatically qualify for an account using their current AIM 
user name.


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