The new service, which runs under AOL's Netscape brand, launched a promotion earlier this month. It costs $1 per month through February, when it will return to the normal rate of $9.95 starting in March. Full-service AOL costs subscribers $23.95 a month.
The new service is a stripped-down version of the full service minus extras like original programming and high-speed Internet music videos. AOL has turned to the cheaper service option after the mass exodus of thousands of AOL subscribers to lower-cost competitors like Juno and NetZero. In the third quarter alone, AOL lost 688,000 subscribers, amounting to 2 million on a year-over-year basis.
According to Mark May, an analyst at Kaufman Brothers, "At the end of the day, the AOL service just costs too much. AOL has estimated 10 to 15 percent of the customers that called to disconnect cite price as a reason." He adds that the new Netscape product is a big step toward preventing future defections.