AOL, the internet arm of Time Warner, is to give away e-mail, instant messaging, software and other services for free to high-speed internet users.
AOL is going through a number of changes
Time Warner said it would allow AOL to capitalise "on the explosive rise in broadband use and online advertising".
Shareholder pressure has been put on Time Warner to extract more value from AOL and boost its own share price.
At the same time, AOL has said it will no longer aggressively market its long-running dial-up service.
The changeover will take place by early September, after AOL said it wanted to transform into an advertising-supported internet network providing information and entertainment to users.
In 2005, AOL put much of its content - including news, music and sports information - on its website for free.
Since then it has been looking to move to a new model offering free services, similar to Google or Yahoo's services, and which can attract advertising.
In the second quarter, AOL's advertising revenue rose 40% from a year ago, parent-firm Time Warner said.
It also said that AOL lost 976,000 subscribers in that period compared with the first quarter.
AOL had 26.7 million subscribers in September 2002, but this had fallen by more than 25% by December 2005.
AOL started out in 1985 as Quantum Computer Services and began offering an internet service four years later. The company changed its name to America Online in 1991.
America Online merged with Time Warner in 2001 to create AOL Time Warner, but when the tech bubble deflated, the company renamed itself as Time Warner.
In spring 2006, it announced it was to move away from the America Online name altogether and start to rebrand itself solely as AOL.
Through its European operation AOL Europe, the company serves about six million customers in the UK, France and Germany.
"This is the final goodbye to the days when AOL was the king of the internet," said Jeff Lanctot, general manager of Avenue A/Razorfish, an online advertising agency that places some adverts on AOL sites.
"They now know they are the underdog."
Lanctot said the wealth of video and other resources at Time Warner meant there was "tremendous potential" that the transformation could be successfully achieved.
He also pointed to AOL's large, though dwindling, subscriber base, which makes AOL the leading internet access provider.