Remember when AOL was the first choice for all newbies who wanted Internet access? Those days are long gone, and the company has been losing subscribers for its brand of “gated community” Internet access at an alarming rate. Back in its heyday, AOL had 27 million subscribers (that was in 2002). Now, the number of subscribers has fallen to 17.7 million, and over 1 million subscribers have defected in the past three months alone.

Why is this happening? When the World Wide Web was in its infancy, AOL provided an easy and reassuringly safe way to access the AOL online community. Now, going online with other Internet Service Providers is just as easy, and people have flocked to sign up to broadband access, for which AOL was never able to provide a compelling offer to customers.

IN this fairly desperate strategic situation, AOL has decided to take some radical measures: From next month on, AOL will stop promoting its Internet access; dial-up Internet access through AOL will only cost $9.95 per month, and everyone will be able to access most of AOL’s content and services, including its children’s and teen portals, parental controls and email, for free.

The company has also announced that it will cut 5,000 staff (or more than a quarter of the company’s entire workforce) over the coming six months. About 2,000 jobs will be lost in the U.S. customer service, marketing and operations divisions, with the remaining 3,000 job losses relating to AOL’s European Internet business.

AOL’s competitors in the Internet access business are rubbing their hands in glee because they’ve now got one major competitor less to contend with. But with AOL’s focus firmly on generating advertising income from its properties, the likes of Google (which owns a 5% stake in AOL) and Yahoo! might have to start paying more attention to AOL’s next moves.