NEW YORK (FORTUNE) -- AOL has a serious case of Yahoo envy.

First, AOL last year built a Yahoo-like Internet portal, putting all its content like its entire music video library, previously available only to its subscribers, on the Web for free. In fact, when Time Warner CEO Dick Parsons first heard of the plan in detail, he reportedly said: "What you're telling me is that there's a Yahoo inside AOL." (Time Warner is the parent of AOL, CNNMoney.com and FORTUNE.)

Now comes a report in The Wall Street Journal that AOL is considering making e-mail and its other services available for free to high-speed broadband users. If it goes ahead with the plan, AOL will essentially go from being a subscription-based ISP with an ad-supported Web business to a portal company with a subscriber business on the side. (AOL declined to comment.)

Sound familiar? That's Yahoo's model, too. Yahoo (Charts) is first and foremost a portal and aggregator of online content. It happens to derive a little subscription revenue from alliances with broadband providers such as AT&T, Verizon and BT (formerly British Telecom) in the U.K.

We'll get to whether it is such a great idea for AOL to emulate Yahoo, whose stock currently trades at about $33 a share, well off its $43 high at the start of the year. First, let's look at what's driving the latest thinking at AOL.

The good news for the struggling online company is that its portal strategy appears to be a hit with advertisers. AOL's Web business grew about 26 percent in the first quarter (compared with Yahoo's 34 percent growth rate) thanks mostly to strong ad sales.

The bad news is that as broadband prices plummet and the service becomes more widely available, subscribers are ditching the ISP part of AOL's business in droves: About 850,000 subscribers quit AOL in the first quarter, bringing total paying users down to about 18.6 million.

So why give e-mail and other features away for free? It turns out e-mail is a big generator of so-called "page views," a key measurement that portals - and advertisers - use to gauge the popularity of a site. Most users check their e-mail at least once a day, and to access e-mail messages via the Web, for example, a user usually needs to sign in via her e-mail provider's home page. Once there, she may be enticed to view other content - a news story, a map, or even an advertisement. That can all add up to a lot of page views.

According to people familiar with AOL's thinking, this e-mail relationship is well worth preserving - even if it means giving e-mail away for free. In the past, some AOL executives felt e-mail would be the subscription business's saving grace. They figured even people who made the move to broadband would continue to pay a monthly fee for the privilege of maintaining an AOL e-mail address. (AOL e-mail is different from AOL Instant Messenger, a "chat" service that has always been free; it also is different from AIM mail, a free, web-based e-mail that AOL launched as part of its free portal.)

And indeed, for some users who've changed home addresses and phone numbers repeatedly over the years, an AOL address has been the only constant. But with the proliferation of free, Web-based e-mail services, including Microsoft's Hotmail and Google's Gmail, AOL found its diehard loyalists dwindling.

Still, AOL once again faces an incumbent's dilemma. Just as its move last year to make its once proprietary content available on the Web accelerated the departure of subscribers who saw no point in paying for something everyone could get for free, the free e-mail ploy certainly would cause even more paying users to cut the cord.

Indeed, one wonders why AOL maintains its anemic ISP business at all: Wall Street assigns it a rock-bottom market value, (it accounts for roughly $2 - $3 of Time Warner's $17 stock price) and the company still needs to maintain a robust network and customer-service infrastructure to service those accounts.

The answer may have something to do with the $1 billion in free cash flow AOL produces for Time Warner (Charts), which largely comes from the high-margin subscription business. AOL executives also have said they think some customers will always want a dial-up account, either because they cannot get broadband in the home, or because they want to have the service as a back-up in case they travel to a location that isn't broadband-enabled.

Besides, a small subscription business has been pretty good for Yahoo, which reported "fees revenue" - a basket that includes its broadband services - of $216 million, up 48 percent from 2004.

Which brings us to the question of whether it makes sense for AOL to keep taking pages from the Yahoo playbook. The fact is, there aren't a whole lot of other companies AOL could realistically copy. Rivals Microsoft (Charts) and Google (Charts) are technology companies with expertise AOL would need years to build.

Yahoo, like AOL, is essentially a media company. The companies even contemplated an alliance last year before AOL took on Google as an investor and partner.

Now, it seems, the rivalry between the companies could intensify. Not only is AOL aggressively courting the same advertisers, but if it goes ahead with its plan to offer free e-mail and perhaps other services such as a supervised kids-only service to broadband users, AOL might well try to, well, pull a Yahoo and team up with a phone company to become the telco's preferred portal provider.

Ultimately, though a big question remains as to whether AOL's transformation to a Yahoo-like company will lead to Yahoo-like valuations for the struggling online unit. Weary Time Warner shareholders and executives certainly hope so.