They did all of the above - you could connect to the open Internet from AOL starting around 1996, they started marketing themselves explicitly as an "ISP + proprietary content" around 1998, they bought Netscape and Mirabilis and several other leading Internet companies. They aggressively dropped their pricing structures to compete with flat-rate ISPs, while their other proprietary competition (Prodigy, GENie) went out of business. In 1997 half of all families on the Internet got it through AOL. [1]
They just didn't do all of the above better than the competition.
A major factor that killed AOL was the shift to broadband in the late 90s. AOL had a huge infrastructure and competitive advantage in providing dial-up access to consumers. As the Internet grew, though, consumers got hungrier for bandwidth, they got hungrier for content, and the relative share of both of these resources that was not owned by AOL increased. It was easy to justify subscribing to AOL when they were $10/month for 56.6K access, your local ISP was $10/month for 56.6K access, but AOL gave you all this extra content. It was a lot harder when you could pay $30/month for 500K/sec ADSL or Cable access that unlocked a whole world of multimedia content. AOL owned none of the infrastructure that made the broadband net possible.
GFiber, Loon, and cell phones risk doing the same thing to Comcast, TWC, and Verizon FIOS now.
They just didn't do all of the above better than the competition.
A major factor that killed AOL was the shift to broadband in the late 90s. AOL had a huge infrastructure and competitive advantage in providing dial-up access to consumers. As the Internet grew, though, consumers got hungrier for bandwidth, they got hungrier for content, and the relative share of both of these resources that was not owned by AOL increased. It was easy to justify subscribing to AOL when they were $10/month for 56.6K access, your local ISP was $10/month for 56.6K access, but AOL gave you all this extra content. It was a lot harder when you could pay $30/month for 500K/sec ADSL or Cable access that unlocked a whole world of multimedia content. AOL owned none of the infrastructure that made the broadband net possible.
GFiber, Loon, and cell phones risk doing the same thing to Comcast, TWC, and Verizon FIOS now.
[1] http://en.wikipedia.org/wiki/AOL#1990s:_a_new_Internet_age