When dial-up was the only option to get "on-line", AOL was dominant. Those discs (and later CDs) were everywhere. The problem was, even though providing a dial-up connection is what made AOL into the behemoth it had become, I'd argue the real value proposition of AOL in the mid-to-late 90s was the "walled garden" version of the internet that they had created.
So, instead of bolstering their offerings in the "walled garden" arena, they fretted over the death-grip they had on their dial-up subscribers long, long after it became apparent than DSL/Cable had won the battle for your connection. (No seriously, they still have that death-grip...have you tried canceling a free AOL trial account recently?)
AOL "died", as most oversized companies do, by failing to pivot toward an emerging market in favor of holding on to their "sure thing". Look at your other examples: IBM failed to pivot away from mainframes (their sure thing) to PCs (the emerging market). Microsoft has failed to pivot from OS/Office software to Cloud/distributed computing. Apple, eventually, did manage to pivot from graphics and design to mobile devices. Google...well, Google pivots so frequently I'm surprised they don't collectively vomit from dizziness (though, they do still have a worrying dependence on search advertising for "real" revenue).
The reason I think AOL is probably the most apt example for Facebook to consider, though, is that Facebook was the primary beneficiary of AOL's failure to capitalize on the "walled garden" internet. Now, Facebook dominates this realm, but the question is for how long? You're idea that they should pivot towards photo sharing is interesting...but I couldn't say for sure (or, if I could I'm making waaay less money than I should be).