September 15, 1997
When the big get bigger
By Bob O'Donnell
In this industry, sometimes even the news you expect to hear can be a bit jarring. Take
last week's announcement that America Online, through a complicated, three-way deal, had
purchased CompuServe. CompuServe's corporate parent, H&R Block, announced that the
company was on the block several months ago and rumors had suggested that the other major
online services were considering the online service and ISP. Still, the reality of AOL
(the No. 1 ISP) swallowing CompuServe (No. 2) was a bit of a shock.
The main reason for this, I think, is the startling difference between the two
services' "cultures." AOL is the glitzy, consumer-oriented, chat-filled service
that the technical elite love to hate. CompuServe, on the other hand, is the serious,
content-rich service that many look upon as part of the industry's "old guard."
Mixing the two is definitely an oil-and-water combination.
AOL seems very aware of this potential conflict and plans to maintain the existing
CompuServe content and brand as a separate division. Even with these assurances, however,
many CompuServe customers will undoubtedly feel betrayed by the deal and switch their
allegiances to another ISP to avoid associations with AOL. In fact, maintaining the 2.6
million CompuServe customers as loyal customers of its own service will be the major
challenge for AOL: Given the strong feelings harbored by many CompuServe customers, I
don't think it's going to be easy.
The combined customer base of 11.6 million subscribers, which is many times higher than
any of its nearest competitors, will give AOL a huge lead in the interactive-services
business. As a result, some people are calling for government investigation of the deal to
assess any anticompetitive regulatory issues. Frankly, I don't agree with that thinking
because no online service has the content or ease-of-use edge over the Internet that they
used to enjoy.
Savvy ISPs are offering more sophisticated Web front ends that provide
online-servicelike access to content all over the Web. In addition, dial-up connection
tools are getting easier to set up use; connecting straight to the Net is now as easy as
connecting to an online service. As a result, I think given time it will become
increasingly difficult for the AOL/CompuServe business to dominate the online-services
industry.
In fact, with challenge comes opportunity. In this case, the opportunity is for other
smaller ISPs to snatch up the frustrated CompuServe and AOL customers who are ready to
make a change. The advantages of pure Internet connectivity are increasing every day, but
it's up to the ISP community to convince current online-service subscribers that that's
the case.
One other ironic point about this deal is that it's one of the rare cases in which
Microsoft is getting the short end of the stick. Despite reports that Microsoft Network
passed on the opportunity to buy CompuServe, it is unusual to see two large Microsoft
competitors combining their resources to form an even larger lead over the Redmond,
Wash.-based Goliath. Only time will tell whether that situation will remain the same. This
deal certainly won't be the last big development in the constantly changing
online-services business, and whether the next moves are expected or not, it'll sure be
interesting to watch.
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Copyright 1997, by InfoWorld Publishing Corp., a
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