RE: AOL/Compuserve

Dan Kohn (
Sun, 14 Sep 1997 17:03:19 -0700

Actually, I'm more up on AOL than I ever have been. Here is a simple
question. You have a friend, non-technical, who just got a new
computer. They want to browse the web, use e-mail, maybe chat, but
don't know what's out there and what's good. What do your recommend for
them if you don't want to spend all of your time setting up their
bookmarks and teaching them to download an IRC client? AOL is a great
provider to send them to (MSN will be soon, once they fix their e-mail
mess with MSN 2.5).

There is a really good explanation of AOL as a media company at
> and attached. Also, Drudge just sent this out:

r n DRUDGE-REPORT 09-14 12:50
EVENT REMIT: TIME magazine [Sept. 22, 1997] is reporting that AMERICA
ONLINE is set to announce a new alliance with its biggest competitor,
MICROSOFT. New partnerships include licensing the online magazine
produced by MICROSOFT. About AOL's new relationship, AOL's Case tells
TIME, it's one based on "ambivalence and, to some extend, fear." The
story explores the growing influence of AMERICA ONLINE in mass media.
graphic compares stats: On Sept. 2, AOL had subscribers logging in 16.7
million times, with only 10.9 million households watching ABC-TV's HOME
IMPROVEMENT, 342 thousand people attending Major League baseball games
1.28 million people going to the movies [171,480 saw G.I. JANE]. "We
to be the COCA-COLA of the online world," Case tells TIME... X X X X
TDR-09-14-97 12:50:29 PDT

- dan

Daniel Kohn <>
Teledesic Corporation     PGP KeyID: 0x6129DD6D
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<Picture><Picture><Picture><Picture><Picture> <Picture> BUSINESS <Picture> Opportunity knocks <Picture>


<Picture: picture><Picture><Picture><Picture>

The Internet was supposed to kill online services. Instead, the merger of America Online and CompuServe, the two largest, has created something new. It looks a bit like television <Picture>

<Picture> <Picture: Related Articles:> WorldCom ties up the Internet

PUNDITS have predicted the death of commercial online services ever since the Internet revolution in the summer of 1993. Until then, commercial services such as CompuServe, Prodigy, Delphi, GEnie and a young upstart called America Online (AOL) were the only way for non-geeks to get online. Even if people had heard of the Internet, they would have been flummoxed by the fiendishly complicated software needed to find it. But the arrival of the first manageable web browser made the Internet accessible. Even the biggest commercial online services could not hope to match the information and entertainment that was soon available on the Internet. Their demise seemed only a matter of time. <Picture> The pundits missed something. True, Prodigy, Delphi and GEnie are all dead or close to it; even CompuServe, which was once the biggest of the lot, has been losing money and subscribers for more than a year. But, despite having bungled a price-cut last year that left thousands of its subscribers unable to get online, AOL is thriving. Moreover, the announcement, on September 8th, that AOL and WorldCom, an American telecoms firm, will buy CompuServe and split its assets between them leaves AOL stronger than ever. It also leaves AOL looking like a media company, just one of several on the Internet that could soon be competing head-to-head with the world's television networks. <Picture> At first sight, this is WorldCom's deal. The telecoms firm is buying CompuServe in a $1.3 billion stock swap with the service's owner, H&R Block. In fact the complex transaction has been engineered by AOL-in part to minimise the deal's tax liabilities. The online service wanted CompuServe's subscribers and the content they consume, but not its networks, which are very different from its own. For its part, WorldCom wanted to strengthen its position as the world's chief source of Internet infrastructure (see article). CompuServe will therefore be broken up. AOL will keep the 2.6m subscribers, the software, data centres and content. WorldCom will keep the wires and, by forking out another $175m, become the owner of AOL's network as well. Just to complicate matters, AOL will receive $75m from Bertelsmann, its European partner, which will share in CompuServe's European operations. <Picture>

<Picture: picture><Picture><Picture><Picture>AOL emerges a changed company. Not long ago the modems, wires and telecoms equipment it is selling to WorldCom lay at the heart of any online service. Indeed, as recently as the early 1990s some of AOL's competitors offered little more than local modem numbers to call, and some rudimentary e-mail and information. But today the Internet boom has created a host of ways to get online. Thousands of firms, from regional Internet-service providers to some of the biggest telephone companies in the world, have built what amounts to the physical infrastructure of the Internet. <Picture> By the time Microsoft set up its MSN online service in 1995, an online-service provider could do without its own network. Microsoft paid to use the hardware of an Internet firm, UUNet, instead. That allowed MSN to devote itself to dreaming up content, software and services. Now AOL is adopting the same approach (even using the same network firm to provide its access: UUNet is now part of WorldCom). <Picture> Since an online service can no longer attract subscribers simply by offering them a convenient way to get online, the business has changed for good, with two consequences. One is that success online now depends upon attracting an audience free to roam where it will. The second is that, now there is no need to invest in wires and modems, the business has begun to appeal to a wider variety of firms. The online services emerging today are in some ways like television networks. They suck in an audience, and distribute entertainment and information. They are a destination rather than a jumping-off point into cyberspace. <Picture> A cast of millions <Picture> The comparison with television might seem far-fetched, yet America's television audiences are dropping, in part because viewers are spending their leisure time online instead (and the bulk of these household users subscribes to AOL). On any given night there are as many people tuned to AOL as to CNN or MTV. AOL is starting to attract similar amounts of advertising to a cable channel: revenues will probably reach more than $400m this year. <Picture> The competition with television is likely to grow, especially now that media giants such as Disney are investing heavily in their own online services. With extra subscribers from CompuServe, AOL will probably have more than 11m people on its books. AOL's online service is staffed by TV types rather than geeks. Its president, Bob Pittman, co-founded MTV; until he died last month, Brandon Tartikoff, who is credited with transforming the NBC television network, was charged with improving AOL's content. <Picture> AOL is not the only firm that knows it must attract an audience. Microsoft is spending billions on its own media efforts, from its MSNBC news venture with NBC to its Sidewalk regional-entertainment guides. The firm started by opening most of these services only to its MSN subscribers, but when they proved too few, it invited in all comers. Now on busy days MSNBC, its Investor personal finance site and Expedia travel site have more users than MSN has subscribers; many of them used some other provider to get online. <Picture> Sometimes the idea is to grab an audience already passing through a website. Last week Netscape, an Internet-software firm, relaunched its website as "Netcenter", an online service. Netscape wants to make better use of the 4m viewers the site gets each day by virtue of being the default destination of its market-leading Web browser. Other popular Internet destinations are doing the same. Yahoo, the leading Web directory, and Excite, a search service, have both added news and entertainment to their websites, and are now planning to offer e-mail and shopping too. <Picture> Sometimes firms are bundling together their existing projects to create an online service. Later this month CNET, an Internet media firm with lots of successful websites, will launch Snap!, which is designed to compete directly with AOL, right down to its similar access software. Rather than create its own network, CNET has signed up most of the big Internet-service providers, including AT&T, to offer customised versions to their own subscribers. PC makers, too, will supply tailored versions of Snap! with their machines. For, say, Compaq users there will be a Compaq channel along with all the rest, advertising new products and special offers. It is rather like television-network affiliates which supply their own, local, programmes as well as shows from the national station. <Picture> Despite their origins from within the Internet, there is little difference between these "virtual" online services and AOL. All are becoming what Jeff Sanderson, MSN's marketing manager, calls "online networks"-distribution centres for Web content. Their aim has long been the aim of broadcasters everywhere: more viewers, for longer. Audiences attract advertisers, online stores and marketers. The money they bring already accounts for 17% of AOL's revenues. That is up from almost nothing last year and is by far the most profitable business the firm does. <Picture> AOL's deal suggests that the erosion of online services by the Internet is at an end. When AOL modified its software last year to make surfing the wide-open Web as easy as browsing inside its own service, many expected its subscribers to spend most of their online time outside the service, using AOL simply for access. Instead, they are spending ever more time inside-nearly 90% today. Perhaps the move from technology to media should have been more obvious, even back in 1993. There is almost unlimited choice on the net, but no guarantee of quality. AOL and its peers offer users an assurance that what they see will be useful and entertaining. And it will not be offensive, or flagrantly inaccurate-at least no more offensive or inaccurate than television already is. <Picture>

<Picture> ай Copyright 1997 The Economist Newspaper Limited. All Rights Reserved <Picture>

> -----Original Message----- > From: Ron Resnick [] > Sent: Sunday, September 14, 1997 4:44 PM > To: > Subject: AOL/Compuserve > > I read about the AOL/Compuserve deal in the paper a few days ago. I'm > sure most of you have seen something about it. As I understood it, the > deal was- > HRBlock sells Compuserve's network to WorldCom, customer list to AOL > AOL sells its network to WorldCom for cash > AOL becomes a 'pure content' outfit, and gets out of the connectivity > business. > It agrees to use WorldCom as exclusive carrier for 5 years. > > AOL thus gets the million+ Compuserve membership, cash, and out of a > business > it didn't want to be in. This is supposed to be a 'good deal'. Markets > react > favourably and all that. > > Am I missing something? What is 'pure content' anyway? These are the > kinds > of content I can understand- > > 1. Regular folks like us who can send email to mailing lists, maintain > web > pages, > etc. Literally anybody can get into the 'pure content' business as an > amateur, > with no capital at all. > 2. Professional, existing content organizations who make the move to > new media. Newspapers, radio, TV, wire services, book publishers, > movies/videos, > etc. > 3. Value-adds. Services that cull and sort, bin and refine, tailor and > filter. > > None of these have to be standalone. There are typically mixes of all > of them > in most meaningful online content. > > What is AOL's offering? Maybe it's a form of 3. But there are lots of > services > in that business. That's hardly something I'd think you could justify > a > company > of AOLs size and market cap giving adequate value to. > > Besides the typical scorn us Netters usually heap on things like AOL > or MSN, > can there really be a 'goodnews' picture here for AOL? Or are the > markets > just that dumb, that they'll swallow any story if it's slick enough? > > Being a quasi-ISP may have been a bad business for AOL, but at least > it was a business. I'm not sure what they have left to sell to their > membership now. > > I'd think that if AOL's new business plan is 'pure content' that an > appropriate > market reaction would be to seriously downgrade the earnings > estimates, > and pummel the stock rather than offer polite applause. Don't markets > *ever* act rationally? > > Ron > > > > >