Tech Industry

CompuServe chief quits

Chief executive and president Robert Massey resigns. Was he pushed?

CompuServe (CSRV) chief executive Robert Massey resigned today after a yearlong effort to redefine the second-largest online service faltered.

The departure of Massey, promoted to president and CEO in June 1995, should certainly come as no shock to those who have been following CompuServe's dubious fortunes. A source close to the company said he was asked to leave in hopes that a new leader will be able to pull the business together after a series of false starts.

But that new CEO hasn't been found yet. Frank Salizzoni--chief executive and president of H&R Block, which holds an 80 percent stake in CompuServe--will serve as interim chief executive and chairman of the online service.

Massey had been with the company since 1976. He served as executive vice president of Network Services--one of the few moneymaking divisions at CompuServe--from December 1990 until he was promoted to the top job. Last year, Massey made more than $305,000 in salary and bonuses, not including stock options, according to documents on file with the Securities and Exchange Commission.

The company released a polite note on Massey's resignation. "We respect Bob's desire to pursue other interests and thank him for his years of service to CompuServe," Salizzoni said in a statement. "Our goal remains a speedy and sustained turnaround at CompuServe, and under Bob's leadership, the company has made progress in that direction. The board of directors will work quickly to find a chief executive who will continue the process."

Nonetheless, Massey's departure can be interpreted only as an acknowledgment of the company's problems in a difficult competitive landscape.

CompuServe has been trying to refocus itself in an online service market increasingly dominated by America Online and an ISP field infiltrated by large telecommunications companies.

Just three months ago, CompuServe's troubles came to a head when it abandoned Wow, its service for consumers new to the online world. Instead, the company said, it would be refocusing on its original mission: attracting business-oriented clients.

CompuServe clearly had no other choice; it already had sunk millions of dollars into Wow, and an experiment that had cost the company more than $8 million was going nowhere. H&R Block, growing impatient with its subsidiary's poor earnings, wanted to turn the company around.

CompuServe looked strong as recently last April when it started publicly trading its shares, and H&R Block was planning to sell of its stake so that CompuServe could take off as an independent company. But by August, H&R Block postponed that plan after a lack of interest from Wall Street.

Although analysts praised CompuServe's turnaround strategy, they couldn't help but notice the company continued to lose money well into Massey's tenure. The online service has reported growing losses for the past three quarters, while revenues have remained flat. CompuServe reported a net loss of $58 million in its most recent quarter on revenues of $214.3 million.

CompuServe has continued to lead the market outside of the United States, but AOL and Microsoft Network in the past several months have made some serious gains in the foreign markets.

"In the time frame where AOL added 3 million members, CompuServe added maybe a couple hundred thousand and that was all international," Jupiter Communications analyst Mark Mooradian said.

Around the same time as the Wow debacle, CompuServe's biggest competitors--AOL, MSN, and to a lesser extent Prodigy--moved from hourly fees to flat monthly pricing. CompuServe stuck the hourly charges, a move that meant it had no other choice but to target a specialty niche rather than the broad consumer market.

Analysts praised CompuServe's November decision to redouble its corporate focus, but they still question whether the company will be able to recover from the expensive failure it found in Wow.

CompuServe recently received some positive attention when it aired a much-hyped Superbowl television ad intended to lure discontented AOL users. But while the commercial was popular, some wondered why CompuServe directed the ad toward general consumers when it is supposedly focused on businesses.

But while CompuServe is struggling, a new CEO may still be able to achieve the turnaround H&R Block management is looking for.

"Online services are very hard to kill," Mooradian said. "If Prodigy continues to exist after all this time CompuServe will as well."