CompuServe faces end of rebate boost

The company will phase out its popular $400 rebate program in the first part of next year, but experts and executives agree that, with the discount genie out of the bottle, more deals are likely to emerge.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
CompuServe will phase out its wildly popular $400 rebate program in the first part of next year, but experts and executives agree that, with the discount genie out of the bottle, more deals are likely to emerge.

The future bargains could potentially be more varied and widespread as both Microsoft and AOL have launched into multimillion dollar spending benders to woo retailers, while Yahoo appears to be casting about for greater influence with retailers and ISPs.

"You'll probably see a whole new set of ways to attract customers," said Stephen Baker, PC analyst at PC Data. "CompUSA, Sears, the office stores, the warehouse clubs, Fry's, Microcenter. They are some pretty decent people you want to hook up with."

After Jan. 29, 2000, CompuServe, which is a division of AOL, will no longer offer customers a $400 cash rebate when they buy a new PC from select electronics stores and agree to a three year CompuServe 2000 subscription, a company representative confirmed.

CompuServe will continue a recently launched Circuit City-only $400 rebate program, which kicked off this month. This rebate, however, comes as in-store credit and only goes through the Spring.

Still, consumers shouldn't expect deals on PCs and ISP connections to end. The PC/ISP deals ignited consumer PC sales this year, resulting in 30-plus percent sales growth during certain months. CompuServe saw subscriptions rise by 378,000 from July through October, with the majority of new customers coming in through rebates.

"Don't rule out an extension of some sort," said the CompuServe representative. "Obviously, this has been successful for us."

Instead, the rebates may give way to a new experiment in discounts between retailers, ISPs and PC makers. In fact, the battle lines for the merchandising war in 2000 appear to be taking shape. On one side, Microsoft is using its vast financial power to form alliances with Radio Shack, as previously reported, and Best Buy to promote its MSN service, $100 million and $200 million deals, respectively.

And, on the other side, AOL is using its vast financial power to link similar deals with direct PC maker Gateway, discount PC firm Emachines, Circuit City and Wal-Mart. Yahoo, meanwhile, signed a content/ISP deal with Kmart and Softbank this week. More are inevitable.

"Retailers want to promote a single ISP service that they can sell across a broad line of products," said Trey Litel, marketing manager of Internet services for the U.S. consumer group at Compaq.

"There is a lot of jockeying going on," said Baker. "Everybody is trying to hook up to find ways to bring traffic to their site."

Right now, the main beneficiaries of these programs have been PC makers, especially the big name manufacturers like Compaq and HP that sell through a wide swath of retail outlets, said Baker. CompuServe and the other ISPs are generally footing the bill for these rebates. Therefore, whenever a lucrative retail deal pops up, these companies find themselves in the position to provide the hardware.

Direct companies such as Dell and Gateway, of course, are benefiting as well. Gateway has entered into an $800 million development, marketing and service pact with AOL, while Dell is selling its own Dell.net ISP service to customers.

Nonetheless, although these deals are driving up sales, the bargain-basement nature of the transactions does create some warning signs, noted Roger Kay, an analyst with International Data Corporation.

"The PC-ISP combo barely floats on cash terms," he said. In addition, these companies will find it tough to turn back the clock because customers to a certain extent have gotten accustomed to low prices.

To sustain momentum, the deals may expand beyond merely involving ISPs, retailers and PC makers. To survive in the future, these deals will likely include more e-commerce partners. In other words, Yahoo and other portal companies will likely draw closer to the PC makers and bandwidth providers.

"It's a mad rush to partner, but in fact the partnerships are complex," he said.