Of CompuServe's 5.3 million subscribers, American and Canadian customers can switch to the flat rate starting in October, nine months after America Online announced its $19.95 per month rate, as reported Wednesday by CNET's NEWS.COM.
Industry watchers say the fixed-price offer is the right idea for enhanced profitability, but they differ as to whether CompuServe's existing or potential customers will go for it. They also disagree whether CompuServe's higher price of $24.95 per month will become a new industry standard.
"CompuServe has the most educated, affluent, business-oriented customer base compared to the other online services. Their customers are the segment that might be willing to pay $5 more for a very reliable network," said Kate Delhagen, analyst for Forrester Research. "They are definitely in a transition now; the property model they knew and loved is not working."
CompuServe's current pricing varies from $9.95 for 5 hours per month, with each additional hour at $2.95. Another option is $24.95 for 20 hours and $1.95 per extra hour. The company says it went with the $24.95 per month flat-rate based on a survey of its customers, who favored it over a $27.95 rate.
"We know from our own experience that $20 or less per month is not profitable for an online service," said CompuServe spokesman Steve Conway. "Today, 61 percent or of our membership consists of business professionals and technical people. We think it's worth it for these people to pay more for our services."
Analysts remain cautiously optimistic that CompuServe can make the plan work. "I think CompuServe can pull it off without two many defections, but it will be hard to lure new customers. They need to add new subscribers; they have been shedding customers for the past year," said Mark Mooradian, an analyst with Jupiter Communications. "But then again, CompuServe is going after business customers, who may be willing to pay a premium price."
Net access providers and online services have been known to follow the pact, and many in the industry have admitted they can't turn a profit at $19.95 per month.
Netcom, for example, set the standard price barrier three years ago. But in March, it switched to a tiered-pricing model, which includes a $24.95 per month rate with the guarantee of more support and better access to online research. AOL is also charging more for "premium" services, such as its pay-for-play games.
"If [CompuServe] has some wild success, you will see some flurry of pricing adjustment," Delhagen said. "That could be a trend in 1998."
But Mooradian disagrees, "Over time, we'll see the pricing going down. In the future, companies like AT&T may subsidize their Net access as a part of selling their core long distance services."
Although online services offer specialized content and chat rooms vs. plain dial-up access, some ISPs say the whole industry must offer more premium features.
"It's become more important to create a value proposition that includes not only access, but reliable, outstanding service," said Sprint spokesman Jeff Shafer. "CompuServe's change certainly follows an existing flat-rate pricing trend, but whether it signals a move toward this particular price is unclear."