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Microsoft passed on CompuServe

Microsoft's MSN briefly flirted with the idea of buying CompuServe, a move that surely would have threatened online giant AOL.

Microsoft Network briefly flirted with the idea of buying CompuServe (CSRV), a move that The selling of CompuServe surely would have threatened online giant America Online (AOL), according to a statement posted on MSN last night.

That would have rocked the industry, pitting CompuServe and MSN, the second- and third-largest online services, respectively, against top contender AOL. Instead, AOL is acquiring its biggest competitor.

Microsoft-owned MSN could easily have afforded the purchase, but the company decided against the move. "Regarding our own interest in purchasing CompuServe, Microsoft is always looking for smart business opportunities that are in line with our overall business strategies," wrote MSN vice president Laura Jennings.

"We tend to focus on companies that can bring a combination of great development talent and great technologies at the right price. After investigating this opportunity in the early stages, we made a strategic business decision to invest our resources internally."

The response from Jennings also included what could be read as a veiled jab at AOL: "Like CompuServe, [MSN] appreciates our members' desire for privacy, nonintrusive third-party offers, and reliable access."

While Microsoft has recently been growing by buying up other companies, it clearly decided against such a move in this case.

Jennings could not be reached for comment today and no further information was available, but the fact that MSN considered purchasing the No. 2 online service should come as no surprise to insiders.

H&R Block (HRB) had hung a virtual for-sale sign on the company and was publicly shopping the service around for months.

Last spring, when rumors of a pending sale heated up, some speculated that Microsoft would make a bid to purchase the online service.

But when Microsoft purchased WebTV Networks in April, analysts saw that as an indication that Microsoft was moving in a different direction and pretty much gave up on the idea of MSN purchasing CompuServe.

However, because it didn't put in a bid for CompuServe, MSN now has an even bigger competitor. If the acquisition is approved, AOL's lead in the market will improve dramatically.

Of course, the industry still is in its relative infancy. That means that regardless of who owns what today, anything can happen.

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