Big Four struggle for online survival

Faced with tough competition from the Internet, the four major commercial online services are struggling to keep existing users and woo new ones. Their survival depends on it.

CNET staff
6 min read

Faced with a battle for survival, the major proprietary online services are moving quickly to revamp both user interfaces and content offerings to keep their subscribers from defecting to the World Wide Web. While there's no question that 1996 will be a pivotal year for the Internet, the question of whether or not services such as America Online, Prodigy, CompuServe, and even Microsoft Network (MSN) will succeed is very real.

With the arrival of multimedia applications, easy online programming languages, and broader access to higher-speed Net links, interest in the information superhighway is expected to boom. And as new users flock to the Net, paying a monthly fee for a customized interface to exclusive offerings along with access to the Web is losing its allure. "The big question to ask when talking about online services is: can they keep up with the Net?" said Neil McManus, analyst with Digital Media.

Officials at the Big Four are well aware of the need to keep up. AOL recently announced plans to offer Netscape Communications' Navigator 2.0 Web browser to subscribers. More importantly, the service plans to change its pricing model. Currently, AOL subscribers pay $9.95 per month for five hours of use. Each additional hour costs $2.95. While company officials declined to provide specifics, plans for lower pricing for high-frequency users will be a priority.

In a bid to broaden its appeal to new users, AOL also plans to offer new content focused on women, families, minorities, and religious groups. Users will also gain access to a global version of AOL. Currently, AOL is available in Germany, and expansion into the United Kingdom, France, and Japan is underway. The services will offer local language content and discussions that will be interconnected through the global version of AOL, officials said.

Currently, America Online leads the Big Four with 4.5 million users. AOL subscribers are visiting the Web more often these days, according to officials. In 1995, subscribers made 13 million visits to Web sites and sent more than 4 million email messages over the Net.

What makes AOL attractive to users is the whole package of what they purchase, said Peter Krasilovsky, an analyst with Arlen Communications. "I subscribe to the look and feel of the service. That's why AOL is a success: because it has an intuitive look and feel. They have the community look and feel that makes them the Ben & Jerry's of online services," said Krasilovsky.

CompuServe, a unit of H&R Block, currently boasts 4 million subscribers and has even grander plans for holding on to existing subscribers and wooing new ones. Later this year, the service plans to use live video streams that capture TV programs, according to Kevin Knott, vice president of development for the Columbus, Ohio, company.

The company started testing its viewer technology with the O. J. Simpson and Susan Smith trials. "The CompuServe Viewer allows a window for chat, and every 30 seconds it grabs a screen shot of the event and puts it up," said Knott. "There is another window for a closed-caption transcript of broadcast programs like CNN," he added.

Slated for availability at midyear, the CompuServe Viewer will be tied to programming that also includes comment on the event being covered. "We intend to make use of it and go beyond taking a broadcast standpoint by capturing our own video and covering the event ourselves," he said.

CompuServe also plans to offer subscribers a chance to use avatar-based virtual reality. Called Worlds Away, the feature is slated for delivery in a few months, company officials said. Worlds Away will let subscribers assume an animated persona and move around in an imaginary world.

"We are still in the stages of finding out what users want, but we believe Worlds Away will integrate the CompuServe environment and encourage chat among members," said Knott. "We hope this will mark the beginning of the virtual conferencing world," he added.

Instead of licensing Netscape's Navigator, CompuServe has instead decided to provide Microsoft's Internet Explorer browser to subscribers. "We may work with Netscape on some deals, but we intend to imbed the Microsoft Explorer for our clients because we felt Microsoft was the best long-term decision for our technology," said Knott.

Prodigy now boasts about 2 million subscribers. The online service is moving quickly to make the service a Web-centric platform, according to Barbara Sargenti, vice president of computing and content for Prodigy. "We think we will be the first service that is totally Web-centric," she said.

In mid-February Prodigy's Internet Services Group will announce a separate service that will offer subscribers Internet-only access. Officials declined to discuss pricing or further details.

In addition to offering Web access, Prodigy, like AOL, is planning to beef up content. This spring Prodigy plans to launch an online magazine called Living Digital. "The magazine has been called the 'real man's magazine,'" said Sargenti. "It's very readable and contains PC news, CD-ROM reviews and hot sites on the Web; we hope it will be as popular as HotWired," commented Sargenti.

Like AOL, Prodigy will offer Netscape Navigator 2.0 to subscribers. "We will have Netscape's browser integrated with Prodigy in the spring," said Sargenti. A Macintosh version of the browser customized for Prodigy is also in the works. "Prodigy doesn't currently have a good Mac version, but we expect an improved browser by midyear," she said.

The latecomer to the party is Microsoft's MSN service. Launched last August, the fledgling service has about 600,000 members. "When we launched the network in August our goal was to reach a million subscribers in a year, and I think we'll surpass that, but the main goal is to keep them once they sign on," said Larry Cohen, product manager of MSN.

The Internet, and not rival services, will be the major challenge for MSN this year, said Cohen. "We're very focused on the Internet, and our goal is to accomplish three main things: we want to make it easy to go online; we want to help customers find the content they want on the Web; and we aim to provide unique, multimedia content--the type you won't find anywhere else," he said.

The company plans to focus most of its energy on its online effort with NBC. MSNBC is slated to launch midyear. The project will boast a 24-hour news channel delivered via cable TV and MSN. The plan is to keep existing users and attract new ones through a subset of original content. "We are going to expand our relationship with Paramount by bringing Entertainment Tonight and Star Trek to the service," said Cohen. "We also have a team of producers that will cover special events like the Super Bowl and the Olympics, and [you can] expect a lot more with the NBC deal," he added.

The issue of content will grow in importance over the next year, predicts Dwight Davis, editor of Windows Watcher, a newsletter owned by Softbank, that focuses on Microsoft. The content offered by proprietary online services simply isn't as good as the material on the Web, said Davis. "This becomes a problem when [online services] want to attract content providers. Content providers can go directly to the Net rather than going through a middleman."

Exclusive content isn't going to keep users from jumping ship and abandoning online services for the Net, said Jerry Michalski, managing editor of Release 1.0. "Exclusive information isn't going to be the key," he said. In order to survive and prosper, the proprietary online services will have to change their pricing structures dramatically in order to keep users tuned in and logged on all the time. That means paying one flat fee instead of hourly charges.

"There are very few of these services that have figured out that people want to be connected all the time. I think that's the model of the future, but the online services aren't going to be there for a while, if they survive at all," said Michalski.