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AOL: Why CompuServe will stand alone

To understand what America Online is thinking in its pending acquisition of CompuServe, one need only go as far as MTV and Viacom.

    America Online (AOL) executives assured CompuServe (CSRV) employees today that the company plans to keep CompuServe as a separate unit with its own brand identity.

    That's what Bob Pittman, CEO of AOL Networks--the online portion of AOL--told CompuServe employees today when he and AOL CEO Steve Case visited two shifts at the company's Columbus, Ohio, headquarters.

    "[Pittman] said, 'Look, we recognize we're at the top of the second inning at this business,'" CompuServe spokesman William Giles said, paraphrasing Pittman. "'The vast majority of people aren't even online. As that continues to grow, the variety of wants and needs for online services are going to continue to grow. One size doesn't fit all anymore.'"

    To better understand how AOL determined it can't be all things to all people, it's useful to bear in mind that Pittman founded MTV.

    Nobody knows better than the people at MTV, the popular music The selling of CompuServe entertainment network owned by media conglomerate Viacom, that the channel's audience is limited. People who like young, flashy pop artists love MTV. Everyone else? Well, they go elsewhere. That's why Viacom doesn't own just one property. It owns MTV, Nickelodeon, and a whole host of specialty properties that cater to different interests.

    That way, America Online can attract mainstream users to its flagship service and draw business users to CompuServe. "To the extent they can, we want to continue to operate [the two] separately," Giles said. The acquisition may require approval by the Justice Department and other regulators.

    Of course, that's today. Some analysts are predicting that AOL will slowly absorb CompuServe into its fold, quietly planting CompuServe's business-oriented forums on AOL until one day there's complete redundancy.

    While the services may actually remain separate, AOL could choose to allow the services to borrow from each other, according to AOL spokeswoman Tricia Primrose.

    In fact, Frank Salizzoni, chairman and acting CEO of CompuServe, said in a letter to members that AOL plans on "launching a new version of CompuServe [and] building on the technology CompuServe already has under development.

    "This new version of CompuServe will be available as an option to you--which means if you prefer using the existing service, as is, you can. But the new version is expected to have wide appeal, as it will be more Web-centric and easier to use."

    But right now, CompuServe employees are breathing a big sigh of relief, Giles added. Moreover, employees who have itchy feet are being given bonuses equivalent to eight to ten percent of their salaries to stick it out through to the transfer of power. "I think primarily that is a recognition that this has been a very difficult period."

    That may be an understatement. Employees have been working under the threat of being sold at least since April, when H&R Block publicly acknowledged it was seeking a buyer. But the pressure began several months before that, when CompuServe's stock started to slip and H&R Block postponed the spinoff of the remaining 80 percent stake it owned in the online service.

    Not everyone has toughed it through. CompuServe's CEO left in February (although rumors alleged he was forced out) and in the last few weeks, two vice presidents also have left.

    It hasn't been easy for those who remained. "There's been a constant dark cloud over the heads of the people who work here," Giles said. "[The bonuses are[ a way of recognizing those people who stuck it out and kept it running."

    While employees were probably calmed by the news that AOL has no intentions to kill the online service, they couldn't be completely jitter-free. AOL has had no trouble getting rid of units that didn't work in the past.

    A case in point was AOL's own pure Internet access service, Global Network Navigator. GNN got killed when AOL Networks switched to flat-rate pricing.

    CompuServe also its own pure Internet access business with Sprynet, which has nearly 300,000 members.

    That will also go to AOL, but it was unclear exactly what will happen to those customers.

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