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Online services suffer identity crisis

Users must have felt like Alice in Wonderland as they tried to keep track of the topsy-turvy world of online services during the last 12 months.

Users must have felt like Alice in Wonderland as they tried to keep track of the topsy-turvy world of online services during the last 12 months.

Online services became Internet service providers and Internet service providers became online services. Online services promised to help users feel more comfortable by organizing the chaos of the Net. Then they reversed themselves, promising the universe by opening up to the Web and creating extra content in their constant quest to be unique. Prices were either flattened or puffed up, depending on your perspective.

When the year began, the online world was structured and at least nearly comprehensible. America Online (AOL) led the pack; CompuServe (CSRV) was close behind. Then came Prodigy. The Microsoft Network was just getting started.

Entering 1997, all those same names are still in the news, but none look or act as they did a year ago. The credit for the transformation, of course, goes to the Internet. All of the online services moved their operations onto the Web, and began the long farewell to their own proprietary networks.

MSN, which had been quietly gaining customers, decided to make a much louder splash by revamping its service and making a grand reentrance into the market with a Web-based service priced at $19.95 a month for unlimited access.

That was the beginning of the melding of online services and plain access providers, which had long undercut online services with all-you-can-eat pricing.

Prodigy, which slipped into last place, conceded the race to other online giants, redefining itself as an ISP. CompuServe dropped out of the consumer race altogether and decided to target the small business market.

AOL was the most resistant, at first, to the idea of leaping onto the Web, but by the end of the year, it had linked its proprietary network so seamlessly with the Web that some users can't discern the difference.

After being the only online service left charging by the hour, AOL announced in October that it too would charge $19.95 a month, completing the transformation of online services to ISPs with extra perks.

AOL and MSN are the main competitors, pumping hundreds of millions of dollars into marketing campaigns and angling for content deals to draw in mainstream consumers.

Neither one is likely to make any money charging flat subscription fees, so they also are relying heavily on the unproven areas of advertising and online transactions for their profits.

But despite having been relatively successful in transforming their businesses, the online services are left to answer the question in 1997: can they still make any money.

Predictions for 1997
"The moves of the last year have really pointed to online services fading away as proprietary networks. The major consumer brands...will become important in the differentiation battle. We'll see online services tearing down further and becoming access providers."
--Kate Delhagen, Forrester Research

"In theory, the Web has dissipated the power of the players. Without question, MSN and AOL are the two biggest players...because they're most aggressively pursing the consumer market. But then what? Then you have the large ISPs, in which I would include Prodigy and the telcos. Access will become more and more of a commodity while content will become more and more relevant. AOL sees the writing on the wall. Content and creating those big brands: That's going to be where the money is."
--Mark Mooradian, Jupiter Communications

"I vacillate, as does the market, as to whether [online services] are relevant. One day, everybody says everything is on the Internet and you don't need AOL, and the next, you need a way to navigate the Internet. Every day there's another site and there's more content. You're going to need aggregation points...The notion of an online service as an aggregator and editor is going to be very important over time."
--David Locke, Volpe, Welty, and Company

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