CompuServe Incorporated

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CompuServe Incorporated

5000 Arlington Center
Columbus, Ohio 43220-2913
U.S.A.
(614) 457-8600
Fax: (614) 457-0348

Wholly Owned Subsidiary of H & R Block Inc.
Incorporated: 1980
Employees: 2,200
Sales: $429.9 million
SICs: 7375 Information Retrieval Services; 7372 Prepackaged Software; 7374 Data Processing and Preparation

Regarded as one of the world’s leading computer information services, CompuServe Incorporated provides personal computer users in the home or office with a wide variety of online information services, communications opportunities, and software products. CompuServe prides itself on its technical sophistication; power stabilization and emergency systems ensure reliable service 24 hours a day from practically anywhere in the world.

CompuServe’s primary division, CompuServe Information Service, provides personal computer users worldwide with videotex, a system for accessing electronic information. Members of the service can access CompuServe’s more than 2,000 databases on their PCs, terminals, or word processors by using a telephone, a modem, and specially designed communications software packages. Contributing about 56 percent of the company’s annual revenues in the early 1990s, the division had 1.8 million members, including more than 2,000 corporations and government agencies, by March 1993. Major competitors during this time included America Online Inc. and Prodigy, which is jointly owned by IBM and Sears, Roebuck & Co.

CompuServe also maintains a CompuServe Mail division, which oversees the operations of an electronic mail (e-mail) service and communication system tailored to businesses and associations. The e-mail system allows users to send messages, letters, documents, or other text to subscribers at any time of day or night and often proves more economical in the business community than traditional telephone communications. In the early 1990s, CompuServe Mail had the largest subscribership of any electronic mail system in the world. For a fee, this mail system could also be linked up with other e-mail systems, including the Internet’s system. Another division, the CompuServe Systems Integration Group, designs and installs local area network (LAN) computer systems in corporate settings and provides support and training in their use.

CompuServe was established in 1969 for the purpose of providing computer time-sharing services. Through its pioneering efforts in videotex technology, CompuServe introduced an online service, the CompuServe Information Service, in 1979. This network initially represented an extension of its core business; starting the information service was simply a matter of offering existing hardware to about 1,200 night time users in its first year. The following year, CompuServe became a wholly owned subsidiary of H&R Block, Inc., which provided the financial support to foster CompuServe’s rapid growth through expansion as well as research and development.

Through videotex, CompuServe enabled users to perform banking and shopping transactions and access a wide variety of information from their homes. Using CompuServe, individuals could make travel reservations and order tickets for cultural or sporting events in the convenience of their homes, or access databases offering current news, weather forecasts, sports scores, and stock prices. The usage rate for many of these services initially fell below the company’s expectations, however, as it proved difficult to change consumer behavior; many simply preferred to use the telephone or other conventional channels for acquiring their goods and services. Nevertheless, as personal computing and home office environments became more common in the United States, Americans became more willing to explore videotex transactions. CompuServe reported that sales made through its home shopping service, the Electronic Mall, rose 76 percent in 1990.

Other, more popular videotex applications involved communication networks facilitated by e-mail, electronic bulletin boards, and forums. These services, which allowed users across the country to communicate through their computers, quickly became the most popular of CompuServe’s offerings. CompuServe played a particularly important role in developing online forums—its most heavily used service—that offer users the opportunity to share information on areas of common interest. The company’s earliest forums consisted largely of shared information on personal computing technology and thus appealed primarily to specialists and technology buffs. As the concept gained popularity, however, forums for a wide variety of subjects and hobbies emerged, allowing users to electronically discuss music, gaming, auto racing, and science fiction, or more serious topics, such as law and medicine. By the early 1990s, CompuServe had become famous for its more than 450 technical support forums; every major software developer and computer manufacturer, including Borland, IBM, Microsoft, and 3Com Corporation, began hosting its own bulletin board to share information and entertain questions from their users. Forums also began serving as a point of access to the thousands of valuable public domain software programs in circulation.

In 1986, the market research organization LINK Resources published a report in which it characterized CompuServe’s growth as “slow but steady.” This reflected the company’s marketing strategy of focusing on the enhancement of its popular services, while avoiding “quantum leaps” into new and untried areas. This strategy proved successful, as CompuServe was one of just a few profitable videotex companies by the early 1990s.

In 1987, CompuServe entered into a joint venture with Nissho Iwai Corporation and Fujitsu Limited to offer Nifty-Serve, a version of the CompuServe Information Service, in Japan. Licensing and distribution agreements were also made during this time to bring the CompuServe Information Service to Argentina, Australia, Chile, Hungary, Hong Kong, Israel, New Zealand, South Africa, South Korea, Taiwan, and Venezuela. After establishing access and support centers in the European population centers of Bristol, Munich, and Paris, CompuServe doubled its membership on the continent between 1992 and 1993, while Nifty-Serve claimed over 350,000 members.

In March 1989, CompuServe Information Service became the first general videotex service to garner a half million U.S. subscribers. Later that year, CompuServe completed the acquisition of Source Telecomputing Corporation, thereby expanding its membership by as many as 40,000 subscribers and eliminating a competitor. The following year, CompuServe acquired MicroSolutions Inc., a Dallas-based reseller of local area network and connectivity products. By 1991, CompuServe boasted over 620,000 subscribers and annual revenues of over $200 million. That year, CompuServe introduced new software providing colorful windows and icons to help users recognize and quickly select the service of their choice.

During this time, CompuServe was a litigant in a precedent-setting case involving censorship, liability, and libel in the electronic information age. The case involved Don Fitzpatrick, the coordinator of CompuServe’s Rumorville forum for journalists, who was accused of posting defamatory remarks about Skuttlebutt, a rival forum. CompuServe was named as a codefendant, but in November 1991, Judge Peter K. Leisure of the U.S. District Court likened CompuServe’s responsibility to that of the owner of a bookstore, noting that the bookseller couldn’t possibly be responsible for the editorial content of every book sold. Two years later, CompuServe was again involved in a lawsuit and was ordered by a federal judge to pay $4 million in compensatory and punitive damages to two Massachusetts businesses for breaching an agreement in connection with the purchase of a database system by CompuServe.

In the early 1990s, lower costs for computing and telecommunications technology made online services less expensive to operate. The savings were passed along to users, who were offered limited groupings of services for a single flat rate per month, regardless of the time spent using them. Spearheading flat-rate pricing, the Prodigy online service soon surpassed CompuServe as the leading videotex service in terms of acting members. Moreover, the Internet, a nonprofit, global network of more than 34,000 public and private computer networks, was becoming a potential threat to CompuServe’s share of the market. Subsidized by the government and managed by volunteers, the Internet derived operating revenues from its members, who paid connection fees.

Although for-profit information services did not consider the Internet a direct competitor—and relied on a wider variety of services and appealing color graphics to maintain their market share—the issue of cost remained a factor in subscription rates. Dave Bezair, a senior product manager at CompuServe, Inc. told the Wall Street Journal in September 1993 that while “everyone wants to jump on this price issue... the reality is accessibility, ease of use, customer service and world-wide access.” In fact, the company made major strides towards accessibility and ease of use by becoming the first in the industry to offer user interface software compatible with the popular Microsoft Windows operating system. Nevertheless, CompuServe did announce a subscriber fee reduction of as much as 40 percent, effective early in 1994. Hourly connect fees, which had ranged from $12.80 to $22.80 were dropped to between $8 and $16.

During this time, CompuServe also developed new products and services to meet competition. The Executive Service Option (ESO) was introduced, featuring business data enhanced by financial, demographic, and editorial information. Communications services designed especially for business users included online brokerage firms and electronic conferencing via computer. ESO also offered stock quotes and commodity information; historical market information; major market and industry indices; and national and international business news wires. In other fields, CompuServe created a public, online forum to help find missing children, which it made freely available to both customers and competing online services. Early in 1994, Vice-President Albert Gore, Jr., an avid promoter of the “information superhighway,” gave one of the first online, interactive interviews by a major political figure on CompuServe.

CompuServe’s revenues stood at $315.4 million in fiscal 1993, rising 12.3 percent above the previous year, while its membership increased 40 percent during the year, reaching 1.5 million. The CompuServe Information Service won the PC Magazine Editor’s Choice Award in 1993 and was selected as the leading provider of public data network services in Network World’s reader survey that year. Billed in advertisements as “The Information Service You Won’t Outgrow,” CompuServe focused on developing and implementing new technologies to stay competitive in a rapidly changing marketplace.

Principal Subsidiaries:

Compuplex Inc.; CompuServe Canada Ltd.; CompuServe U.K.; CompuServe Information Services GmbH (Germany); CompuServe Information Services SARL (France).