Compu Serve Interactive Services, Inc.

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Compu Serve Interactive Services, Inc.

founded: 1969 as compuserve inc.

Contact Information:

headquarters: 5000 arlington centre blvd.
columbus, oh 43220 phone: (614)457-8600 fax: (614)457-0348 url: http://www.world.compuserve.com

OVERVIEW

With more than 2.5 million members, CompuServe Interactive Services is one of the world's largest online service providers and is a world leader in the field of data communications and computer-based interactive services. In February 1998 CompuServe became a subsidiary of America Online Inc. (AOL) after experiencing trouble attracting and retaining subscribers. The deal reportedly would lessen the frequency of busy signals for AOL subscribers, and would also reduce episodes of being disconnected midstream. CompuServe still operates as a separate brand, with its own e-mail, content, and other features. The company focuses on small business, professional, and technical users.

COMPANY FINANCES

Over the years CompuServe's revenues have increased steadily. In 1993 revenues were $315.4 million; in 1994, $429.9 million; in 1995, $582.8 million; in 1996, $793.2 million; and in 1997, $841.9 million. Revenues rose due to an increase in subscribers desiring consumer online and Internet services. Of 1997's sales, 71 percent came from the United States, and the remaining 29 percent from other countries such as France, Germany, the Netherlands, Switzerland, and the United Kingdom. In addition, 66 percent ($556 million) came from online services, 31 percent ($258 million) from network services, and 3 percent ($28 million) from other services. In the fourth quarter of 1997 CompuServe's stock reached a high of $13.63 and the low was $8.88, as compared to the fourth quarter of 1996 when the high was $35.50 and the low was $27.75.

ANALYSTS' OPINIONS

CompuServe's objective is to "lead in the development and implementation of personal and commercial applications with computer-based interactive technology." By increasing its subscriber base for online and Internet services, and stressing technology both to individuals and businesses, the company seeks growth domestically and internationally. Because technology is changing rapidly, there are opportunities with corporations needing to out-source their data communications. The changing work environment including home-based and increased travel provide other growth sources.

HISTORY

What is now a worldwide service had its humble beginnings in Jeffrey Wilkins' 1969 move to computerize his father-in-law's insurance company. In 1977 Wilkins developed a mainframe computer time-sharing network called MicroNet. This simple arrangement was a precursor to today's online services. Only three years later, CompuServe was acquired by the tax preparation firm of H&R Block, giving it the monetary boost needed to build up its online technology. Wilkins left the company in 1985, but not without seeing the birth of several now-standard staples of the online world, namely online forums and e-mail.

In 1995, as competition in the online arena became more fierce, CompuServe bought SPRY, an Internet software developer, and soon offered subscribers access to the World Wide Web through a Web browser built into the CompuServe software. This proprietary Web browser was later dropped, however.

In 1996, an effort was launched to transform CompuServe from "a privately held, proprietary technology-driven company to a publicly held, market-driven company." On April 19, 1996, H&R Block put CompuServe up for its initial public offering. The $454 million raised was well below analysts' expectations. At about the same time, CompuServe's subscriber growth had come to a standstill, prompting its stock price to plummet. In 1997 Robert Massey, president and CEO, resigned. Frank Salizzoni took over as acting chairman, CEO, and president, dividing his time between CompuServe and H&R Block.

In the late 1990s CompuServe struggled to obtain and keep subscribers. As a result, in February 1998, H&R Block sold its controlling interest in CompuServe to WorldCom Inc., a large telecommunications company, for $1.2 billion in stock. WorldCom, in turn, paid America Online $175 million in cash and gave it CompuServe Interactive in exchange for AOL's networking subsidiary ANS Communications Inc. The deal allowed AOL to add CompuServe's 2.6 million subscribers to its own base, increasing its total to 11.6 million. CompuServe, however, continues to operate as a separate brand with its own content, e-mail, features, and functionality. Mayo S. Stuntz, Jr., former executive vice president and CEO of Century 21 Real Estate Corporation, was named president of CompuServe.

STRATEGY

After years of peddling its own incompatible proprietary technology, CompuServe began the drive toward Web-based technology. In May 1996, the company announced it would adopt Internet-based open standards, which means that subscribers would be allowed to use either the CompuServe proprietary interface or standard browser software to access the online service. The rationale given for this decision was that it would reduce time dedicated to marketing and would make the service more user-friendly. Moreover, with an eye on considerable cost reduction, it would simplify content development by allowing the company to purchase existing Web technology instead of constantly creating its own content. CompuServe announced that it would allow its users to use the Netscape Navigator to browse the World Wide Web, and would get rid of its own proprietary CompuServe browser.

In order to recapture market shares lost to its major competitors, CompuServe padded its management team. It invested heavily in infrastructure. In the fiscal year ending April 30, 1996, the company spent $219 million on doubling its network capacity, in addition to speeding up connections with modem upgrades.

In 1996, the H&R Block board of directors announced three actions toward a split with the CompuServe Corporation to create two separate, publicly traded firms. First, the board authorized the spin-off of its remaining 80.1 percent of CompuServe shares to H&R Block shareholders. Second, the board reduced the H&R Block quarterly cash dividend. Finally, the board allowed open market repurchase of up to 10 million of its CompuServe shares in the two years following the spin off of the company. Upon completion of the initial public offering in April 1996, more than 18 million CompuServe shares were sold.

The company continued to strive toward its goal of market segmentation and online services customization. In 1997, after the failure of one of its family-oriented online service endeavors, the company put its focus on users in the world of business.

In 1997, CompuServe had the ability to reach more than 90 percent of the U.S. population living in metropolitan areas of 25,000 or more. At the price of a local telephone call, these users had high-speed connections to local CompuServe Information Service (CIS) nodes. Of the previous year's sales of $793 million, CompuServe's online services accounted for 71 percent of total sales. Network services accounted for 25 percent.

"In the consumer market," said the company's former CEO, Robert Massey, "CompuServe's future lies in vastly expanding its reach by eliminating the access restrictions our proprietary architecture once imposed. With our migration to open standards, tens of millions of Internet users will have direct access on a subscription basis to our unique content and the many benefits we bring. Furthermore, CompuServe is pursuing opportunities to generate profits from the unique characteristics of the Internet and its massive global reach. Our strategy calls for the development of several additional sources of revenue including online advertising, electronic commerce and transaction fees. We see the coming commercialization of the Internet as a wealth of opportunity."

INFLUENCES

For years, CompuServe enjoyed a comfortable position in the relatively small world of online services. When the mass-commercialization of the Internet arrived in the 1990s, however, it was electronic archrival America Online that raced to the front of the pack. Whereas America Online captured novice users with an easy-touse, graphically sophisticated interface, CompuServe bungled with its harder-to-use software, lackluster marketing strategy and lack of aggressiveness with the competition. In late 1996 CompuServe finally released CompuServe 3.0, an advanced, user-friendly interface that imitated America Online's use of graphics and speech technology. But this was too little, too late. CompuServe became a subsidiary of AOL in February 1998 through a buyout with long-distance provider WorldCom Inc.

FAST FACTS: About CompuServe Interactive Services, Inc.

Ownership: CompuServe is owned by America Online, a publicly owned company traded on The New York Stock Exchange.

Ticker symbol: AOL

Officers: Mayo Stuntz Jr., Pres.

Employees: 3,050 (1997)

Principal Subsidiary Companies: CompuServe Interactive Services, Inc. is a subsidiary of America Online (AOL).

Chief Competitors: CompuServe competes in the online services industry as well as in the Internet and networking services industries. Major competitors include: AT&T; Microsoft; and Prodigy.

CURRENT TRENDS

CompuServe offers a variety of services to its subscribers, including e-mail, online chats, and forums. Through SPRYNET, subscribers enjoy many services including local and global news, financial, sports, and links to other databases. In addition, the development of software to facilitate their services allows the company to be a leader as a value-based and customer oriented organization.

PRODUCTS

The company's interactive services include the CompuServe Information Service (CIS), an online service aimed at 3.4-million home and office users. The service features access to scores of information features, such as Business Database Plus (a compendium of business articles); Executive News Service (clips from the major wire services); Knowledge Index (access to more than 100 databases and 50,000 journals); and many more. For consumers interested in Internet-access-only service, the company responded by unveiling its SPRYNET service, which had close to 200,000 subscribers by the end of 1996. CompuServe's network services include system management, connectivity, and wide area network (WAN) applications. In a bid for the home market, the company launched its WOW! consumer online service for novice users. The service failed, however, and CompuServe was forced to cancel it in 1996. CompuServe also offers services worldwide. In Japan, for example, 1.5 million consumers have access to NiftyServe, a domestic CIS counterpart.

CORPORATE CITIZENSHIP

The company claims to be progressive—environmentally conscious, health and fitness oriented, with flexible time schedules for its employees. While trying to provide access to both proprietary and Internet services, however, the company has actually restricted access to certain Internet material. This move toward censorship came in late 1995, after a German prosecutor accused CompuServe of defying local law by providing subscribers access to sex-related newsgroups and materials. The company subsequently banned some 200 such groups and soon began offering Microsystems' Cyber-Patrol software as a means of controlling access to sexually explicit material on the Internet.

GLOBAL PRESENCE

CompuServe was the first online service to go global. In a 1987 joint venture with Fujitsu and Nissho Iwai, the company unveiled its NiftyServe online service in Japan. In 1991 the first European office opened in the United Kingdom. With close to 1 million European subscribers, CompuServe is the biggest online service provider on the continent. Throughout the 1980s and 1990s, access was established in other parts of Europe, as well as in Australia, Africa, Asia and Latin America. While global access to CompuServe nodes is far-reaching, this is often at the cost of speed. In 1997, nodes in some major capitals were accessible at a modem speed of no greater than 9,600 bauds per second.

CHRONOLOGY: Key Dates for CompuServe Corporation

1969:: CompuServe is established by Jeffery Wilkins
1977:: MicroNet is launched to provide computer timesharing services
1979:: The online service, CompuServe Information Service, is introduced
1980:: CompuServe becomes a wholly owned subsidiary of H&R Block
1985:: Wilkins leaves the company
1989:: CompuServe becomes the first general videotex service to get 500,000 subscribers
1991:: A U.S. District Court finds that CompuServe need not be responsible for the content of the information sent through their services
1996:: H&R Block puts CompuServe up for an initial public offering
1997:: AOL acquires CompuServe

EMPLOYMENT

The company tells potential employees, "At CompuServe, you will find long-term professional and personal growth in an appealing atmosphere. The customer is our purpose. The associate is our foundation and future. A better society is our legacy." The company says employees have open and direct, hands-on participation in an informal but high-tech setting where situations are changing continually. A dynamic, challenging environment means expectations of, and reward for creativity. The company therefore provides its employees with training for "professional, technical and personal growth."

SOURCES OF INFORMATION

Bibliography

"compuserve corporation." hoover's handbook of american business 1998. austin, tx: the reference press, 1997.

compuserve corporation 1996 annual report, april 1998. available at http://www.edgar-online.com.

compuserve home page, 27 april 1998. available at http://world.compuserve.com.

"h&r block to spin off remaining compuserve shares: dividend reduction and stock repurchase plan announced." h&r block, inc. press release, 16 july 1996. available at http://www.handrblock.com/press_releases/spinoff.html.

lazarus, david. "rumored aol-compuserve deal seen as good fit." wired news, 2 april 1997. available at http://www.wired.com/news/.