Magazine article Online

Consumer Online Services: Making the Transition from Computer Hobby to Serious Business

Magazine article Online

Consumer Online Services: Making the Transition from Computer Hobby to Serious Business

Article excerpt

When Charles Darwin was developing his theory of natural selection, he took a crucial step when he noticed that certain species, each originally quite distinct, tended to evolve similar adaptations when placed in a common environment. The gradual evolution of marine mammals like dolphins, whales and seals to more "fish-like" shapes is the most familiar example of this process of "convergent evolution."

If Darwin had been able to observe the growth of the consumer online services in the last decade, he would have found it intriguingly familiar. The most striking fact about the three largest services--CompuServe, Prodigy and America Online--is how much they have come to resemble each other in recent years. Although each began with a highly distinct strategy and target audience, the common market environment in which they operated inexorably led them toward increasing convergence and direct competition in areas as diverse as their content, pricing and interface design.

The year 1994 should have been one of uninterrupted celebration for all three consumer services. Their combined membership nearly doubled, and by year-end totaled over five million. Magazines, newspapers and TV devoted more coverage to their attractions and activities during 1994 than during their entire previous existence.

THREATENED BY SUCCESS

Ironically, at the moment of their greatest commercial success, the consumer online services also found themselves facing the most serious threats they had ever encountered. New online services planned by Microsoft and AT&T had the potential to lock in captive audiences that numbered in the tens of millions. Telephone and cable companies were testing TV-based online services that would be bundled with American's monthly cable or phone bills. And the development of more user-friendly tools for navigating the Internet made the consumer services base of five million subscribers appear remarkably small compared to 20-30 million estimated Internet devotees.

Now the consumer services are beginning to respond. They are moving in new and divergent directions as they seek to find new strategies and business models to meet these challenges.

Once again, the insights of Charles Darwin seem more relevant than those of Peter Drucker and other management gurus. The process Darwin defined as the reverse of convergent evolution was "adaptive radiation"--the tendency of a species to evolve different variations as it increases its range and is forced to adapt to diverse environmental conditions. The consumer online services have been thrust into a larger, more complex and more competitive environment than they have ever encountered in the past. To survive, they each have to evolve in new, dramatic and quite unique ways.

THE WAY THEY WERE

CompuServe--America's BBS

In 1980, H&R Block, the tax preparation company, wanted to diversify. It was attracted to a computer time-sharing company that was building a presence in vertical markets, such as credit card verification and airline reservation scheduling. Block saw the firm called CompuServe Inc. as a way to enter a new, high-growth industry and as a potential source of technological innovations for its traditional tax business.

The hoped-for synergy between time-sharing and taxes never quite came off during the 1980s, but it was a shrewd gamble nonetheless. By the end of the decade, CompuServe's networking division was handling all of VISA international's credit card verification traffic, providing scheduling for a number of major airlines, and offering a variety of other networking services for large and medium-sized corporations.

H&R Block paid far less attention to a small pilot project CompuServe was also launching at the time of the acquisition. The year before, some 1,600 computer users had begun to log onto a modest computer bulletin board--one not strikingly different from the local BBSs being launched at the same time by hobbyists around the country. …

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