AOL revamps CompuServe, cuts price

The new look and new pricing -- including a low introductory rate of $9.95 per month for 20 hours of use -- are a stark contrast from the ailing CompuServe acquired by AOL just a year ago. But can AOL's efforts revive the country's oldest Internet service provider?

The new CompuServe is not your teenager's online service. Although CompuServe 2000 -- an all HTML format simplified for easy installation and use -- is designed for non-tech savvy users, the targeted audience is adults.

"We're targeting all adults," said Audrey Weil, CompuServe's chief operating officer. "We're looking at 17 million people coming onto the Internet this year and more than half are adults."

The new pricing offers substantial savings over existing CompuServe plans of $9.95 for five hours of use per month and $2.95 for each additional hour. CompuServe is also lowering the cost of its unlimited monthly plan to $19.95 from $24.95, and offering an unlimited yearly plan for $199.

Stabilized at 2 million members currently, before it was bought by AOL (NYSE:AOL) last year CompuServe's subscriber base had withered to about 1.7 million members. In contrast, AOL has been on a customer growth binge, swelling to 16 million subscribers, a gain of about 1 million in the last couple of months alone.

Always a bigger hit with a more business-oriented crowd, CompuServe's renewed focus on the adult market means no chats with teen idol Leonardo DiCaprio or teenagers roaming the forums in the afternoon instant messaging each other as they do in parent service AOL.

Instead, in content areas like the Arts & Entertainment channel, for example, movie critic Roger Ebert offers serious reviews of new films, says Weil.

Weil -- a veteran AOL'er who was senior vice president of brand management -- was moved by AOL chief Robert Pittman to Compuserve last summer with the dual title of COO and senior vice president of brand management.

Retaining customers
But as AOL gears up a multi-million dollar marketing campaign for CompuServe's comeback over the next three months, some analysts believe the overhaul is more about keeping CompuServe's long-time subscribers happy rather than attracting new ones.

"It's not a question of customer acquisition for them," said Patrick Keane, content analyst with Jupiter Communications. "It's a retention vehicle."

David Simons, analyst with Digital Video Investments, agrees. "Reviving the 'brand' is a big job," Simons said.

The nationwide CD-ROM roll out of the new software marks a denouement of CompuServe's rebirth since AOL acquired the subscriber and money hemorrhaging online provider from WorldCom in a three way transaction with H&R Block.

WorldCom bought CompuServe from the tax accounting firm and exchanged the online service and $175 million in cash for AOL's network services subsidiary, ANS Communications. In quick order, AOL restructured management, cut 500 workers and began service upgrades and then last summer, rolled out CompuServe 4.0, which featured a new main menu and divided the service into 20 content areas.

Looking to speed ahead
CompuServe doesn't release revenue figures -- and AOL doesn't break out CompuServe revenues in its quarterly earnings statements -- but Weil insists that with the latest software upgrade, 1999 will be an expansion year.

"1998 was a year of stabilizing and generating profit that we turned back into the product and this is going to be a year of growth for us," said Weil. "Revenues are trending up," she added, noting a 100-percent increase in advertising impressions on the service in the last six months.

Joining the higher-speed ranks of AOL and other Internet service providers, CompuServe 2000 finally gives it members an Internet connection through 56K bps modem access. The new software integrates Microsoft's Internet Explorer as the Web browser, along with promising more convenient email features. The upgraded version allows members to personalize their names instead of the confusing numerical identifications formerly required when CompuServe was 80 percent owned by H&R Block. Also for the first time, members will be able to use multiple names on their accounts, a staple of AOL's service.

In addition, CompuServe hopes its custom portal strategy will pay off.

Just two weeks ago, MCI Worldcom -- the nation's No.2 long distance company -- chose CompuServe it as the customized portal for its new Internet service. Users who sign up for the co-branded CompuServe MCI service, will get special content and commerce offers targeted to long distance customers, said Weil, including eight different versions for MCI's eight airlines partners. For example, United Airlines is marketing the MCI Internet service to its frequent flyers.

Although declining to name other potential partners, Weil said telecommunications customization is a core new business for CompuServe. "It's a new audience and new revenue stream," she said.

Customizing
Another example of CompuServe's custom portal strategy is a 2-year deal the service cut with WebMD, an Internet healthcare startup for physicians and consumers. WebMD recently announced plans to sell a minority stake in a $55 million initial public offering. "We would love to get more verticals, the legal vertical or the accounting vertical where there would be a marketing and content partner," said Weil.

But despite Weil's optimism, analysts remain skeptical.

"They're out of the woods, but they need to do what AOL does everyday for its core service, the blocking and tackling on the content development front, on the commerce partner front and on the customer acquisition front," said Scott Reamer, Internet analyst with Cowen & Co. Reuters contributed to this story.