CompuServe Plans to Shift Content to Web

CompuServe Inc. became the latest computer services company to embrace the Internet on Tuesday, as executives announced that the online service will shift most of its content to the World Wide Web by the end of the year.

For 17 years, the Columbus, Ohio-based service has used proprietary software to offer its customers access to electronic mail, movie reviews, stock prices and other services. Now the No. 2 online company--which boasts 4.7 million subscribers--will be the largest commercial service to concede that the future is happening on the Internet.

Although it will cost many millions of dollars for CompuServe to convert its offerings into hypertext markup language--the universal code governing the graphic-rich portion of the Internet known as the World Wide Web--the transition will save CompuServe money in the long run by making it easier and cheaper to produce those offerings. CompuServe will also be able to eliminate the expense of maintaining its customized hardware and software.

Microsoft Network, Prodigy Services Co. and others have already begun the shift to the Web. That leaves No. 1 America Online, which has 5.5 million subscribers, as the only major commercial online service still clinging to 100% proprietary software.

“This is a major shift for CompuServe,” said William K. Smith, an analyst with Renaissance Capital, an institutional research and money management firm in Greenwich, Conn. “This is one of the most cost-effective models out there. It kind of leaves America Online in the dust.”

If the initiative--code-named “Red Dog”--proceeds smoothly, CompuServe customers should notice little difference. They already have access to the World Wide Web, and the features that are now part of CompuServe’s Information Service software will be similar on the Web.

But the general transition to the Internet is expected to change the face of commercial online services, as they must develop value-added features to keep fee-paying customers when so much is available on the Web for free.

And, as more players move to Internet standards, the content available on each of the services is bound to overlap. Traditionally, the online services have competed largely on content.

CompuServe executives emphasized that the change will benefit customers by giving them faster and easier access to the best of the Web without having to reinvent the wheel.

“It makes better business sense to embrace open standards than to build our own architecture,” said Danny Matteucci, president of CompuServe’s online services division. “In an industry where a Web year equals three months, we can reduce our time to market by significant margins.”

CompuServe is also developing methods to monitor where its customers go on the Web--with their permission--and to use that information to anticipate their needs and interests.

Analysts praised CompuServe for responding to the Internet threat, but its shares fell $1.25 in Nasdaq trading Tuesday to close at $26.50.

“It’s a necessary move, primarily to defend itself against the Web,” said David Ludlum, research director at IDC/Link, a market research firm in New York. “It’s a huge undertaking for them, but in the long run it’s the right thing to do.”

Analysts emphasized that the primary benefit of Red Dog will be cost savings on the content side, especially since CompuServe, of all the major online services, delivers the most content. Smith said CompuServe, which has been ceding market share to America Online and Microsoft Network, was under pressure to boost profit by cutting costs.

Prodigy announced it would shift to the Internet late last year, and Microsoft Corp. announced last month that it would offer its Microsoft Network News service to the Web. But while attention focused Tuesday on whether America Online will follow suit, company executives remained adamant that the firm will stick with its proprietary architecture.

David Gang, America Online’s vice president for product marketing, said the company’s software is faster than the Web’s. Analysts expect AOL to bring its subscribers onto the Internet eventually, although the need to move soon is less critical for the Vienna, Va.-based company.

“AOL has more breathing room,” Ludlum said. “The emphasis there is on chat services and communication, which is an area where proprietary platforms are still superior.”