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Huge Deal Gives AOL More Power--and Responsibility

America Online Chairman Steve Case has long held that the best way to profit as an online service is to build a huge audience base and hope that the advertisers will follow. Case has made good on the audience part, but whether the profit will follow is still a matter of faith. In acquiring AOL’s biggest competitor, CompuServe, Case expands his company’s subscriber base to 11.9 million. The next biggest online service, Microsoft Network, has only 2.3 million.

This is the sort of acquisition and shakeout that should ultimately benefit users through faster access and better pathways to content. Industry observers say such takeovers could allow AOL to increase access charges, but the provider says no such plans are imminent.

The move is well-timed for AOL. In the last two years, the percentage of American households online has more than doubled and the number of hours they spend online has nearly doubled too. The deal adds greatly to AOL’s modem access capacity, promising fewer of the infuriating online waits that forced the company to give users compensating time online earlier this year.

Consumers can buy software that allows them to get directly onto the Internet, but most online users subscribe to a service provider like AOL, which organizes information for them and adds services of its own, such as travel bookings and investing advice. The CompuServe deal ought to help AOL to concentrate its energies on making these online features easier to use and more intuitive to consumers.

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Currently, AOL is both a creator of online content and a kind of telephone company, managing an Internet telecommunications unit. Under the deal, AOL divests itself of telecommunications and frees itself of consuming technical duties, which should sharpen its creative focus.

Still, Case and AOL should be careful not to alienate its CompuServe customers. There are plenty of small providers eager to pick up the business, including phone companies that are increasingly offering fast, direct Internet connections.

AOL promised Monday to keep “CompuServe’s existing online brand,” but it should do more to reassure users that it will preserve CompuServe’s distinct services. AOL’s colorful, graphics-based menu of mass-market consumer services is the polar opposite of CompuServe’s rapid access to text-based financial and business data.

AOL also needs to fend off efforts to censor “indecent speech” on the Internet and change the perception that all online services are slow and unfriendly. Online services are still not the sort of mainstream market, like a television network, that advertisers covet. Buying CompuServe gives AOL a boost in this direction. It’s up to people like Steve Case to expand the appeal of the Internet from the world of the nerds to the wider public.


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