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Dead Men Walking?

Poor Compuserve. For more than a decade now, this online service has been building a subscriber base, now over 4 million. Then comes the biggest competition of all--the Net. Like archrivals Prodigy and America Online, CompuServe decides to offer Internet goodies. What happens? When a Bavarian prosecutor complains about some Internet newsgroups that CompuServe carries, its executives all too readily agree to a blackout-to all its customers worldwide. And gets hammered for it. Just one more debacle for the proprietary online services, a display of cluelessness not seen since, oh, a month before, when America Online, in its stab at self-censorship, blipped out all uses of the word "breast," silencing a cancer-discussion group.

Angry protests in both cases got reactions. But underlying these missteps is the fundamental dilemma of the Big Three online services. They want to reap the benefits of the Internet explosion, the boom that has everyone excited about doing business and seeking pleasure via computer. Yet their viability depends on not blending so thoroughly into the Internet that they lose their identities, and maybe their reason for existing. It won't be easy and may not be possible. The online services, despite signing up millions of new subscribers and establishing themselves as national brand names, are enjoying the most transitory of successes. Every day the Net gets closer to filling its ambitious promise, their clock ticks closer to midnight. They look a lot like dead men walking.

So why do 10 million subscribe to them? Right now, they offer a good deal to "newbies" not quite ready to leap directly into the Internet mosh pit. But analysts at Forrester Research predict that after 1997, those numbers will begin to dip, even as many millions more get wired to the Net. Just look at what the services offer--all in danger of being trumped by the Internet:

A direct pipeline to the online world. This is what the Big Three really do--get people to dial up to the online services' massive computers. Customers pay by the hour, with a monthly minimum. This charge applies even when users venture onto the Internet. That's where the trouble begins: more and more, these services are no longer destinations, but portals to other cyberlocations. Right now, the services thrive because they seem the most painless route to the Internet. But within a year or two, new heavyweight players, notably telephone and cable companies, will offer easy-to-install, lightning-fast Internet connections at five or 10 bucks a month for unlimited Web surfing, e-mail and everything else.

Something has to give, and it will. Look for the onliners to get out of the direct-connection business. The three major newcomers in the field--Apple's eWorld, five Microsoft Network and, most recently, AT&T Interchange--have already declared their intention to become giant Web sites. (A Web site is a destination in the vast, multimedia area known as the World Wide Web.) Prodigy plans to do the same by 1997. AOL and CompuServe will inevitably follow. Instead of being walled-off cities, the services will merge into the larger world of cyberspace. Of course, these companies believe that their virtual locations will be de facto gateways to the Internet, designed "to bring order to cyberspace chaos," says Compuserve CEO Bob Massey. But once they stop locking in people via direct-dial connection, their inherent advantage in the "first stop on the Net" competition is lost.

Content. Online services direct customers to different areas, like rides on a midway. But when content providers create an E-ticket diversion, they'll want it located where the most tourists are-in this case, the Web. Why limit themselves to, say, 4.5 million AOL users when the Internet gives them all of these and 20 million more? One answer: unlike the Web, the services have billing systems built in. But if secure digital cash arrives on the Net, content providers will have a way to collect tickets from their riders. In the face of this, the onliners position themselves as kin to HBO, selling premium content that the general networks don't offer--the electronic equivalents of HBO's buzzworthy "Larry Sanders Show." (Example: only CompuServe offers the Entertainment Drive forum; to ensure its presence, CompuServe bought a 40 percent stake in it.) This scheme flouts the Internet ethos: an a la carte phenomenon where sites provide instant links to other relevant sites, regardless of who "owns" them.

A virtual community. Many Big Three customers find that the most valuable commodity offered online is each other. E-mail, chat, bulletin boards and forums (where a celebrity speaker fields questions from a virtual peanut gallery) are components of what feels like an actual community. "It provides an experience superior to the Web," says AOL chief Steve Case. Indeed, the online services have a substantial lead here. On the Internet, chatting and forums are not only relatively crude in terms of technology, but are too frequently disrupted by flamers and creeps. But over the next couple of years we'll see new Web software that encourages complex interactions, with live audio and virtual-reality effects. Those interested in participating in discussions of tatting or the Booker Prize will be able to go beyond the online services to find sophisticated colloquies. A harbinger of this is Salon, a highfalatin Web-based literary-discussion group backed by Apple and Adobe.

Does this mean that the Big Three will be gone by the year 2000? Not necessarily. Recently, high-tech soothsayers have declared video rentals doomed by the advent of pay-per-view television. Hasn't happened. Likewise, if the Internet doesn't develop as anticipated, the dead men of the online services may keep walking for some time, especially if they are nimble enough to change direction. Still, I would hate to be the one who issued them life-insurance policies.