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On Ramps To The Info Superhighway

Information Processing


Who's leading the charge to create a world of interactive information and entertainment services--the so-called Information Superhighway? Time Warner? Bell Atlantic? Tele-Communications Inc.? These are certainly the companies grabbing the headlines with their megadeals and technology demos. But unless you happen to live in Orlando, Omaha, or a few other spots where cable and phone companies will soon conduct trials, the Information Superhighway is still just a dotted line on the map.

On the other hand, if you're itching for such interactive services as home shopping, banking, and electronic mail--and can wait a few years for movies on demand--relief is just a modem away. Indeed, all the hype about the Information Superhighway is having an unanticipated result: On-line personal computer services such as Prodigy, America Online, and CompuServe are enjoying a new burst of popularity. For millions of consumers, these services are, if not the Information Superhighway, important secondary roads. And if these services can upgrade quickly enough with higher speeds, graphics, and sound, they may wind up as major arteries. "The on-line services are going to be the ones that lead us to the interactive world," says Joshua M. Harris, president of New York-based researcher Jupiter Communications Co.

At Prodigy Services Co., the superhighway glow has given the IBM-Sears Roebuck joint venture a new lease on life. As it fumbled with different formulas--trying to wring revenues out of advertising and transaction fees--the White Plains (N.Y.) company has been racking up operating losses estimated at $40 million annually. But now it has trimmed more than 25% of its staff, rearranged its pricing structure, started an aggressive, live TV-ad campaign, and begun experimenting with new media (page 109). It also gave its klunky graphics a face-lift with a version for Microsoft Corp.'s Windows software that links full-color photos to its top news stories and some of its shopping services to provide the look of an electronic magazine. The result? An estimated 8.3% increase in paying members in 1993--putting it just behind CompuServe (table). Prodigy says it will turn profitable later this year.

Prodigy's rivals are also enjoying a rush of new members. According to Jupiter's Harris, the number of subscribers to on-line services jumped more than 28% in 1993 and will grow more than 30% this year (chart). Now, only 4 million of the 31 million home-PC owners belong to a service. But the proportion should rise as more and more PCs--equipped with modems and software to go on-line--enter the average home. And as improvements in hardware and software help the PC evolve into more of a mainstream consumer-electronics product, Harris predicts that it will become the preferred gateway to the Information Superhighway, not the TV connected to a high-tech cable converter box.

NET GAINS. Meanwhile, CompuServe, Prodigy, and America Online are busily figuring out ways to use high-speed cable-TV lines to bring more and better services to PCs. With cable, up to 500,000 bits per second can be funneled into a PC, vs. the current 14,400 available via today's fastest modems. At those speeds, on-line services will be able to send video clips along with photos and text. And since such setups would leave telephone lines free, home PCs could be left on all day, programmed to beep when e-mail or an important news story comes across. "We're very excited about cable," says Barry Berkov, executive vice-president of CompuServe, a Columbus (Ohio) division of H&R Block Inc. One hurdle: Such setups require another new and pricey modem.

Another hot growth area for the on-line services may be connecting ordinary consumers to the Internet, a vast network of networks where millions meet in cyberspace. All the services are trying to create Internet links. But Delphi Information Systems Inc. (recently renamed Delphi Internet Services Corp.) is furthest along. For $23 a month, subscribers get 20 hours of access to the Internet. P. Russell Williams, a Delphi vice-president, says the service's membership growth rate is close to 200% per year. And with the recent purchase of Delphi by media mogul Rupert Murdoch's News Corp., Williams predicts that the service could grow even faster. "Now that we have the backing of News Corp., we have what it takes to make it a great on-line service." Still, with only 200,000 members, Delphi has a way to go before it threatens CompuServe or Prodigy.

But today's top on-line services may not be tomorrow's. As the technology becomes more widely understood and hardware prices drop, competitors are multiplying. Apple, AT&T, and publishing giant Ziff-Davis have recently announced their own on-line services. Industry watchers say Microsoft is thinking of jumping in, too. Established services like CompuServe "have a leg up" in technical expertise, says Harris. "But they don't have the content or the financial backing" to take on the Time Warners of the world.

Meanwhile, America Online, which has led the way in adding such features as on-line magazines and is the fastest-growing service, is showing signs of strain. Last year, rumors of an impending takeover by Microsoft co-founder Paul Allen sent AOL's stock soaring to an all-time high of 68 1/2. But the rumors also unnerved some partners that have inked deals to provide content to the company, who fear that if Allen boosts his stake beyond his current 20%, there would be drastic changes in the system.

FAULTY ASSUMPTIONS? The Vienna (Va.) company doesn't need such distractions. Already, it is having trouble keeping up with the subscriber growth: During busy periods, members sometimes have difficulty logging on. The company says it is working to beef up its communications.

Still, if any of the on-line services are worried about losing their way on the digital highway, it doesn't show. In fact, as Prodigy views it, many companies are approaching the digital highway and interactive service with the same faulty assumptions they had five years ago. Harley Manning, the creative director behind Prodigy's new services and look, says that newcomers to the interactive world are relying on what he calls the Field of Dreams approach: If you build it, they will come. "We've been there before, and we know what works and what doesn't," says Manning. That could put the on-line pioneers in the fast lane.Paul M. Eng in New York, with Mark Lewyn in Washington

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