A Bigger And Cheaper Online Universe?

THE OUTLOOK IS DECIDEDLY mixed for online services such as CompuServe, America Online (which carries BUSINESS WEEK Online), Prodigy, and the Microsoft Network. At least that's what market researcher Dataquest Inc. says in its latest report.

Thanks to the boom in the use of the Internet and the World Wide Web, Dataquest, based in San Jose, Calif., believes that worldwide paid membership for online services could exceed 25 million subscribers by 1997 (chart). Consumers will continue paying for quality content, ease of use, and convenience, says Dataquest analyst Rick Spencer.

On the flip side, they will be paying less for online services. Intense price competition and the proliferation of sponsor-based services will cause annual revenue per online member to fall from $172 to $132 by 1997, and total market revenue will grow by only $600 million, according to Dataquest. Prices are sure to keep falling in what is likely to be more and more a commodity-like service. "A big portion of what online services provide is communications, either through forums or E-mail," says Spencer. Ad-financed services, such as E-mail systems that let members send and receive electronic mail free of charge after viewing online advertising, will bring in more subscribers but will lower revenues for the online services.