More firms offering computer networks

ONLINE SERVICES GET ON TRACK

August 11, 1991|By Michael Pollick

Look at the online consumer service business as the television business 40 years ago.

Growth is phenomenal -- annual revenues are up 65 percent. Yet the services still reach only a small percentage of the families with computers -- and nine-tenths of U.S. households don't even own a computer yet.

The promise of such a huge, lucrative market has attracted such corporate giants as IBM, Sears, and General Electric and H&R Block to videotex. Together, they have spent more than $2.5 billion to develop the electronic networks, which offer shopping, games, news and education.

And these companies may be joined by Bell Atlantic Corp. and the other regional Bell operating companies. Last month, a federal judge loosened the rules under which the Baby Bells can offer information services. If the ruling survives appeals by newspaper publishers and others, the Bells are expected to step up their involvement.

Meanwhile, the videotex industry, little more than a decade old, is changing rapidly amid the fierce competition. Companies such as Rockville-based GEnie have built a profitable business over the years.But the emergence of PRODIGY, a network bankrolled by International Business Machines Corp. and Sears, Roebuck & Co. has raised the stakes dramatically -- and forced competitors to re-evaluate everything from screen design to pricing policies.

There are four big consumer-oriented online services now:

* PRODIGY, the joint venture of Sears and IBM;

* GEnie, the Rockville-based offspring of General Electric;

* CompuServe, a part of tax giant H&R Block; and

* America Online, the flagship network of Quantum Computer Services of Vienna, Va.

Together, they have about $238 million in revenues, says Chris Elwell, an analyst with SIMBA Information Inc. of Connecticut.

As it was when granddaddy CompuServe first geared up its consumer information service in 1979, the modem is still the key in using any of the services. This device converts the digital information generated by computers into sound so it can be transferred through a telephone line, and then back into computer impulses at the other end.

The customer uses the service by turning on a computer, switching to a computer program designed for communication, and using it to dial the service's phone number through the modem.

While each service has its unique characteristics, they have a lot in common, too.

After connecting, the user is faced with a myriad of choices. This list invariably includes news, weather and sports information, bulletin boards on which people can chat, electronic "malls" in which to shop and libraries in which to peruse an encyclopedia or magazine articles. Subscribers can receive updated stock quotes, buy stocks, pay bills, make airline reservations, mail electronic letters, read movie and music reviews, play games and so on.

During the next year, the "Baby Bells" may be cooking up deals to fill the gap between these large national services and the 30,000-plus local computer "bulletin boards" that have sprung up.

The Bells "aren't going to be able to bring a product to the market until after the appeals process, probably a year. But during that year, the market will start being carved up," said Jean Villanueva, vice president for marketing at Quantum Computer Services. "Major entities will start to form alliances, even though the products themselves won't be ready for the market."

Quantum expects to be a player in the market, helping Bell companies craft regional versions of what the national consumer networks offer now. "Almost every category of services we offer today could be brought down to a local level and be targeted to you as a member of the community," Ms. Villanueva said.

If the Bells eventually do boost their efforts in consumer information services, it could jump-start the entire industry.

It has been a decade since the IBM PC was introduced, yet only about 2 million U.S. households (or 2.2 percent) use online services, according to Gary Arlen, whose Arlen Communications Inc. of Bethesda monitors electronic services.

His figures show both the lack of effectiveness of the industry in the past and the tremendous potential for the future.

Of the 25 percent of U.S. households that have computers, only a third have a modem. About a fourth of the homes with a modem subscribe to any online service. And only a fourth of those are frequent users, meaning people who dial the service at least once a month.

The industry seemed to revive last fall when PRODIGY began its nationwide push. Suddenly, prime-time television ads were making consumers aware of online services.

PRODIGY, based on extensive market research, had no commands to learn or remember. It was nice to look at, with interesting graphics. And perhaps most importantly, it featured a flat monthly fee no matter how long customers used it, day or night.

That pricing policy already has had far-reaching effects on the industry.

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