Deciphering the world of online Internet: Even with America Online's recent overload of customers, the company says most people know little about the industry.

Sun Journal

February 04, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,Sun staff

The Internet is jammed. America Online Inc., the nation's largest provider of access to the Internet had a plan that worked too well. In December, it offered consumers all the access they wanted, for $19.95 a month -- and signed up 1.2 million new

customers. But AOL's computers and phone systems were unable to handle all the new demand, and angry customers began calling consumer-protection officials.

Last week, AOL and the attorneys general of 36 states announced an agreement in which AOL would offer partial refunds and free service to customers who could not log on to get the unlimited service they paid for. The episode reminded many of AOL chief Stephen M. Case's response to those who question his industry's prospects.

Case has said that AOL can grow for years, because almost 90 percent of Americans are not yet online. It means that most people still know little about the burgeoning industry, a dizzying intersection of technology and media. Sun staff writer Timothy J. Mullaney explains some of the basics.

What do online companies actually do?

The online world divides very roughly into two kinds of companies: online service providers (such as America Online) and Internet service providers.

The online service providers offer raw technology -- Internet connections, electronic mail and the like -- and also sell information, news and entertainment. They think of themselves as media and information companies. They simply deliver their product online.

Internet service providers -- ISPs -- are purer technology and communications firms. They sell telecommunications links to the Internet and related services, such as browser software and the right to place a home page on ISPs' computers. ISPs sell little general-interest information, but the communications services they sell are more comprehensive than those of online service providers.

Telephone companies are entering the ISP market because that business relies on skills they have already developed. Most regional telephone companies have ISP subsidiaries, as do the major long-distance companies.

Is AOL the the only company of its kind?

No. The largest online service providers other than AOL are CompuServe, Microsoft Network and Prodigy. In the past two years, AOL has been expanding, CompuServe has been

struggling and Prodigy has been shrinking. AOL now has twice as many customers as the other two combined -- 8 million at the end of last year, up from 900,000 in mid-1994.

Microsoft Network is seen as the next big online service provider, but Microsoft's media ventures have met mixed receptions.

There is a third, much less developed business also pushing for a place online, and that is the Web publishing industry. Pioneered by companies like Wired Ventures Inc. and C/Net Inc., Web publishers publish magazines and news wires by putting them on their World Wide Web sites. Customers reach them via the Internet, and access to the sites is usually free.

How reliable are these services? Are AOL's recent breakdowns a fluke?

Reliability is relative. If a customer is expecting any Internet service provider to work as reliably as the phone, that customer is bound to be disappointed.

Tom Evslin, who runs AT&T Corp.'s WorldNet service, said there was not a day without some problem that affects his customers. In an AT&T survey, testers were able to log on to major Internet service providers about 91 percent of the time.

In a recent survey by PC World magazine, most of the major consumer-oriented ISPs tested -- including AT&T, GTE and CompuServe -- received grades of C+ or lower from customers, though the magazine's testers had friendlier things to say.

"Novices expect more from technology than people who know technology," says Brad Grimes, senior associate editor of PC World. But eventually the Internet service providers must reliably deliver the services they promise.

Is this just a cool technology, or is it a business?

If you knew, you would be independently wealthy by now.

A problem for online service providers and Web publishers is that there's only a small established market for Internet advertising -- and little proof that it works. AOL, Wired and companies such as Yahoo! that run advertising-supported Internet sites are working to prove online ads can be cost-effective, and many experts think they will. If AOL or a company like it can have 8 million customers, someone will sell them something. Or try to.

Independent Internet service providers have faced problems, too.

The companies Uunet and Digex, for example, have dropped consumers to focus on business markets. Business customers need more complicated, expensive services, and serving them is cheaper because a single customer can provide hundreds of thousands of dollars in business.

AOL's stock illustrates Wall Street's mood swings about the industry's future. The shares began 1996 around $37, peaked at $71 in May and ended the year at $31.25. In other words, even the pros don't know what to think.

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