CompuServe

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CompuServe

CompuServe, (in full, CompuServe Information Services, or CIS), was the first major commercial online service in the United States, dominating the field during the 1980s and remaining a major player through the mid-1990s when it was sidelined by the rise of information services who adopted pricing models based on monthly subscriptions rather than CompuServe's hourly rate approach. Foremost among these was America OnLine or AOL, which generated a substantial portion of its income from advertising revenues. Today the CompuServe Information Service operates as an Internet service provider (ISP), owned by AOL.

History

CompuServe was founded in 1969 as Compu-Serv Network, Inc. in Columbus, Ohio as a subsidiary of Golden United Corporation. While Jeffrey Wilkins, the son-in-law of Golden United founder Harry Gard, is widely recognized as the first president of CompuServe, the initial president was actually Dr. John R. Goltz. Goltz and Wilkins were both graduate students in Electical Engineering at the University of Arizona. Other early employees were also recruited from the U of Ariz, including Sandy Trevor (inventor of the CompuServe CB Simulator chat system), Doug Chinnock, and Larry Shelley. Wilkins replaced Goltz as CEO within the first year of operation.

The objectives of the new company were two-fold: to provide in-house computer processing support to Golden United Life Insurance Co.; and to develop as an independent business in the computer time-sharing industry, by renting time on its PDP-10 mainframe computers outside business hours. It was spun off as a separate company in 1975, trading on the NASDAQ under the symbol CMPU.

At the same time, the company recruited a number of executives who shifted the focus from offering raw timesharing services, in which customers wrote their own applications, to one that was focused on packaged applications. The first of these new executives was Robert Tillson, who left Service Bureau Corporation (then a subsidiary of Control Data, but originally formed as a division of IBM) to become CompuServe's Executive Vice President of Marketing. He in turn recruited Charles McCall (who followed Jeff Wilkins as CEO, and later became CEO of HBOC), Maury Cox (who became CEO after the departure of McCall), and Robert Massey (who was the last CEO of CompuServe). Barry Berkov was recruited from Xerox to head the product development and product marketing function.

In 1977, Comp-Serv's board changed the company's name to CompuServe Incorporated. In 1980, H&R Block acquired CompuServe. The purchase by H&R Block gave the company much needed cash to expand operations, and helped H&R Block diversify their tax-season biased earnings. CompuServe associates fondly called H&R Block's founder and chairman Henry W. Bloch, "Uncle Henry".

The original, 1969 dial-up technology was fairly simple — the local phone number in Cleveland, for example, was merely a line connected to a time-division multiplexor which connected via a leased line to a matched multiplexor in Columbus, which was in turn connected to a particular timesharing host system. Later, the central multiplexors in Columbus were replaced with PDP-8 minicomputers, and the PDP-8s were connected to a DEC PDP-15 minicomputer that acted as switches so a phone number was not tied to a particular destination host. Finally, CompuServe developed its own packet switching network, implemented on DEC PDP-11 minicomputers acting as network nodes that were installed throughout the US (and later, in other countries) and interconnected. Over time, the CompuServe network evolved into a sophisticated multi-tiered network incorporating ATM, Frame Relay, IP and X.25 technologies.

While best known for its consumer services division, the CompuServe Information Service, CompuServe was also a world leader in other commercial services. One of these was the Financial Services group, which collected and consolidated financial data from a myriad of data feeds, including CompuStat, Disclosure, I/B/E/S as well as the price/quote feeds from the major exchanges. CompuServe developed extensive screening and reporting tools that were used by every investment bank on Wall St.

Another major unit of CompuServe, the CompuServe Network Services, has been the primary supplier of dial-up communications for credit-card authorizations for over twenty years, a competence developed through its long relationship with Visa International. At the peak of this line of business, CompuServe carried millions of authorization transactions each month, representing several billion dollars of consumer purchase transactions. While we would like to think that every business is connected to the Internet via a persistent connection, the truth is that there are still many business for which an always-on connection is an extravagance, and the dialup option makes better sense. Today this service remains in operation, deeply embedded within Verizon (see below). There are no other competitors remaining in this market.

The company was notable for introducing a number of online services to personal computer users. CompuServe began offering electronic mail capabilities and technical support to commercial customers in 1978 under the name Infoplex, and was also a pioneer in the real-time chat market with its CB Simulator service introduced in 1980.

Around 1981, CompuServe introduced their CompuServe B protocol, a file transfer protocol, allowing users to send files to each other. This was later expanded to the higher-performance B+ version, intended for downloads from CIS itself. Although the B+ protocol was not widely supported by other software, it was used by default for some time on CIS itself.

By 1982 the network had become extensive enough that they formed a Network Services Division to provide wide-area networking capabilities to corporate clients. This allowed customers to provide nationwide dial-up access to their own hosts, which typically were connected to CompuServe's network via X.25.

Later, the company forged alliances with private networks Tymnet and Telenet, among others, giving CompuServe the largest selection of local dialup phone connections in the country. Other networks permitted CompuServe access to still more locations, including international locations, usually with substantial connect-time surcharges. It was not unusual in the early 1980s to have to pay a $30-per-hour charge to connect to CompuServe, which at the time cost $5 to $6 per hour. This resulted in the company being nicknamed CompuSpend or Compu$erve.

Reaching the peak

By the mid-1980s CompuServe was one of the largest information and networking services companies in existence, and it was the largest consumer information service in the world. It operated commercial branches in more than 30 US cities, selling primarily network services to major corporations throughout the United States. Consumer accounts could be bought in most computer stores (a box with an instruction manual and a trial account login) and awareness of this service was extremely high. The service continued to improve in terms of user interface and offerings, and in 1989 CompuServe purchased and dismantled one of its main competitors, The Source.

CompuServe also began to expand its reach outside the United States. It entered the international arena in Japan in 1986 with Fujitsu and Nisso Iwai, and developed a Japanese language version of CompuServe called NIFTYSERVE in 1989. Fujitsu and CompuServe also co-developed WorldsAway, a prototype interactive community featuring a virtual world now called VZones with newHorizones and Dreamscape worlds complete with avatars representing the participants. In the late 1980s, it was possible to log into CompuServe via worldwide X.25 packet switching networks, but gradually it introduced its own direct dialup access network in many countries, a more economical solution. With its network expansion, CompuServe also extended the marketing of its commercial services, opening branches in London and Munich.

In the early years of the 1990s, CompuServe was enormously popular, with hundreds of thousands of users visiting its thousands of moderated Forums, forerunners to the endless variety of discussion sites on the Web today. Among these were many where hardware and software companies offered customer support. This broadened the audience from primarily business users to the technical "geek" crowd, some of which migrated over from the Byte Magazine's Bix online service, but over time CompuServe also attracted a broad general public.

In 1992 CompuServe hosted the first known WYSIWYG e-mail content and forum posts. Fonts, colors and emoticons were encoded into 7-bit text-based messages via the CompuServe navigation software NavCIS; covering DOS and early Windows 3.1 systems.

During the early 1990s the hourly rate fell from over $10 an hour to $1.95 an hour. In April 1995, CompuServe topped three million members and launched its NetLauncher service, providing WWW access capability via the Spry Mosaic browser. AOL, however, introduced a far cheaper flat-rate, unlimited-time, advertisement supported price plan in the U.S. to compete with CompuServe's hourly charges. In conjunction with AOL's marketing campaigns, this caused a significant loss of customers until CompuServe responded with a similar plan of its own at $24.95 per month in late 1997.

As the World Wide Web grew in popularity with the general public, company after company closed their once busy CompuServe customer support forums to offer customer support to a larger audience directly through company websites, an area which the CompuServe forums of the time could not address because they had not yet introduced universal WWW access.

CompuServe forums today are more tightly linked to CompuServe channels.

Purchase by Worldcom

In 1997, H&R Block announced its intention to divest itself of CompuServe. A number of potential buyers came to the forefront, but the terms they offered where unacceptable to H&R Block management. One would have involved a leveraged buyout which would have saddled the CompuServe shareholders with substantial debt. AOL, the most likely buyer, made several offers to purchase CompuServe using AOL stock, but H&R Block management sought cash, or at least a higher quality stock.

In Februrary 1998, John Sidgmore, then the vice-chairman of Worldcom, and the former CEO of UUNET, devised a complex transaction which ultimately met the goals of all parties. Step one was that Worldcom purchased all the shares of CompuServe with $1.2 billion of WCOM stock. Literally the next day, Worldcom sold the CompuServe Information Service to AOL. AOL in turn sold its networking division, Advanced Network Services (ANS), to Worldcom. Sidgmore said that at this point the world was in balance: the accountants were doing taxes, AOL was doing information services, and Worldcom was doing networks.

The only reason the H&R Block management team agreed to accept WCOM stock in exchange for the ownership of Compuserve was because they had been able to work out a deal to sell the WCOM stock for $1.2 billion in cash immediately after the transaction. (As a side note, had H&R Block chosen to hold the WCOM stock for 18 months, it would have been worth over $3 billion; had they chosen to hold it for three years, it would have been worthless). In end, H&R Block received $1.2 billion for a company it had paid $20 million for eighteen years earlier, during which it also generated substantial profits.

As part of this transaction brokered by Sidgmore, CIS became a wholly owned subsidiary of AOL. In September 2003 CompuServe Information Service, as a division of AOL, added CompuServe Basic to its product lines, selling via Netscape.com. AOL offered it to AOL members leaving that service, possibly in response to reports earlier that year that AOL was losing significant business to low-cost competitors.

After the Worldcom acquisition, CompuServe Network Services was renamed Worldcom Advanced Networks, and continued to operate as a discrete company within Worldcom after being combined with AOL's network subsidiary, ANS, and an existing Worldcom networking company called Gridnet. However, in 1999 Worldcom Advanced Networks was absorbed into UUNET. In the same year, Worldcom acquired MCI and became MCI Worldcom. They were however unsuccessful in their bid to purchase Sprint. Soon thereafter, Worldcom began its spiral to bankruptcy, re-emerging as MCI. In 2006, MCI was sold to Verizon. As a result, the organization that had once been the networking business within CompuServe is now part of Verizon.

CompuServe Information Services is now positioned as the value market provider for several million customers, as part of the AOL Web Products Group. Recent U.S. versions of the CompuServe client software — essentially an enhanced web browser — use the Gecko layout engine developed for Mozilla, within a derivative of the AOL client and using the AOL dialup network. The previous Classic product remains available in the US and also in other countries where CompuServe 2000 is not offered, notably the UK and Asia-Pacific region. In Germany CompuServe 2000 was introduced in 1999 and abolished in 2001 because of failure on the German market, but the Classic product also remains available. However, since then CompuServe Germany has introduced its own products for dialup and DSL internet access, and its own client software. (called Compuserve 4.5 light).

In the Pacific region (Australia, New Zealand, etc.) Fujitsu Australia runs the CompuServe Pacific franchise, which in 1998 had 35,000 customers. It is thought to have far fewer now thanks to CompuServe Pacific's pricing plans, which have not been changed since 1998 (for e.g., dollar|A$" target="_blank" >^*14.95 for 2 hours per month).

Technology and law

One popular use of CompuServe in the 1980s was file exchange, particularly pictures. CompuServe introduced a simple black-and-white image format known as RLE (run-length-encoding) to standardize the images so they could be shared among different microcomputer platforms. With the introduction of more powerful machines, universally supporting color, CompuServe introduced the much more capable GIF format, invented by Steve Wilhite. GIF went on to become the de facto standard for 8-bit images on the Internet.

CompuServe, and its outside telecommunications attorney, Randy May, led the appeals before the FCC to exempt data networks from having the pay the Common Carrier Access Charge (CCAC) which was levied by the telephone Local Exchange Carriers (primarily the Baby Bell companies) on long distance carriers. The primary argument was that data networking was a brand new industry, and the country would be better served by not exposing this important new industry to the aberrations of the voice telephone economics (the CCAC is the mechanism used to subsidize the cost of local telephone service from long distance revenue). The FCC agreed with CompuServe's position, and the consequence is that all dial-up networking, whether on private networks or the public Internet, is much less expensive that it otherwise would have been.

In 1995 CompuServe set what privacy advocates argued was a bad precedent by blocking access to sex-oriented newsgroups after being pressured by conservative Bavarian prosecutors. In 1997, after CompuServe reopened the newsfeeds, Felix Somm, the former managing director for CompuServe Germany, was charged with violating German child pornography laws because of the material CompuServe's network was carrying into Germany. He was convicted and sentenced to two years probation on May 28, 1998 November 17, 1999 ^*" target="_blank" >[http://news.bbc.co.uk/1/hi/world/europe/524951.stm. The requirement for censorship in Germany caused some loss of German members.

External links

CompuServe | Online service providers | Time Warner subsidiaries | 1969 establishments

Gourt Home::Gourt :: CompuServe

History

Reaching the peak

Purchase by Worldcom

Technology and law

External links