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    Rivals Cede Throne to AOL

    By Leslie Walker
    Washington Post Staff Writer
    Thursday, April 8, 1999; Page E1

    After America Online Inc., who tries harder?

    You might think that among the 4,000 companies providing dial-up access to the Internet, one or two would be in striking range of AOL's roster of 16 million subscribers. In fact, the gap between AOL and those who would be No. 2 is huge and growing.

    The next-biggest provider of online access, the Microsoft Network, has about 2 million subscribers. Only three other companies in the United States have passed the 1 million mark. If you count the 2 million subscribers of CompuServe Interactive Services Inc., which AOL owns, the Dulles-based behemoth serves more than half of all wired homes in the United States.

    AOL earned its throne fairly, by convincing Americans it had made it easy and convenient to enter cyberspace. But the imbalance could harm the development of electronic commerce.

    That's because it has reached the point that AOL has so many eyeballs signed up that many companies trying to do business on the Web feel they have to buy a presence on AOL to get the exposure they need. Over time, this could give AOL excessive power over who sells and who doesn't.

    And don't think AOL's dominance is about to wither as cable-television modems or souped-up telephone networks come into use. High-speed networks are on the way, yes, but more than 95 percent of Internet users still use regular phone lines, a percentage that industry watchers don't expect to drop below 80 percent for at least four years.

    Nothing in the marketing strategies of the other Internet access providers suggests the imbalance will change soon.

    Microsoft Corp., which AOL once feared would squash it with the Microsoft Network, today doesn't seem to care much about bringing in new subscribers. It's focusing more on commerce and Internet software than on bringing in new patrons.

    AT&T Corp. is also a major disappointment. After all, it is the AOL of long-distance telephone service, with a long-held market share of more than 50 percent. After years of losing ground to competitors in long-distance, AT&T should know how to go after AOL the way its own attackers have gone after AT&T – by appealing to money- conscious consumers.

    AT&T, however, remains focused on its core telephone business and uses Internet access largely to complement that larger strategy. In what has become a pattern on the Internet, players with other businesses to protect have been slow to use the Net's marketing powers. Try finding promotional information about AT&T's Internet service on the Web. For the record, I did manage to find a link buried in the site index of att.com.

    Moreover, AT&T is eliminating price advantages it had over AOL. In December, AT&T raised its price for unlimited Internet use from $19.95 to $21.95 a month, making it equal to AOL's rate. You can see AT&T's larger strategy in the discount it offers its telephone customers.

    Last year, AT&T also added a 10-hour-a-month Internet plan for $9.95. But how competitive is that, when CompuServe offers twice as many hours for the same price? The offer of $9.95 for 20 hours that CompuServe introduced in February is aimed at recruiting no-nonsense customers who hop online, download their e-mail and hop off.

    "We want to be the value leader in Internet access," said CompuServe's general manager, Audrey Weil. "The majority of our subscribers do use the $9.95 price plan. It's one hour a business day."

    After suffering a long membership slide, CompuServe's subscriber base stabilized last year, after AOL bought it. AOL lowered operating costs by piggybacking the new acquisition on its own dial-up network, customer service centers and advertising sales force.

    Showing some energy for a comeback is Prodigy, which once was a solid No. 2 but today has just a little more than as half as many subscribers as it did in 1995.

    Last summer it scuttled all its original content and become a pure access provider. "At 129 percent growth, we were the fastest-growing Internet service provider in the U.S. last year," said David Trachtenberg, the former MCI Communications Corp. executive who became Prodigy Communications Corp.'s president in December. "We cut our losses in half last year while growing Prodigy aggressively."

    Prodigy raised $120 million in a public stock offering in February, but its sugar daddy is Mexico's largest telephone company, which owns 17 percent of the company. Prodigy is doing Spanish-language work to help its foreign partner provide Internet access in Mexico, which made it easy for Prodigy to roll out a Spanish-language access service this week aimed at the 8 million Hispanic households in the United States.

    Perhaps the two scrappiest contenders for the runner-up spot are EarthLink Network Inc. and MindSpring Enterprises Inc., both pure Internet plays. EarthLink grew partly by partnering with Sprint Corp., while MindSpring has been buying up small providers. Both have aggressive advertising campaigns aimed at raiding AOL's membership rolls, and neither is shy about using their home pages to sign up subscribers.

    With more than two-thirds of U.S. households still to come online, this is the golden age for grabbing Internet market share. At the same time, though, the low profit margins from the pure access business are heading even lower – and all the players are warily watching the explosion of free access plans in Europe.

    But AOL has demonstrated that with enough subscribers, this can be a profitable business: It combines monthly subscriptions and fees from advertising and direct commerce.

    For the sake of competition, let's hope the also-rans pick up the pace soon. If they do, Prodigy's Trachtenberg sees history repeating itself: "There is enough room in this marketplace for AOL to be successful and other ISPs like Prodigy to be successful, too – just like there was in the telecom market."

    AT&T, for instance, could show some energy by trumpeting its recent selection by several computer magazines as the Internet's best on-ramp. And every time you search "Internet access" at Yahoo Inc.'s site, AT&T's mesmerizing ad of a screaming bungee-jumper falling directly at your face should pop up under the clever tag line "Not a good time to be disconnected."

    There's no law that says AOL has to be king. Its competitors should stop acting like there is.


    E-mail Leslie Walker: walkerl@washpost.com


    © Copyright 1999 The Washington Post Company

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