Online services agree on at least one point: To survive, they will have to attract new members - lots of new members. Not just Net-savvy types with PC power to spare, but the vast unwired masses, the 85 percent of all households not yet online. Whether there are enough of these newbies to go around, that's another matter entirely.
Most believe only a handful of services will manage to catch on with mass-market consumers, and the rest will either consolidate or fall by the wayside. And of the few that do make it, they will have to establish themselves in a market so absolutely dominated by a single player, that they may have to be content with fighting among themselves for leftovers.
Three letters say it all: AOL.
With more than 8 million members and rising, America Online is the undisputed champ of the online world. The company claims no less than a 50 percent market share for new arrivals to the Net, and is investing heavily in infrastructure, service, and, most importantly, brand awareness to ensure that this percentage continues to grow.
As of the beginning of the year, AOL accounted for 48 percent of all online households in the United States, according to market researcher Odyssey. CompuServe was a distant second with 9 percent of households, followed by Prodigy (7 percent), and the Microsoft Network (4 percent).
"Anyone who wants to compete with us has a huge, huge bar to come up to," said Barry Schuler, president of creative development for AOL Networks. "Someone would have to come a long way to be a credible Number Two."
Not that they aren't trying. This week, in fact, two would-be challengers stepped forward. CNET announced the pending arrival of Snap, and CEO Halsey Minor made no secret of his ambition for the consumer-focused service. "We're going after AOL with a business model that creates lots and lots of distribution points," he said.
And when content packager Planet Direct launched a new version of its cobranded service Thursday, the head of Erols Internet, Orhan Onaran, said it "provides a way for Internet service providers to compete effectively with the online service giants like AOL."
"In a sense, they're going up against AOL, but their branding won't be as strong in the eyes of consumers," said Ross Rubin, an analyst at Jupiter Communications. "No one will ever say, 'I'm with Planet Direct.'"
At least one leading service has thrown in the towel. CompuServe decided several months ago that its future lay in targeting the potentially lucrative niche of upscale, business-oriented users, and not fighting it out for general-interest subscribers. As such, the company scrapped its money-losing WOW service, which was intended from the start as an AOL wannabe.
"The newbies are having a hard time figuring out the value of being online," said Gail Walls, CompuServe's director of marketing. "It's incumbent on the players to show them the value."
That's where it gets tricky. It's one thing to spend heavily on providing all the bells and whistles of a slick commercial service, and it's quite another to divert resources into teaching people how to use all those bells and whistles. "It comes down to whether you want to invest, or whether you want to be profitable," Walls said. "We wanted to be profitable."
On the other hand, look at AOL's latest ad campaign. The commercials drive home a single point: easy to use. It's so easy, one kid tells viewers, even his dad can do it. Now look at ads for the closest thing AOL has to a genuine mass-market rival, the Microsoft Network. MSN's ads aren't about simplicity. They're about empowerment. They ask people where they want to go.
"Our newbies are a little different from AOL's newbies," said Jessica Ostrow, group product manager for MSN. "We require members to have Windows 95. That means they're already familiar with Microsoft products."
With about 2.5 million subscribers, MSN readily concedes much of the mass-consumer market to AOL. "We're going to take our fair share from the rest of it," Ostrow said. She observed that newbies essentially want only three things from their online experience: Net access ("because everyone's talking about it"); email; and to enhance their other interests, like games or hobbies.
MSN's basic strategy, Ostrow said, is to make the online world as accessible as possible for people using Microsoft products. And for the rest - all those sofa spuds out there who don't have a clue about the Net - MSN will try to catch their fancy via the tube. "The TV is absolutely the best way to reach people who are inexperienced with computers," Ostrow observed. "We will try to use our ownership of WebTV to our advantage."
MSN's uphill struggle (not that Microsoft can't afford it) illustrates how brand equity in one area - software - doesn't translate smoothly into a healthy glow in another - online service.
"They have done a phenomenal job making the brand synonymous with operating systems," AOL's Schuler observed. "But people don't think about Microsoft as an online company. It's like Coca-Cola going into the clothing business. They failed."
Quite simply, AOL believes its brand is now virtually unbeatable. "You don't need to have an MBA to understand what branding means in our culture," Schuler said. "The most important thing of all is that we have the brand for being online."
As proof, he cited AOL's "access crisis" earlier this year, when ongoing busy signals prompted lawsuits and charges of fraud from disgruntled users. Amid that crisis, Schuler noted, "we didn't lose members. What they really wanted was for us to fix the problem. They wanted AOL."
That probably won't change, at least for the foreseeable future. "People don't see that they have anywhere else to go," said Nick Donatiello, president of Odyssey. "AOL isn't great, but they're better than the next guy."
As to whether the newbie market will support more than one or two major players, he insisted that opportunities exist for any company willing to invest in family-friendly services and content. Perhaps the greatest opportunity, Donatiello added, lies in the fact that although AOL's membership numbers remain consistently strong, surveys show that those members are increasingly disenchanted with the level of service they receive.
"AOL is dominant but vulnerable," he said. "If they ever get their act together, they'll be dominant and invulnerable. But I don't see that happening soon."
