CompuServe

CompuServe
	File:Logo cs40.gif
Company type	Subsidiary of AOL
Industry	Internet & Communications
Founded	1969
Headquarters	Columbus, Ohio, USA
Products	ISP
Website	www.compuserve.com

CompuServe (also known as 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, such as AOL, who adopted pricing models based on monthly subscriptions rather than CompuServe's hourly rate approach. 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. (lower case) 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 Electrical Engineering at the University of Arizona. Other early employees were also recruited from the University of Arizona, 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 during 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 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 multiplexer which connected via a leased line to a matched multiplexer in Columbus, which was in turn connected to a particular timesharing host system. Later, the central multiplexers 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, was formed in 1982 to generate revenue by selling connectivity on the nationwide packet network CompuServe had built to support its timesharing service. CompuServe designed and manufactured its own network processors, based on the DEC PDP-11, and wrote all the software that ran in the network. Often (and erroneously) called an 'X.25 network, the CompuServe network implemented a mixture of standardized and proprietary layers throughout the network. One of the proprietary layers was called 'Adaptive Routing.' The Adaptive Routing system implemented two powerful features. One is that network operated entirely in a self-discovery mode. When a new switch was added to the network by connecting it to a neighbor via a leased telephone circuit, the new switch was discovered and absorbed into the network without any explicit configuration. To change the network configuration, all that had to be done was add or remove connections, and the network would automatically reconfigure. The second feature implemented by Adaptive Routing was often talked about in network engineering circles, but was implemented only by CNS - establishing connection paths on the basis of real-time performance measurements. As one circuit became busy, traffic was diverted to alternative paths to prevent overloading and poor performance for users.

While the CNS network was not itself based on the X.25 protocol, the network presented a standard X.25 interface to the outside world, providing dialup connectivity to corporate hosts, and allowing CompuServe to form alliances with private networks Tymnet and Telenet, among others, giving CompuServe the largest selection of local dialup phone connections in the world. 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.

CNS 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 businesses 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. The B+ protocol was later extended to include the Host Management Protocol (HMI) a mechanism for communicating commands and transaction requests to a server application running on the mainframes. HMI could be used by "front end" client software to present a GUI-based interface to CIS, without having to use the error-prone CLI to route commands.

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 Nissho 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. (Like the Web, many Forums were managed by independent producers who then administered the Forum and recruited moderators, called sysops.) 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. Over time, CompuServe also attracted a broad general public with a wide spectrum of Forums devoted to interests such as show business, including Entertainment Drive, CompuServe's sole content investment, founded by Michael Bolanos, current events, sports, politics, and more.

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. Introduction of a Windows-based WinCIM (or Windows CompuServe Information Manager) allowed point-and-click interaction with the service via an accelerated HMI communications protocol. For some areas of the service which didn't support HMI, the older, text-based interface could be reverted to. WinCIM also allowed caching of Forum messages, news articles and e-mail, so that reading and posting could be performed off-line, without incurring hourly connect costs. Previously, this was a luxury of the NavCIS and TapCIS applications for power users.

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.

WOW! and the Decline

In the mid-1990s, CEO Maury Cox launched the WOW! initiative within CompuServe. The objective was to create a new generation of consumer information services which could be built on the revenue models brought to the market by AOL and to offer consumers a new rich visual experience. The WOW! service would also implement a parental control technology so that parents could limit and monitor the online activities of their children. A key component of this was a 'white list' of web sites that had been vetted by a team of CompuServe editors to ensure that the sites had content appropriate for children. The WOW! team was designed to be a 'skunk works,' with its core marketing and technology teams housed at a location away from the CompuServe corporate headquarters. Most of the leadership and team was recruited from outside the company.

To fund WOW!, Cox convinced H&R Block that the equity capital market should be tapped through a public stock offering. Block agreed, and subsequently 20% of CompuServe was sold via an Initial Public Offering (IPO), raising nearly $200 million for the company.

WOW! was not successful. CompuServe's traditional customers were not enthusiastic about the new user interface. The battle for customers between AOL and CompuServe became one of handing customers back and forth, using free hours and other inticements. There were technical problems in both the WOW! software and the network (the thousands of new generation U.S. Robotics dialup modems deployed in the network would crash under high call volumes). For the first time in decades, CompuServe began losing money, and at a prodigious rate. An effort, code named 'Red-Dog', was initiated to convert CompuServe's long-time PDP-10 based technologies over to servers based on Intel x86 architectures and the Microsoft Windows NT operating system.

H&R Block was going through its own management changes at the same time. Henry Bloch retired as CEO, and his son, Tom Bloch was named as his successor. When Tom Bloch resigned to become a public school teacher, he was replaced by Richard Brown, who had formerly been one of the top executives of Ameritech. Dick Brown soon left to take the job as CEO of EDS, and the H&R Block Board of Directors appointed Frank Salizzoni, a member of the HRB Board, to serve as CEO of H&R Block. It was during Salizzoni's tenure as CEO that H&R Block's Board of Directors made the decision to divest CompuServe. Maury Cox left the helm as CompuServe's CEO, to be replaced by Bob Massey. Massey had a short tenure in this role, and was relieved in 1997. Frank Salizzoni became the acting CEO of CompuServe from this time until its sale.

Deal-Making 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 were 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 February 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 portion of the company to AOL, retaining the CompuServe Network Services portion. 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. In the 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.

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. In 1999, Worldcom acquired MCI and became MCI Worldcom, Worldcom Advanced Networks briefly became MCI Worldcom Advanced Networks. Worldcom was later unsuccessful in its bid to purchase Sprint. MCI Worldcom Advanced Networks was ultimately absorbed into UUNET. 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.

In the process of splitting CompuServe into its two major business, CompuServe Information Services and CompuServe Network Services, Worldcom and AOL both desired to make use of the CompuServe name and trademarks. Consequently, a jointly owned holding company was formed for no other purpose than to hold title to various trademarks, patents and other intellectual property, and to license that intellectual property at no cost to both Worldcom (now Verizon) and AOL.

CompuServe Information Services After the AOL Acquisition

In September 2003 CompuServe Information Service, now 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.

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 CompuServe service offering, referred to as "CompuServe Classic", 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 CompuServe 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 (e.g., A$14.95 for 2 hours per month).

CompuServe forums today are more tightly linked to CompuServe channels.

In January 2007 the CompuServe brand managers at AOL sent an e-mail to members stating that it had no plans for compatibility with the Windows Vista operating system, and suggested to its members who wished to use Vista switch to their AOL branded service.

Technology and law

One popular use of CompuServe in the 1980s was file exchange, particularly pictures. Indeed, from 1986 it hosted perhaps the first online comic in the world, T.H.E. Fox.[1] 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 Federal Communications Commission (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 [2] [3]. He was cleared on appeal on November 17, 1999 [4] [5]. The requirement for censorship in Germany caused some loss of German members.

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