Pay By The Minute: The CompuServe Era

Starting in the late 1970s, you could party online with thousands of people – but it wasn't cheap!

So, what if we made a really big Bulletin Board System, one that could be dialed-in to from any city, and where thousands of people could interact, rather than just a few?


These days it seems obvious that there would be a market for such a service, but back in the 1960s there wasn’t much thought given to connecting consumers via computers – it was all about businesses.

American company Golden United Life Insurance needed a computer to keep track of its clients and calculate its premiums but it didn’t need it all the time, and when it wasn’t running it would be depreciating – a lot. Golden United’s founder, Harry Gard Sr., expressed his worries to his son-in-law, Jeffrey Wilkins and the pair came up with an idea: why not rent the computer to other companies when Golden United wasn’t using it?

Not physically – there was no need to cart the main-frame around! All they needed to do was install some modems to interface with the computer and allow ‘client’ companies to dial-in and manage their data.

But it turned out that this was a really lucrative business in and of itself. Once companies factored in the depreciation costs they were saving by not having their own mainframes they were willing to pay top dollar to use Golden United’s – so much so that they began to complain about the ‘unfair’ priority given to Golden United’s processing jobs.

And so, the ‘computer timesharing’ side of the business was moved into a subsidiary, Compu-Serv Network Inc., to appear more neutral to ‘outside’ clients. The timesharing business continued to grow, and in 1975 Golden United decided to take Compu-Serv public; in 1977 it changed its name to CompuServe Incorporated.

But while CompuServe’s mainframes were being fully utilised during the day, they were still idle on nights and weekends, and as technology continued to march on so did the depreciation. Compuserve  needed to find a way to mitigate that loss.

The solution to its problem was called ‘MicroNet’, launched in 1978 and marketed through Tandy’s Radio Shack stores to owners of its TRS-80 computer line. During ‘off hours’ home and small business users could dial-in and use services hosted on CompuServe’s mainframes for an hourly charge.

But while MicroNet did provide those users with storage and the ability to write and run their own programs, the big draws were found to be MicroNet’s multiplayer games and bulletin-board system – features inspired by (and sometimes licensed from) software developed and run on university mainframes.

Although well-known to university students of the era, MicroNet’s users found their newfound ability to interact with people around the US to be rather novel. Access to newswires and archives of home computer software just sweetened the deal. MicroNet took off – which was a fortuitous thing since the same personal computer that facilitated the home users that were MicroNet’s customers was also the instrument of the eventual destruction of the corporate timesharing side of CompuServe’s business.

As the business side declined the consumer side only grew. In 1980, tax company H&R Block acquired CompuServe, and changed MicroNet’s name to CompuServe Information Services, or CIS.

That year Nancy Robertson, a writer with 80 Microcomputing magazine, took a tour of CompuServe’s facility in Columbus, Ohio, and interviewed Jeffrey Wilkins, CompuServe’s president, whose father-in-law had eventually convinced him to take control of their idea soon after the timeshare service had started operations.

“One of the things I’ve always enjoyed about this business is how quickly it changes”, Wilkins told her, “You have to have the ability to anticipate, to be two or three years ahead of the market.” It turns out Wilkins was fairly good at that.

“Nobody knows the size of the personal computing market yet; nobody knows what’s going on out there,” he mused, “The changes that will come to microcomputing because of computer networks will be evolutionary in nature. They will be brought on by the market, not by technology.”

In short, networking would be personal computing’s “killer app”.

And CompuServe would continue to work toward that goal, establishing a North American-wide communications network to provide easier access to its mainframes for both its timesharing and CIS customers through hundreds of local-access phone numbers, which was much cheaper than dialing long-distance and encouraged new users and customers..

Also in 1980 CIS opened up its CB Simulator, the first public, commercial multi-user chat program, the product of one employee’s work over a weekend that would become one of CIS’s biggest features. The public was also warming to the idea of Electronic Mail, so much so that the US Postal Service felt threatened enough to start its own “electronic mail” service called E-COM in 1982.

E-COM allowed users to send messages to a destination post office branch, at which it would be printed out and hand-delivered. But the US Justice Department thought E-COM might violate antitrust laws, and the service was expensive to run and failed to gain serious adoption. By 1985 the service was forced to shut down. But CompuServe kept rolling on.

By early 1984 CompuServe Information Services had topped the 60,000 subscriber mark and was raking it in, charging 13 cents per minute to access the service during the day, and 10 cents per minute at night, at a speed of 300bps. But people were willing to pay – CIS’s forums were hopping, with CompuServe allowing users to start their own forums, and paying those whose forums engaged the most users (sound familiar?) There were forums for each of the various home computer brands, as well as regional forums and topical-based forums…they were like Facebook groups, but a long time before Mark Zuckerberg was even a thought in his parents’ heads.

The forums provided an early taste of the Internet – somewhere you could go to ask questions and get answers in an age when paper encyclopedias were still commonplace and you had to go to the library to research anything. The CB Simulator allowed you to meet people down the block or across the country, and you could then go off and play games with them, as if you had invited them over for a few glasses of wine and an evening of Monopoly.

All of this novelty helped to drive personal computer sales, and personal computer sales drove CompuServe subscriptions, a symbiotic relationship that only helped both markets grow.

But CompuServe was not the only information service a new computer owner could subscribe to. It had competition in the form of The Source. Launched in 1979 The Source was a partnership between Robert Ryan, the CEO of timesharing company Dialcom, which during the 1970s had developed a series of online products for businesses such as accounting and payroll services, a word processor and the first commercial electronic mail service, financier Jack Taub and Bill von Meister, who had the idea of an ‘information utilty’ hosted on corporate mainframes during off hours.

In addition to features similar to CIS such as forums and chat The Source provided access to “databases” such as archives of news articles, stock market data, and information about cars, wines and real estate, positioning it as an upmarket information service.

But The Source struggled to find profitability and  Dialcom quickly tired of its mounting debt with them. Taub sold an 80% share of the business to American publisher Reader’s Digest in order to settle its debts and keep it going – an action taken over von Meister’s objections, who would initiate legal proceedings. Reader’s Digest naively decided that it would be better off running its own mainframes than throwing yet more money at Dialcom but with no corporate timesharing component The Source continued to lose money. It probably didn’t help that it charged US$100 just to become a user, then slugged you with hourly charges of around $10! While CompuServe grew, The Source stagnated.

Von Meister, meanwhile, had received a US$1 million settlement from Taub and used it to found Control Video Corporation, a company that provided downloads of videogames on to Atari 2600 consoles. In 1983 CVC put up US$5 million to keep The Source afloat and allow von Meister to return as an ‘operating partner’, an action that would bring CVC near bankruptcy, and an injury from which it would never recover.

1985 would see von Meister get thrown out of CVC and The Source would stumble along for four more years before being acquired by CompuServe, which shut it down.

Control Video Corporation licensed PlayNET’s software in order to create Quantum Link

However, CompuServe was unable to fully celebrate the vanquishing of its rival, facing a new threat from the descendant of von Meister’s other creation, CVC. After he had been forced out, one of CVC’s consultants, Jim Kimsey, bought its assets and used them to found Quantum Computer Services, which developed a dedicated on-line service for Commodore 64 and 128 computers called Quantum Link, based on software licensed from New York-based PlayNet. Rather than using a text-based interface like CompuServe and The Source, Quantum Link (and PlayNet) used custom software operating on the subscribers computer to provide a graphical interface.

From CompuServe’s position Quantum Link wasn’t much of a competitor – at first. But over the next few years Quantum would launch a version for the Apple II, and then in 1988 one for the IBM PC called PC Link; this is where life began to take a turn for CompuServe.

In 1989 Quantum changed PC Link’s name to America Online, marketing it as a ‘user friendly’ alternative to CompuServe and making the latter nervous, causing it to see a need to consolidate the online services market and take out The Source.

CompuServe had fended off other competitors before, such as Delphi and GEnie, but AOL looked to be a serious opponent.

AOL leveraged the graphical multiplayer games that had been created for Quantum Link and continued to create new titles, providing a unique product to its users and one CompuServe was in no position to match. In 1991 it introduced the first multiplayer graphical role-playing game, and in 1992 an AOL client for the Windows operating system.

In 1993 AOL began to distribute massive quantities of client software CDs, offering free trial periods and by the mid-1990s it raced past other online services such as Delphi, GEnie, Prodigy and eventually CompuServe, which was starting to lose money and which owner H&R Block decided in 1997 it wanted to sell.

AOL offered its own stock in exchange for its rival but H&R Block wanted cash. A deal was worked out with a third party, WorldCom, which wanted CompuServe’s network infrastructure and who would pay cash for it and then sell CIS to AOL for stock. In 1998 the transaction was compete: H&R Block had sold a company it had purchased for US$20 million 18 years earlier for US$1.2 billion! And that company had spent most of its life making money.

AOL would carry on, reaching 10 million subscribers, and readying itself to take on its next big opponent: the Internet.

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