AOL's Members Keep Growing, but What's Up With CompuServe?

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America Online

(AOL)

had good news to share last Thursday when it announced it had added one million members in the past three months, passing the 12 million milestone.

But while AOL is trumpeting that it's grown by 9% in the last month, it may not be so proud of another statistic discernible from Thursday's news:

CompuServe

, the struggling online service that AOL acquired in January, has lost as much as 29% of its subscribers in the past six months.

AOL, the nation's largest online service, said Thursday that CompuServe had "approximately 2 million" members. That 2 million figure is down 800,000, or nearly 29%, from the 2.8 million subscribers that CompuServe said it had in October 1997, not long after AOL said it would buy CompuServe's online business.

"That's an eyebrow-raiser," said Gary Arlen, president of

Arlen Communications

, a high-tech market research firm. "Any company that loses 25% of the customers, you have to try to figure out what happened."

He added, "AOL was smart enough to know what they would get into" when it agreed to buy CompuServe, which had been losing subscribers for more than a year. "Whether they expected 25% to go in the first six months, I don't know," Arlen said. His estimate on CompuServe's size, made before Thursday's release, was that CompuServe had 2.3 million subscribers.

AOL spokeswoman Wendy Goldberg discounted the wording in last week's press release. "We have used 'approximately 2 million members' from the beginning," she said, referring to the completion of the CompuServe purchase at the end of January.

In fact, a press release issued by AOL on Feb. 2 stated CompuServe had "more than 2.5 million" members. Subsequent releases from the company refer to "more than 2 million," with last week's release substituting "approximately" for "more than."

The amount of money AOL spent on CompuServe is unclear, since it acquired the service in a complex deal that involved selling its network to

WorldCom

(WCOM)

. But in a Friday

SEC

filing, AOL valued the online service at $280 million.

The reported numbers may not necessarily be bad news for AOL, said one Wall Street analyst. "In the near term, subscriber counts don't concern me, because in the long term I feel there's significant opportunity to rebuild the CompuServe brand," said

Hambrecht & Quist's

Paul Noglows, who rates AOL a buy. "I consider such losses par for the course in a transitional takeover situation."

Subscriber counts aside, the CompuServe acquisition made sense for AOL, he said, because it strengthened AOL's international presence and kept CompuServe out of the hands of a major competitor, the

Microsoft Network

. Not buying CompuServe was "a tactical error on the part of Microsoft," Noglows said.