CompuServe Targets Business Customers -- and Fires Business Staff - TheStreet

The best ways to make money on the Web are becoming increasingly clear -- sex, sports and money.

CompuServe

(CSRV)

acknowledged as much Thursday when it announced its intent to focus its core business on, well, business -- corporate customers -- leaving the mass online market to the likes of

America Online

(AOL)

and

AT&T

(T) - Get Report

. Most of Wall Street seemed to accept that at face value.

But behind the scenes, unbeknownst to the Street, CompuServe fired its entire business editorial staff, the staff responsible for CompuServe's original business news coverage.

On Wednesday -- the day before the company's quarterly earnings announcement and a crucial conference call with Wall Street analysts -- CompuServe's vice president of information services, Scott Kauffman, sent out a companywide email (later obtained by

The Street

) announcing that "the editorial functions relating to original content creation have been eliminated." (For readers without MBAs, that translates to: "You're fired!")

This is hardly the kind of move one might expect from a company that is, in the words of Chairman and acting CEO Frank L. Salizzoni, "refocus

ing our flagship CSi service on the business, technical and professional user." CompuServe Vice President of Corporate Communications Steve Conway concedes that 17 editorial people were let go. But he argues that they were not truly business journalists. "I would not say they're business reporters," says Conway. "Most of them have come from the staff of

WOW!,

the mass consumer product we just discontinued, so I think of them more as entertainment reporters."

"That's a lie!" counters one former staffer. (Of the several recently canned CompuServe employees who spoke to

The Street

, none wanted to be named, citing fears of jeopardizing their severance.) "There were about 20 to 25 people and they sure as hell were business journalists ¿ not that this company would know the difference." Rather than having journalists report stories, CompuServe says that it is going to focus on repackaging content that exists elsewhere, and it is counting on businesses to pay a premium for this service.

Analysts weren't displeased with CompuServe's fiscal third-quarter earnings announcement, which showed revenue of $211 million, up from $203 million one year earlier. The company posted a net loss of $14.2 million, or 15 cents per share, compared with net income of $9.4 million, or 13 cents per share, a year earlier.

(A previous version of this story incorrectly reported that CompuServe posted revenue of $214 million for the latest quarter and a loss of $24.5 million, or 26 cents a share, for the year-earlier quarter, excluding charges.)

"The company is managing well into this transition," says Marc Usem, an Internet analyst with

Salomon Brothers

(which did not participate in CompuServe's 1996 IPO). "Going into more narrow vertical markets, like the business market, is a decent strategy. But they have to execute the plan. On the conference call they talked about ideas for partnerships with

Lexis/Nexis

and

Dun & Bradstreet

. But c'mon guys, let's see some details here."

CompuServe's latest scheme for providing business coverage is to turn that job over to content providers like

Money

magazine. "There's got to be leverage to get business customers," says Usem. "You can't just say here's

Money

mag, here's

Business Week

, you've gotta add value. Because these content providers have Web sites of their own -- that don't charge by the minute."

CompuServe's stock price is not pretty. It's plummeted from a high of 35 1/2 last April, to close Friday at just 10 5/8. "CompuServe could be a frog that needs a kiss," says Usem. "But this retooling is just a wink, not a kiss. Then again, the pieces alone are worth somewhere between $8.50 and $10 a share, and they've got $1.90 a share in cash."

Consequently, Usem still has CompuServe as a buy but is reserving judgment about the company's execution of its new plan. "It's probably attractive at this price," he says. "But I'm disappointed that they're not pushing to bring their services to market faster. They're not living in Internet time. This is Internet space, and things happen fast."

And investors be warned: In space, no one can hear you scream.

By Cory Johnson

cjohnson@thestreet.com