The world on your desktop

War has broken out in cyberspace. None of the protagonists is using such apocalyptic language publicly, because they don't want to admit they are rattled. Privately, many will admit they are fighting for survival.

So what is this war that nobody dares mention? It is all about who is going to control access to cyberspace and by what means. Combat has only just begun, but with the prize money worth perhaps pounds 1bn by 2000 in the UK alone, only the dead and dying will be leaving the battlefields from now on. Ranged one side are what have traditionally been known as online services, such as CompuServe. These companies offer their subscribers "high-value" services such as news, financial information, entertainment, shopping and leisure in an easy-to-use format through their own networks. They also provide, in most cases, access to the Internet. They have always been associated with the big money culture, anathema to right-thinking Netsurfers.

Let's call them "onliners". For most of the Nineties, CompuServe was the only significant player from this group in Britain and the rest of Europe. Now it has been joined by a host of newer but potentially just as powerful onliners: America Online/Bertelsmann, Europe Online and Microsoft Network, and a growing number of smaller concerns. Their feelings toward each other are hardly warm, but all are united in wanting to see off the other side: the internet service providers.

This motley crew, almost 200 of them in the UK, have concentrated on bringing no-frills Internet access to consumers at basement prices, but with no added extras. Their British standard-bearer is Demon Internet, which controls an estimated 70 per cent of the dial-up access market and is spreading into Europe.

This war, however, is only worth fighting if consumers want to join cyberspace in sufficient numbers. At the moment, there are an estimated 300,000 subscribers to consumer online services and perhaps 100,000 signed up with internet service providers (ISPs) - a tiny proportion of the British population. But with PC sales going up and up, the demand for access to cyberspace is rising by more than 10 per cent a year.

Only 18 months ago, the onliners and ISPs largely ignored each other. Although CompuServe provided Internet e-mail and access to Newsgroups and File Transfer Protocol (FTP), it remained a standalone network with a very stand-offish attitude to the Net. Meanwhile, the ISPs dismissed CompuServe and its like as boring and doomed to disappear.

Quite possibly, that is what would have happened if the onliners had not woken up to the rapid growth of the World Wide Web, and decided to start offering full access as part of their standard portfolio. "A seamless experience" is now the buzz phrase emanating from the traditional onliners, meaning you can move back and forth between their own services and the Net. Things have changed so much that the online versus ISP divide no longer makes sense. "We are all Internet providers now" is the refrain. In the process, the meaning of the term online has broadened. Today, it is a generic term to describe the use of any information service via a PC and a modem.

But one crucial difference between the two groups remains. The old onliners still believe the future lies in providing lots of easy-to-use services through their own network, full Internet access being one of them. The straight ISPs believe consumers are putting their efforts into building a large infrastructure to carry all the traffic they can, but are relying on others to provide the content.

At this stage in the battle, it seems as if the proprietary networks have the upper hand, with at least three times the number of subscribers in the UK as the ISPs. The leader, CompuServe, claims 250,000 accounts. The same appears true in the more established US market, where more than 12 million people are signed up with onliners.

To Martin Turner, general manager of CompuServe UK, the reason for their lead is simple. "People want valuable content and that is what we give, in a user-friendly form. The Web is clearly important, but there's still relatively little value out there."

But if it is the Web and the Net their subscribers want, the onliners believe they are ideally placed to capitalise on this demand. "A lot of people want to use the Web, but they don't understand it or know where to go," argues Jerry Roest, UK managing director of Europe Online. "They need hand-holding."

He believes Europe Online may pull in subscribers who only want Net access, because they will be cheaper than ISPs for low-volume use (less than five hours a month). Another attraction is that proprietary networks are mostly faster and more reliable than the Net.

Companies wanting to sell their products in cyberspace have so far tended to prefer the safer, more ordered environment of online services. "We have unrivalled expertise for content providers," Turner says. "We run the servers, manage the service, market it and organise the billing." In short, it looks as though the traditional online companies have won the war already. Indeed, some believe the writing is on the wall for the old ISPs: "The straight dial-up Net market will become a niche," predicts Gary Hunt, product manager for Microsoft Network.

Despite these apparently glorious prospects, an uncomfortable fact suggests victory is still far from assured. Increasingly, content providers are opting for the Web to display their wares. British newspapers have mostly decided to start their first ventures in cyberspace on the Web and every day sees the arrival of another travel or shopping service. They realise the Web is a slow and chaotic place and that it will be difficult for them to make money there short term, but want to ensure they have a foothold in what is cyberspace's largest marketplace.

If this trend continues and the Web becomes a friendlier place to consumers, all those services the onliners have so expensively put together inside their own networks may become redundant. All that will matter is simple and unlimited access to the Web at a low price, which is exactly the strategy that Demon and other traditional ISPs are pursuing. It is a line Demon that will be pushing hard over the next few months, with the launch of its first mainstream advertising campaign. The old onliners will just have to become straight ISPs. US-based International Data Corporation predicts that more than half of online service revenues will come from Internet access as early as next year.

James Gardiner, Demon's marketing manager, is not even convinced the onliners' lead is so large. Their subscriber figures sound impressive, "but they don't tell you how many of their accounts are actually paying," he says. Moreover, he claims that the average subscriber "churn", or rate of loss, among most online services is more than 20 per cent. "In Demon, it's just 2 per cent," he boasts.

Martin White, a consultant with information technology analysts TFPL and co-author of a recent report on European online services, agrees the official figures don't tell the whole story. "Average spend per subscriber is just as important a figure as the total number," he says. Nonetheless, he still believes the onliners have the lead and will maintain it for the foreseeable future.

"Online services still have the advantage over the Web in terms of database quality and searching and indexing," White says. However, he predicts a big shake-out in their ranks, resulting in perhaps three or four big global players and a host of smaller niche services, super-serving areas such as the games market, business and finance. Whatever happens, though, the Net will not go away and the online services will not be able to control it.