When America Online and German media giant Bertelsmann announced their cross-Atlantic alliance in March it was only the opening salvo in the war for European cyberspace.
Some national online services already exist in Europe, and Compuserve, the United States’ second-largest online provider, has already established a beachhead on the continent for its U.S. product. However, the combination of AOL’s technological savoir-faire with Bertelsmann’s experience in European marketing and distribution will mark the first time a U.S.-Euro team has jumped in to explore this uncharted territory, estimated to be worth $4 billion in the next five years.
The use of computer technology in the European Union countries is years behind the industry’s penetration in the States, though it’s starting to catch up. Roughly 45.3 million European households and offices have personal computers, compared to 71 million in the United States, but sales of computers, CD-ROM players and modems are increasing exponentially.
The notion of online services and the ubiquitous – if misunderstood – “information super-highway” fascinates European governments and media, and cities like Berlin and Paris already have several Internet providers.
Bertelsmann will invest $100 million in what will be a 50/50-owned version of the AOL domestic service that will include European languages and local cultural offerings. AOL will contribute the same dollar value in technology and online skill, and Bertelsmann will also buy five percent of AOL for around $50 million. The as-yet-unnamed and unpriced service will launch in Germany by the end of April, in Great Britain and France soon after and through the rest of western and eastern Europe during the next few years, the two companies said.
Until recently, the meager online European market has been controlled by national telecommunications companies.
Germany’s Deutsche Telekom operates the 700,000-member Datex-J network, which, like the early U.S. version of Prodigy, offers some home shopping, telebanking and travel services. France Telecom’s 13-year-old Minitel, with more than 6.5 million units in use countrywide, offers numerous directory and information services, but its hardware is user unfriendly with its clunky keyboard and dull green screen.
Compuserve, however, operating without a European partner and with just a few services in German and French, now claims to have 224,000 European subscribers, and several smaller European online services are due to begin this year as well.
The Luxembourg-based Europe Online, co-owned by publishers Hubert Burda of Germany, the British Pearson Group and French Matra-Hachette, will offer native product in German, French and English, and – despite its American software – is seen as the rearguard defense against an encroaching and overwhelming U.S. computer industry.
“Our objective is to launch a network for Europe and not to transpose a service already existing in the United States,” one Europe Online exec said.
The biggest competition, though, is expected from the reputedly omnipotent Microsoft, whose own online service will be launched with the long awaited next version of its popular Windows operating system software.
“We entered into this alliance with America Online to oppose Microsoft worldwide,” said Bertelsmann exec Thomas Middelhoff.
The AOL-Bertelsmann service is hoping to overwhelm current offerings with a blend of slick, user-friendly American formats and local content and language, taking the high ground before Microsoft can land on the beach.
In addition to AOL, which offers e-mail, electronic versions of newspapers and magazines and some access to the Internet, the new service will benefit from Bertelsmann’s media empire, the second-largest worldwide after Time Warner.
Bertelsmann owns a plethora of video, audio and publishing concerns that includes Stern, the leading German newsweekly, RCA Records and the Bantam Doubleday Dell Publishing Group, as well as hundreds of CD-ROM titles and a giant film and television library. It can also access a customer base made up of the 30 million European subscribers to its book and record clubs.