U.S. Flag The Source

     The first purely consumer on-line service in the United States was The Source.
     It was founded in 1978 by William von Meister, a local telecommunications entrepreneur who envisioned a ‘home information utility’ that would do for computers what AT&T did for telephones.
     However, The Source, headquartered in McLean, Va., soon encountered rocky times. High start-up costs and slow consumer response caused it to be in financial trouble almost from the beginning.
     It received an infusion of new resources and direction when controlling interest was purchased in 1980 by the conservative publishing giant, Reader’s Digest Association.   Reader’s Digest reportedly paid $6 million for its 80 percent holding, according to The Washington Post.
     Reader’s Digest certainly appeared committed to the project. In 1981, Reader’s Digest thought things looked so promising that The Source was authorized to build a computer facility of its own and purchase a bank of minicomputers to run it.
    The ability to create online news reports was a primary reason for Reader's Digest's interest in The Source. In 1982, a newsroom was founded and news reports were made available to subscribers.
     The Source said it was guided by the philosophy of its parent company to provide "self-help information in personal business decisions and improving life quality." It broke its database services into communications, news, weather, sports, business and investing, education, games, travel and personal computing.
     News from UPI was said to be available on The Source within 2.5 minutes of the time of it being filed by the service. The Source also had excerpts from at least 30 major magazines. Subscribers could choose to read any of 6,000 Mobil restaurant reviews, check airline schedules, order 30,000 products at a discount or amuse themselves with the 60 on-line games that ranged from the Civil War to Star Trek.
     A 1984 InfoWorld article discussed the services of The Source and their popularity: "The most popular category is communications, which includes electronic mail and Participate, a sophisticated electronic computer-conferencing system. News services include United Press International and Associated Press news wires, features, and sports; Accu-weather, and various specifically focused news databases. Business services include the Media General stock analysis database and various securities price databases, as well as business news."
     The Source was primarily a text-based system, initially lacking the graphics capability of Viewtron. But in late 1984, The Source added "graphics designed to convey a different image," and dropped its long-time slogan, "America’s Information Utility," replacing it with the "Information Network."
     The Source initially charged users $100 for a start-up fee, though that was reduced to $49.95 in August 1984. Hourly rates varied from $7.75/hour to $27.75, depending on the baud rate of the user’s modem and the time of day of access. Initially, users connected at 300 Bps, but the speed was later increased to an optional 1200 Bps as The Source became available in 400 cities. The minimum connection fee was $0.25 per call and the minimum monthly fee was $9.
     Still, times were tough for The Source. By mid-1982, it was estimated that Reader’s Digest had lost $15 - $20 million on The Source. There were 23,000 subscribers. Response time was slow, taking up to 60 seconds for a screen of data to appear.
     To enlarge the subscriber base, The Source began to focus on the business sector, targeting "upper-level managers at the forefront of applying personal computers to daily communication."
          It added such services as online brokerage, stock quotes, portfolio management, brokerage reports, etc.; The Source claimed that business users represented about one-half of its customer base. It was the first online service to allow trades..
     The Source claimed that business users represented about one-half of its customer base. It was the first online service to allow trades through a partnership with a Los Angeles brokerage firm.
    Under that focus/philosophy, The Source continued to grow, albeit at a somewhat sluggish pace, acquiring 29,000 subscribers by the beginning of 1983.
That same year, Control Data loaned $5 million to the Source with an option to convert the loan to stock amounting to 30 percent ownership of the service. It never converted.  With financial difficulties of it own, Control Data requested return of the loan in 1987, which was granted.
     The Source also generated revenue by allowing private networks within the network. "Private networks within The Source network let private organizations communicate, disperse news and information quickly, transmit files and hold closed teleconference. In effect, these groups became their own systems operators within the larger network, paying a one-time fee of $5,000 for a license and monthly billing rates by users shared between the sponsoring organization and The Source." Aumente, J. New Electronic Pathways. Sage: Newbury Park, Calif. (1987) p. 74.
     By 1984, The Source had grown to 55,000 subscribers.
     The typical subscriber was male, late 30s, college educated, had a high family income and nearly 75 percent were business leaders or professionals. Nearly one in four headed a company.
     Source Telecomputing Corp. severed ties with Control Data Corp. in January 1987 as Reader’s Digest became full owner.
     Reader’s Digest reported that The Source became profitable in 1986, when the subscribers passed the 60,000 mark. With 61,000 subscribers, annual revenue was estimated at $13 million. The service may have been operating at a profit, but there had been millions invested in the system over seven years that needed to be recovered.
     A New York venture capital firm bought The Source from Reader’s Digest in April 1987. Welsh, Carson, Anderson & Stower reportedly paid $10 million. Other reliable sources said the purchase price was closer to $4 million.
     Alfred Glossbrenner, an author and expert on online information, said he believed "the series of ownership and management changes at The Source contributed to a lack of marketing focus as the firm grappled with slack demand."
     With 500,000 members, contrasted with The Source’s 53,000 (down from a peak of approximately 80,000), CompuServe purchased The Source on June 29, 1989 for an undiscolosed sum, and thereby eliminated a long-standing competitor. Hardly more than a month later, The Source was terminated Aug. 1, 1989. Users were offered a $20 credit to join CompuServe.
     The Source, which debuted at roughly the same time as CompuServe, did not achieve similar success, according to Jupiter Communications, a firm that monitors the industry, due to three significant factors:

  • First, CompuServe started its network as a branch from its core business, which was batch processing and time sharing. Beginning the on-line system was simply a matter of using its existing hardware for the night-time users. The Source, on the other hand, built its operation from ground zero.
  • Secondly, The Source never updated its technology; the software and hardware has been nearly the same as it was 10 years ago.
  • Lastly, change of ownership clouded long-term planning. ...The company sold access to the future, and they had customers who were willing to see what the future looked like. But the company never got over this initial hype. "They didn’t concentrate on what people used and abandon what wasn’t successful. Webb. J. A. July 1989. "CompuServe purchases The Source." Information Today. Vol 6. No. 7. p.1.

     Like Viewtron, the Source had a sign-up fee that may have discouraged some users. Paying a monthly membership, a line charge and $100 to join, may have discouraged some. "CompuServe was ‘initially giving their service away,’ Glossbrenner said. "At a critical time, The Source was charging a lot of money for their product, and people weren’t even sure what it was. I think that stuck in a lot of people’s craw."

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