Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, March 14, 1995 TAG: 9503140118
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: ASSOCIATED PRESS
DATELINE: KANSAS CITY, MO. LENGTH: Medium
H&R Block Inc., the company that built its reputation and fortune by curing tax-season headaches, is no longer making that fortune solely on tax returns.
Block's CompuServe Inc. subsidiary has grown relentlessly in recent years and is closing in on tax services as Block's most profitable unit. Within two years, Block expects CompuServe to be the biggest contributor to the company's bottom line.
Amazing stuff for a company that started out in Columbus, Ohio, in 1969 as a computer timesharing operation and didn't launch its online information service - ``a wild but neat idea with some potential,'' one executive recalled - until 1979.
That was the year Block bought the company. Since then, CompuServe has become a moneymaker that helps Block cope with the seasonal nature of the tax business and fuels Block's growth ambitions.
``Certainly when they bought CompuServe, nobody thought it was going to blossom into what it has,'' said Jonathan Braatz, an analyst for B.C. Christopher Securities Co. in Kansas City.
CompuServe revenues were almost $430 million in fiscal 1994 - up 36 percent from 1993 and 53 percent from 1992.
Meanwhile, H&R Block Tax Services Inc.'s performance was relatively flat. Fiscal 1994 revenue was about $755.5 million - up just 3 percent from the year before and 8 percent higher than 1992.
Block officials regard tax services as a mature industry, one with limited growth potential. For CompuServe, though, the future appears bright.
``It seems that CompuServe has really taken over the spotlight in many respects, and they've earned it,'' said Tom Bloch, Block's president and chief executive. ``It certainly is the growth engine of H&R Block today.''
CompuServe's president and chief executive, Maury Cox, had just joined the company as a salesman in 1979 when Block bought it.
``We'd started this little information service I thought was kind of a wild but neat idea with some potential,'' Cox said.
The company also had started an electronic mail service and, more importantly, was opening its network so customer corporations could access their own information, not just CompuServe's.
Braatz, the analyst, said Block's best move was giving CompuServe its freedom.
``I think clearly the people at CompuServe saw this online services business being something very strong,'' Braatz said. ``Obviously, they were given the wherewithal to attack that market.''
By 1982, CompuServe had decided to concentrate on information services instead of computer timesharing, said Cox, who began working with the information service shortly after that.
Thirteen years later, CompuServe has 2.5 million subscribers. And the company is signing up 120,000 new subscribers per month, sending usage hours 80 percent higher than last year, Cox said.
But competition is tougher than ever. CompuServe and its biggest rivals, America Online (1.5 million subscribers) and Prodigy (1.2 million), got a jolt last year when Microsoft Corp. announced plans to start its own online network.
To stay on top, CompuServe has been adding ``a tremendous amount'' of new offerings in the past year and has lowered prices while trying to cut costs, Cox said.
In the last year, the company has added content from CNN, Fortune and People magazines; offered daily updates from an around-the-world yacht race; and introduced a service that quickly translates languages to allow communication between users who don't speak the same language.
``We've got to innovate faster and faster,'' Cox says. ``We've got to come up with new programs that are attractive to large groups of customers and attract them to us.''
A sale of CompuServe, possibly to AT&T, has been rumored. But Bloch says the company isn't actively engaged in an effort to sell its profitable acquisition.
``The company is doing so well and is so important to H&R Block, there doesn't seem to be a great motivation to sell it,'' Bloch said.
by CNB