How 90s Tech Companies Created Internet Addiction

Picture a battleground where two corporate behemoths—AOL, the reigning giant, and AT&T, the telecom titan—locked horns in a struggle for supremacy. So the year is 1996 and the way most people access the “internet” is through web portals like Yahoo, AOL, and MSN. One of the most popular at the time was AOL's service offering 20 hours of free monthly usage and then an additional $3 charge for each additional hour of usage past the 20-hour free usage limit.

AOL’s offerings were so popular that it was indisputably the biggest Web Portal in the world. By 1996, it had a 41% market penetration of U.S. Internet users. This posed a great threat to AT&T. The telephony giant had over 60 million home telephone customers by 1996 but barely had any footprint in the emerging world of the internet and ISPs. So in order to get some sort of foothold in the internet service provider market and get customers in the dial-up internet market. AT&T launched WorldNet, a service offering that to put it lately fundamentally changed the course of internet history.

WorldNet was a web portal designed to compete with AOL’s popular web portal, While AT&T had a large customer base in the home telephone market they virtually had no presence online service provider market so when they launched they needed a way to get customers, they certainly couldn't compete on content because web portals like AOL and Yahoo offered a vast array of good content and features that would take AT&T’s WorldNet years to catch up to but one thing they could compete on was price. AT&T was a colossal business known for moving tremendously slowly and almost always opting to maintain the status quo over pursuing new and innovative ideas, yet by 1996 with its WorldNet Portal, it found itself in the unfamiliar disruptive world of internet companies. And even more surprising would make one of the most disruptive decisions in all of internet history.

In the wake of intense market domination from AOL’s web portal in early 1996, AT&T announced a dramatic pricing model of its WorldNet portal, to attract dial-up internet users they charged a flat fee of $19.95 for unlimited access to their Web portal and charged $24.95 for customers who had long-distance service with the company, To sweeten the deal, the company offered users five free hours of internet access per month during its first year. (And notably, it offered 28.8 kilobit speeds, relatively fast for the time.) The promise of WorldNet in AT&T’s own words was to make the “internet as universally available and as easy to use as a telephone service.” In its vision for its approach to the internet, AT&T leaned heavily on its experiences in the home telephone market that it had come to dominate. But this for a company like AT&T was risky, while the internet was growing at an insanely fast rate it wasn’t clear whether 10s of millions of Americans would wound up accessing the internet frequently much less through an AT&T service, when AT&T priced its internet access at an affordable flat rate there was a genuine chance that not enough people would subscribe resulting in the service being a unprofitable failure. By charging so low for internet access, capping the amount of money they could make from users will open themselves to massive risk if users used more than AT&T anticipated, AT&T was betting massively on the idea of reaching enough scale to justify their pricing model, a mixture over heavy users and regularly users would hopefully balance the cost of the service and ensure profitability but if only a few heavy internet users subscribe well AT&T would have successfully created a burning money pit, they needed millions of people sign up for WorldNet to be a success. AT&T’s offering, however, did include its WorldNet portal and general internet access, which was the most appealing part of the service offering.

AT&T quickly reached 1 million WorldNet subscribers grabbing a small but relatively sizable piece of the internet service provider market. This had a disruptive effect on the still-young ISP industry, many ISPs followed suit and released their own unlimited online access offerings, this disruption also included competing Web portals. AOL and MSN were the only services large enough to hold out on the price front and stubbornly continue to charge an hourly rate for the usage of their Web Portals.

AOL initially tried to play both sides, offering a discounted version of its service that lived on top of AT&T’s connection. but soon, it too would have to fold to the new normal—the flat-fee requirement of dial-up internet access.