Prodigy Services Co. has new owners who are ready to shed the online service's ailing image and focus on making it competitive again with rivals CompuServe and America Online.
Troubled Prodigy was sold Sunday by parents IBM and Sears to International Wireless Inc. and a group of Prodigy executives, including president and chief executive officer Ed Bennett."This gives us a real clear ownership structure, and the cloud around Prodigy is removed," Bennett said in a telephone interview Sunday. "The beleaguered, troublesome days for Prodigy are over."
Terms of the deal, which still must meet regulatory approval, were not disclosed. But published reports Monday estimated the price tag at up to $250 million, well below the more than $1 billion invested in the venture by IBM and Sears.
Bennett and other Prodigy managers hired investment bankers last month to try to launch a buyout and possibly take Prodigy public. The service needs to invest heavily in new systems and marketing to keep pace with its rivals, America Online and CompuServe.
Under the deal, privately owned International Wireless, a global telecommunications company based in Cambridge, Mass., will own Prodigy. Bennett and other managers will run the company, with Bennett continuing as president and CEO.
Grupo Carso, a leading Mexican telecommunications company, is a financial and strategic partner in the new venture. It will help coordinate the international launch of Prodigy, where it currently has no service.
Prodigy was the second-largest online service in early 1995 with about 1.25 million subscribers while CompuServe had 2 million and America Online 1 million.
America Online, through aggressive marketing, has grown to 5 million subscribers and CompuServe 4 million while Prodigy's subscriber base has stood still.
"This gives Prodigy a second chance at life," said Gary Arlen, president of Arlen Communications, a Bethesda, Md., research firm. "It will use the money to reinvent itself."
Prodigy was founded in 1984 as a joint venture of CBS, IBM and Sears that would provide a home-banking and shopping service. CBS dropped out in 1986, two years before the first service, called Trintex, went online in Hartford, Conn. Its name was changed to Prodigy in 1989, and it rolled out nationally the next year.
Revenue climbed from an estimated $48 million in 1991 to more than $250 million last year. However, analysts do not believe Prodigy has earned a profit for Sears and IBM.
Prodigy's early mistakes provided lessons for online users that were useful when the industry exploded several years later.
For instance, though it started as a shopping service, Prodigy soon found its subscribers were more interested in electronic mail and discussions. But when it started charging for e-mail, they left in droves for rival CompuServe.
The company also faced criticism early on when it shut down electronic bulletin boards that had become controversial and kicked off some subscribers for obscene messages.
When America Online emerged in 1994 with more up-to-date software and an emphasis on communication, it raced past both Prodigy and CompuServe.
Last year, Prodigy was the first major online service to give subscribers an easy way to connect to the World Wide Web. But it now needs to invest heavily in new systems to keep up with others.