Prodigy Services Corp.

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Prodigy Services Corp.

founded: 1984

Contact Information:

headquarters: 445 hamilton ave.
white plains, ny 10601 phone: (914)448-8000 fax: (914)448-8083 url: http://www.prodigy.com

OVERVIEW

Prodigy Services Corporation is a computer online service that offers users a wide variety of entertainment, information, and interaction—the latter through "chat rooms." In addition to its online service, which unlike the Internet is operated by means of a central server and is accessible only to subscribers, Prodigy also offers Internet access. A pioneer and at one time a leader in the world of online services, it has gone through struggles, particularly as a result of the explosion of Internet services in 1994. In 1996 it had revenues of approximately $100 million, and in the late 1990s Prodigy sought to re-assert its position of leadership.

Through its Prodigy Internet and Prodigy Classic services, the company offers its subscribers a wide variety of online content as well as access to the Internet from anywhere in the world. Through its network of partners, subsidiaries, and joint ventures, Prodigy offers subscribers the opportunity to meet and interact with others with similar interests in its online communities focused on health care, education, music, business, computers, and other subjects.

Formed in 1984 as a partnership between International Business Machines (IBM) and Sears, the Prodigy online service was first launched in test markets in 1988 and made available nationwide in 1990. Its more than 1 million subscribers have grown increasingly interactive through the years, clocking more than a million hours of usage each month, meeting new and old friends in community chat rooms, and exchanging an enormous volume of e-mail.

Prodigy was the first online service to offer easy access to the Internet, providing its subscribers with a web browser for surfing the Net. Prodigy was also the first online service to be hosted in HTML, the programming language of the World Wide Web. The acquisition of the Prodigy online service in 1996 by International Wireless and the subsequent merger into Prodigy Inc. has given the company key alliances with leading high-technology and telecommunications organizations around the world.

COMPANY FINANCES

Prodigy Inc., the parent company of Prodigy Services Corp., is a privately owned company and is not required to publicly disclose its financial results. Its estimated 1996 revenue of $255 million was up almost 16 percent from 1995 estimated revenue of $220 million. In 1994, Prodigy's revenue was estimated at $200 million, compared with $180 million the previous year.

ANALYSTS' OPINIONS

In 1996 and 1997, as competition became more fierce between the big three online services—a situation intensified by the entrance of a fourth, Microsoft's MSN—there were a number of articles comparing their relative strengths and weaknesses. Among magazines running comparative reviews were Personnel Journal and Kiplinger's Personal Finance Magazine.

Angela Hickman in PC Magazine gave Prodigy's version 1.5 Internet access program high marks for its setup and its technical support. Working Mother praised Prodigy's "Homework Helper" reference feature. Consumer Guide Magazine also gave Prodigy an overall favorable review, and The Net gave it the highest marks in a comparative rating of online Internet service providers.

HISTORY

In February 1984 Sears and IBM formed a computer services partnership called TRINTEX. Three years later, TRINTEX was able to offer an online discount stock brokerage, and in 1988 home banking via Citizens and Southern Bank in Atlanta. By February 1988 the name "Prodigy" had begun to appear on the names of start-up kits distributed at a low cost with Hayes modems, and in June of that year the company changed its name.

Prodigy was still a very small-scale online service at that time, and in September 1988 it made a limited launch into several markets in Atlanta and the major cities of California. Two years later it was launched nationally, and enjoyed three strong years of growth from late 1990 through 1993. Then in 1994 came widespread access to the Internet, and users were beginning to bypass services such as Prodigy and America Online (AOL) in favor of ISPs (Internet Service Providers) that offered direct access to the Net.

As a result, Prodigy and its competitors developed new pricing and marketing strategies, including expansion into foreign markets. In January 1995 Prodigy became the first online service to offer World Wide Web access and quickly became the world's largest dial-up access provider to the Web. It also became, in June 1995, the first to offer users the opportunity to create their own web pages. Company executives, with the backing of the International Wireless company, purchased Prodigy from IBM and Sears in May 1996 and formed the parent company, Prodigy Inc.

Early in 1998 Prodigy and Excite Inc. of Redwood City, California, announced an alliance under which Excite will provide customized versions of its content and services to Prodigy Internet subscribers. Excite offers an easy interface that may be personalized by subscribers to deliver user-selected information, such as news, sports scores, and stock quotes.

FAST FACTS: About Prodigy Services Corp.

Ownership: Prodigy Services Corporation is a subsidiary of Prodigy Inc., a privately held company.

Officers: Edward Bennett, CEO; Fred Larson, Sr. VP, Marketing; Angelica Ibarguen, VP, Human Resources

Employees: 500

Chief Competitors: Operating in the highly competitive world of computer online services, Prodigy faces stiff competition from: America Online; AT&T; Dow Jones; MCI; Microsoft; NETCOM; UUNET; and WOW!.

STRATEGY

As its own company literature states, "Prodigy's content takes full advantage of the power of interactivity." Interactivity means that, instead of a passive medium such as television, Prodigy offers users entertainment and information in a way that allows them to participate, for instance, by taking part in chat groups or trading stock online. Offering "real-time" activity is also an important value at Prodigy. In the 1990s it became the first television advertiser in 40 years to produce live television commercials, a dramatic demonstration of the service's real-time quality in providing up-to-date information and interaction with others.

Online services such as Prodigy also offer Americans a quality often missing in a world of rootless suburban tract housing, anonymous shopping malls, and traffic-choked interstates: a sense of community. In fact, Prodigy offers what it calls "communities," sites with multiple web links and discussion areas built around subjects such as "Books and Writing" or "Wedding Planner." It has 100 communities on Prodigy Classic and another 50 on Prodigy Internet. Such interaction with persons of similar taste helps users to have the feeling of meeting friends on a town square—only they are meeting in cyberspace.

INFLUENCES

Some computer industry observers have regarded Prodigy's early relationship with Sears and IBM, its dual founders, as somewhat restraining. The co-owners may have had their own negative view of the relationship, since when they sold the company in May 1996 they lost money. According to Business Week, the partnership, having invested $1.2 billion in Prodigy, was selling it for only $800 million. At around the same time, H&R Block was selling Compuserve, and online services—once a good investment for their owners—appeared to be facing troubled times. Prodigy, meanwhile, had slipped from the number one place among online services to number three—not a good position in a market dominated by just three players.

But with the buyout, management had an opportunity to turn the company around from the slump it had experienced due to competition both from other online services and from ISPs. Finally Prodigy was able to chart its own course, and many observers believed that it could do a better job in this arena than its former owners had. In May 1997 the parent company, Prodigy Inc., announced that it had secured $179 million in new funding from its investors—primarily Carso Global Telecom, a Mexican telecommunications company, and Boston Technology, whose chairman, Greg Carr, was also chairman of the Prodigy Inc. board.

CURRENT TRENDS

The biggest trend among online services in the late 1990s was the easy availability of Internet access through ISPs, which forced them to change their pricing and upgrade their services. The Economist in January 1996 went so far as to say that the 1994 explosion of widespread Internet access "destroyed" the online services' business. According to PC Novice, a September 1996 survey found that 48 percent of Internet users connected to the Net via an Internet service provider, as opposed to 35 percent who used online services.

Prior to the 1994 explosion, online service users could run up high bills if they exceeded the basic allotment of hours they had purchased on their monthly access plans. But executives at the big three online services (AOL, CompuServe, and Prodigy) saw the change in the air and began offering much lower pricing plans. Thus Prodigy in October 1996 launched Prodigy Internet, an Internet access service that offered unlimited use for $19.95 a month.

On the flip side, Newsweek warned that online services should not blend in with the Internet too well or they would lose their identity and hence their market.

CHRONOLOGY: Key Dates for Prodigy Services Corp.

1984:: Founded as Trintex by IBM, CBS, and Sears
1986:: CBS leaves partnership
1988:: Launches Prodigy online services in test markets
1989:: Changes company name from Trintex to Prodigy
1990:: Prodigy online services is made available nationwide
1991:: Adds a Dow Jones financial database
1994:: Prodigy gives its services a facelift in order to appeal to users
1995:: Becomes first online service to offer World Wide Web access and the first to offer users the opportunity to create their own web pages.
1996:: Acquired by International Wireless; formed Prodigy Inc.
1998:: Announces an alliance with Excite Inc.

PRODUCTS

Prodigy offers two basic products, Prodigy Classic, the traditional version of its online service, and Prodigy Internet, an Internet access service. Among the offerings on the Prodigy Classic service are chat rooms, bulletin boards and newsgroups, "communities" of interest groups, financial information services, multiplayer games, entertainment programming such as "Are You Ready For the Weekend?," celebrity interviews (in July 1995 Michael Jackson appeared and it was jointly hosted by the big three online services), news (along with weather and sports), travel information and services, educational services such as "Homework Helper," shopping, and other services.

CORPORATE CITIZENSHIP

As part of its involvement in the Chinese market, which officially began with the launch of Prodigy China in April 1997, Prodigy is a contributor to Children's Palace, a Chinese youth program similar to the YMCA or Boy's and Girl's Clubs in America. It has also funded scholarships for Chinese students at a number of universities in Shanghai and other major cities.

GLOBAL PRESENCE

In 1997 Prodigy made inroads into two unconventional—and highly populated—overseas markets. With the launch of Prodigy China in April, it began providing service to Shanghai, soon to be followed by nine other Chinese cities. In addition to Internet access, the service (primarily targeted at the leading businesses and hotels of urban China) will offer a 24-hour voice and fax messaging service.

BIOGRAPHY: Russell I. Pillar

Russell I. Pillar, 32, joined the Prodigy Services Co. as the president and chief executive officer of Prodigy Internet in October 1997. His purpose in joining the Prodigy Internet team was to "untangle the Web in an effort to create a more fulfilling consumer online experience." Since then, Prodigy Internet, the fastest-growing Internet provider in the United States, was awarded the "1997 PC Magazine Editor's Choice Award for Best Internet Service Provider."

Russ Pillar graduated Phi Beta Kappa, cum laude, from Brown University with an A.B. in East Asian Studies. Pillar was a Japan Airlines International Scholar and a national finalist in the Rhodes Scholarship competition. He also served as an International Scholarship Fellow in Tokyo and is fluent in English, Japanese, and French. Over the past decade, Pillar has served as the founder and/or president of many public and private technology companies. In addition to serving as the president and CEO of Prodigy Internet, Pillar also manages investments he initiated while a managing partner of Critical Mass, a company he founded in 1991. He also serves on the State of New York's Governor's Task Force on New Media and the Internet and is a member of the Executive Council of the International Engineering Consortium. Pillar is a founding director of Eyecycle, a national nonprofit organization that arranges for tandem bicycle rides for the visually impaired and blind. He has served as a director of the Suncoast Ronald McDonald House, is an active member of the Young Presidents' Organization, and is a volunteer for the Special Olympics.

Whereas China is a somewhat unusual market for an online or Internet service, Africa is a downright revolutionary one. But Prodigy Inc. has established a subsidiary called Africa Online, with offices in the Kenyan cities of Nairobi and Mombasa, as well as Accra in Ghana, and Abidjan in the Ivory Coast. In March 1997 it announced that it would expand into Tanzania and Uganda in the following month, with Egyptian and South African launches planned for year's end. No less an authority than Microsoft chairman Bill Gates has called the Internet "the single most important tool that will open Africa up to the rest of the world." But whereas Gates spoke of governments and large corporations spurring on this movement, Prodigy's literature offers the opinion that it will be driven by smaller businesses and forward-thinking individuals.