When International Business Machines Corp. and Sears, Roebuck and Co. teamed up to launch Prodigy Services Co. in 1988, the pioneering on- line service offered unlimited connect time for a flat monthly fee. The owners hoped to augment revenue by charging transaction fees for on-line purchases and advertising.
Events - notably the aggressive growth surge by America Online Inc. - overtook that strategy, pushing Prodigy down in the rankings. Prodigy in 1993 fell in line with the then-dominant model, charging by the hour. The early cyberspace surfers were on the prowl for cool sites, however, and virtual shopping malls didn't generate much traffic.
Prodigy became a living example of the adage that management guru Peter Drucker formulated this way in a recent issue of Wired magazine: "There has been no case in history where the pioneer became the dominant producer. The most successful innovators are the creative imitators, the No. 2."
In a maturing market, and having been sold to the Mexican telecommunications giant Groupo Carso, Prodigy, now the No. 4 service, was the first to go back to the future with a flat monthly fee of $19.95 for unlimited access to a new service called Prodigy Internet.
"We believe this goes a long way to setting a new standard," said David Frankel, Prodigy's director of banking services. "Sophisticated users of the Internet will find this competitive with Internet service providers, and new on-line users will be happy with the navigational and personalization aspects of Prodigy."
Prodigy isn't alone in adapting to the Internet. Second-place Compuserve, with 5.3 million members, also recently released software that blends the Internet with the service's proprietary content. It still charges, however, for usage after the initial 10 hours covered by a flat fee. America Online and Microsoft Network, the No. 1 and No. 3 on-line services, have followed Prodigy's lead, offering unlimited time on their services and on the Internet for $19.95 a month.
As the distinction between commercial on-line services and Internet service providers blurs, the on-line services may begin to distinguish themselves less by their content and more by the ease with which they enable transactions by computer users.
But while AOL has been growing dramatically, Prodigy's stagnant membership of one million has given analysts pause.
"They are too far behind" AOL, said Ulrich Weil of Friedman, Billings, Ramsey & Co. in Arlington, Va. "Compuserve may have to be sold and Prodigy, as well."
Others, including officials within the company, note that Prodigy's willingness to start over may mark a clean break from a past littered with marketing misjudgments.
"We have no problem with Prodigy Internet cannibalizing Prodigy Classic because we view this as the platform that will take us to the 21st century," said Prodigy spokesman Michael Darcy.
"Prodigy is working hard and may gain some good word-of-mouth," said a consultant who worked closely with it on developing the new product.
As with the recently updated version of America Online, Prodigy Internet is for computers that run on a variety of platforms, including Apple Macintosh, Microsoft Windows 95, and Windows 3.1.
All four of the major on-line networks have begun using Microsoft's Internet Explorer as their default Web-browsing software. But Prodigy adds a "tool bar" navigation aid that allows members to customize places on the Web or on Prodigy that they automatically visit.
Prodigy's initial vision - that the on-line world could be a sort of giant shopping mall - may ultimately win over cyberspace. But malls from the real world cannot simply be transferred intact.
"Consumer malls won't work in cyberspace," said senior analyst David Weisman of Forrester Research in Cambridge, Mass. "People are looking for spaces with special, well-defined interests.
"The on-line services will be valuable as an advertising spot because there are people using sites that are valuable. But they are not going to be viable in the long term."
One of Prodigy's strengths from the beginning has been in financial services. First Chicago NBD Corp. (then First Chicago) and Wells Fargo & Co. were among the first to deliver services via Prodigy in the late 1980s. The company's Prodigy Classic software interface relied upon text-based screens with few or no graphics, but it allowed fully functional banking.
Others that followed on Prodigy are Banc One Corp., Barnett Banks Inc., Boatmen's Bancshares, Chase Manhattan Corp., Citicorp, Comerica Inc., CoreStates Financial Corp., Delaware Trust Co., and PNC Bank Corp.
The connections to Prodigy were developed on a proprietary basis and were therefore expensive. IBM and Sears were constrained from investing seriously in the early 1990s - precisely the time ripe for expansion.
"The market had not matured as fast as we wanted it to, especially for transactions and advertising," said Mr. Darcy. "Our timing was off."
Prodigy is confident it can stage a comeback, but this time it faces competition on all sides. Microsoft Network's quiet surge to 1.6 million subscribers has pushed Prodigy into last place among the on-line networks. And officials at market-leading AOL practically laugh at Prodigy's prospects.
"I don't care about them," said AOL Studios president Ted Leonsis. "I don't look in a rear-view mirror."
"Someone would be dumb to use someone else" besides AOL, that company's chief executive, Steve Case, taunted.
While AOL and Microsoft are going after the mass market with "channels" targeted at different demographic segments, Compuserve is looking to the technically sophisticated consumer. Having attempted, and recently discontinued, a beginner's on-line service called Wow!, Compuserve remains most heavily used by professionals, often in overseas markets.
"AOL emphasizes the social nature of their service, and chat is their single most popular feature," said Elizabeth Sibbring, director of commerce at Columbus, Ohio-based Compuserve. "Our service is typically perceived as a high-utility professional service."
She said Compuserve members buy four times as many airline tickets a month as AOL users. A survey found that 70% of Compuserve members were willing to bank on-line. Many depend on automated tellers, rarely enter bank offices, and use on-line brokerages.
Prodigy officials are not daunted by the competitive challenge.
"Prodigy Internet is a very friendly and personalized service," said Mr. Frankel. "The tool bars are with you so that you are never, ever lost.
"The majority of banks will be offering Web-based solutions in the immediate future," said Mr. Frankel, who was part of the team at Citicorp that in 1985 developed Direct Access, one of the first PC banking products and still among the most popular. "Prodigy hopes to provide access to Web sites as well as a safe harbor and an easy way to get there."