Can Prodigy Keep Pace?

It's the electronic equivalent of luring moviegoers to theaters with silent films: While other online services are rushing out multimedia upgrades, Prodigy Services Co., the joint venture of Sears, Roebuck & Co. and IBM Corp., still employs 10-year-old graphics. And the audience clearly wants talkies: Prodigy says it is making money for the first time, but the service has dropped to No. 3 in the market, behind America Online Inc. (which carries BUSINESS WEEK) and CompuServe Inc. With Microsoft Corp. expected to enter the online fray come September, "Prodigy is going to slide out of the top three pretty quickly," predicts Gary Arlen, president of market researcher Arlen Communications Inc.

To help shore up its position, Prodigy has been working feverishly on all-new software to upgrade its service. On July 28, the company plans to unveil a new interface that will give the online service a "look totally different from before," says Edward Bennett, Prodigy's president. The software also improves Prodigy's performance: Gone, for example, is the six-page limit on E-mail messages and the impersonal account numbers that identify members online.

FACELIFT. Impressive? Hardly, considering that the other online services already have such features. What's more, Prodigy months ago was previewing a much more powerful interface dubbed "P2." That version, housed on four floppy disks, contained heavy-duty features such as a built-in spreadsheet to automatically chart downloaded stock prices. The previewed version also had the snazzy look and feel of the forthcoming Microsoft Network.

Bennett says that the roll-out of this current interface--called "P1.7" by Prodigy and "P2-Lite" by industry insiders--is just an interim step. "What we wanted to do is get this product out to market and show people what we're doing and what it looks like," says Bennett. Some P2 features, he says, could be added within the next six months. In the meantime, Prodigy will continue to upgrade its links to the Internet's World Wide Web.

Detractors say such moves are too little, too late. Some analysts question whether one or both managing partners will abandon Prodigy, having sunk an estimated $1 billion into an operation that is barely profitable.

Sears and IBM both deny they're considering an exit. But unless Prodigy produces better software quickly, and brings in a lot more paying customers, the partners will have little to show for their patience.

Before it's here, it's on the Bloomberg Terminal.