Online Firms Face Perils Dangers Include Rising Popularity Of Internet

What better business these days than the online industry? It’s glamorous, out on high-tech’s cutting edge and, in the future, ought to attract many more customers.

But the decision announced Wednesday by Sears Roebuck & Co. to sell its 50 percent stake in Prodigy Services Co., one of the industry’s pioneers, is the most ominous sign yet that the cyberspace business is treacherously unsettled.

For all the hype about the online world, almost no one is making money in it. And big-dollar investments are needed to sustain growth, but executives have grown wary about spending the money, fearing an unseen advance in technology might render the effort worthless.

Sears for months has been rumored to be thinking about bowing out of Prodigy. But its disclosure was unusual because companies typically say nothing about a prospective asset sale until a buyer is found.

No one publicly admitted interest in Sears’ stake in Prodigy Wednesday, although IBM, which owns the other half of Prodigy, has hired investment bankers to figure out what the business is worth.

Since the start of 1995, Prodigy has gone from a close No. 2 to a distant No. 3 in number of subscribers. And the previous third place firm, America Online Inc., has taken a commanding lead.

More important, however, is the threat to the online business from the Internet’s World Wide Web, which has emerged as a common arena for data that can be used easily - and more cheaply - by publishers of information and consumers of it.

By placing information on the Internet, so-called “content” companies can reach the most people and avoid the expense of preparing information for online services, which have a hodgepodge of software and technical requirements.

“The Web came through and blasted everyone around,” said Maureen Fleming, analyst at Digital Information Group in Stamford, Conn. “IBM, AT&T, America Online, Microsoft, all of them are trying to figure out how they can survive in this environment.”

Microsoft Corp., for example, changed the structure of its Microsoft Network just four months after it was launched. The changes align it closely with the Internet.

Ironically, Prodigy was the first major online service to recognize the changes wrought by the Internet.

But Prodigy has suffered from a non-glamorous reputation due to stodgy marketing and lengthy delays in giving the Web browsing software a contemporary look.

The uncertain ownership fate of Prodigy comes against a backdrop of major upheavals in most other online companies.

Just this month, News Corp. scrapped a year of development in an Internet service, laying off half the 500 people working on it.

Partner MCI Communications Corp. cut its investment and said it would work more closely with Microsoft in online ventures.

Apple Computer Inc.’s new chief executive Gil Amelio has placed its eWorld online service under scrutiny.

AT&T Corp. last month halted development of the budding Interchange online service, just 13 months after spending $50 million to acquire it from Ziff-Davis Publishing Co.

H&R Block Inc. lost money in its latest quarter because of heavy capital spending at CompuServe Inc. and said Tuesday it would spin off the subsidiary. And even the fast-growing America Online squeaked out just a $10 million profit on $250 million in revenue in its latest quarter.