Prodigy was founded in 1984 as a joint venture between computer manufacturer IBM, US retailer Sears, and television network CBS. CBS left the venture in 1986, and the service finally launched in 1987. It was bundled with IBM's consumer-oriented PS/1 line of computers, and thanks to aggressive marketing in various magazines, soon had more than a million members.
Prodigy was accused in late 1990 and early 1991 of spying on its users; this was one of the first online privacy scares. The evidence offered was bits and pieces of user data showing up in two files: STAGE.DAT and CACHE.DAT. Prodigy contended that the data was never transmitted, but rather their software was taking unused disk space and not zeroing it before using it, thereby mixing Prodigy's data with deleted user files. However, some users claimed user data appeared even on freshly formatted disks that had Prodigy installed on them. Plus, it was unclear whether these data files were ever transmitted to Prodigy or used exclusively for local storage.
Prodigy also was accused of heavy-handed censorship of its users, for a time banning the mention of other users in public forums. The most infamous example of this was a coin collector's message being banned because it contained the phrase Roosevelt dime — there was also a user of the service named Roosevelt Dime.
Many sophisticated users avoided the service for these reasons.
The growth of the Internet into homes in the mid 1990s hurt Prodigy, who in 1994 became the first of the early-generation dialup services to offer access to the World Wide Web and to offer Web page hosting to its members. Soon, the company retooled itself as an ISP, making its main offering Internet access branded as Prodigy Internet. The original dialup service was rebranded as Prodigy Classic. Prodigy Classic folded in January 1999 due to Y2K concerns. In the end, the service only had 209,000 members.
IBM and Sears sold their interests in Prodigy in 1996 for $200 million. It was estimated that the two companies had invested more than $1 billion into the service since its founding. Prodigy went public in 1999. It was bought out in November 2001 by SBC Communications.
In the mid-1990s, when AOL was derided for its busy signals and other problems, Prodigy ranked high in consumer satisfaction and reliability surveys. However, at the time of its buyout, it was dwarfed in size by AOL and MSN. The brand name survives as a subsidiary of SBC.