America Online Inc. and Microsoft Corp. yesterday announced separate partnerships with bricks-and-mortar retailers, continuing the rush of new alliances aimed at reaching the next generation of people who will go online.
AOL confirmed its rumored deal with Wal-Mart Stores Inc., the world's largest retailer. The two will create a low-cost service aimed at bargain customers. On Wednesday, AOL unveiled a marketing deal with Circuit City Stores Inc.; last month, the service provider signed a deal with the Blockbuster video chain.
Microsoft said yesterday that it would invest $200 million in Best Buy Co. stock. The retailer will display and sell the MSN Internet access service in its 350 consumer electronics stores nationwide. In exchange, Microsoft will promote Best Buy on its popular Web sites, including MSNBC.com. Microsoft signed a similar deal last month with Tandy Corp. to market its products in RadioShack stores.
Web search and directory site Yahoo Inc. jumped into the Internet access fight Wednesday when it announced an alliance with Kmart Corp. to create a free service available through the retailer's stores. Kmart will spin off the online service, called BlueLight.com, as an e-commerce company.
Merrill Lynch & Co. analyst Dan Barry predicted that the free service would sign up "millions of customers" in the next few months. He called the idea of the first player being the winner on the Internet "nonsense" and said the bricks-and-mortar retailers have significant advantages over "dot-coms" because they have the trust of customers and will inevitably be more successful.
Analysts say the deals underscore that the battle to lure technology stragglers online will be significantly more aggressive than the marketing campaigns seen in the past few years, which were ruled by AOL's ubiquitous disks.
AOL and Yahoo, with their partnerships with discount chains, appear to be going after moderate-income users. Microsoft, on the other hand, is targeting sophisticated Internet users who want to move beyond the sluggish telephone dial-up access to high-speed cable or digital-subscriber-line connections, analysts said.
A few analysts said they expect some of AOL's 19 million subscribers and MSN's 1.9 million to jump to the new free or reduced-price services but others have argued that the impact on their existing customer bases would be negligible because the existing services might be perceived as more reliable.
The new alliances, however, do pose a threat to smaller Internet service providers such as OneMain.com of Reston, which has more than 600,000 customers and is one of the top 10 ISPs in the country, said Youssef Squali, an Internet analyst with ING Barings. The company has succeeded so far by marketing to small towns and rural areas where the larger ISPs can only be reached through long-distance calls or 1-800 numbers. Many of the Kmart and Wal-Mart stores are located in such areas, and both companies have said their goal is to bring these areas online.