As previously reported, the service will be offered through Kmart's e-commerce site, called BlueLight.com, and will be powered by Spinway, a free ISP with funding from Softbank and Seagate founder Al Shugart. Kmart will distribute CD-ROMs for the free ISP throughout its 2,177 stores nationwide by February 2000.
Yahoo will become the interface for the co-branded service on BlueLight.com by providing its content and personalization features. The service will also be a distribution point for Yahoo Messenger, the company's instant messaging client.
"We think the Kmart customer base represents the next wave of users onto the Web," said Ellen Siminoff, senior vice president of corporate development at Yahoo. "We view it as an effective distribution platform for us and a way to expand our offerings."
Similar to free ISP 1stUp.com, which powers AltaVista's free Internet service, Spinway requires users to download an interface that feeds advertisements to them. By doing so, the company can track user behavior and habits. With this information, the free ISP can sell spots on its interface to advertisers looking to target their product messages.
"Internet access is a mainstay in the lives of so many people," Floyd Hall, chief executive of Kmart, said in a statement. "By working with Yahoo, BlueLight.com will be able to offer our users a high-quality online suite of services."
News of the expected deal comes as more Internet heavyweights are turning to offline retail chains to add mainstream consumers to their services.
America Online today announced a partnership with computer retail chain Circuit City. The agreement gives AOL promotion in Circuit City's stores and advertisements, while Circuit City will be featured as a vendor on AOL's online shopping services. AOL also is expected to announce a similar cross-marketing deal with Wal-Mart, according to Salomon Smith Barney analyst Richard Church.
These deals come in the aftermath of Microsoft's recent co-marketing agreement with Tandy's RadioShack stores to market its Internet services.
The trend toward striking deals with brick-and-mortar stores indicates that Internet giants are looking for more ways to add mainstream consumers to their services. Internet growth in recent months has slowed, according to reports by Media Metrix, leaving some analysts to wonder whether the phenomenon will hurt Internet stocks.
But analysts still view these deals as an indication that retailers need to partner with Internet giants to make a splash with their e-commerce efforts.
"The retailers are saying, 'Here's an opportunity--rather than us establishing a brand and growing traffic, let's partner with these guys,'" said Safa Rashtchy, an equity analyst at Piper Jaffray. "If you're as big as Kmart, you want to go after the majority of Internet audiences."
Despite the expected tie-up, Yahoo and Kmart stocks fell in trading today. Yahoo dropped 5.62 to 327.5, and Kmart slipped 1.12 to 11.12.