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AOL signs major online shopping deal

Lest people conclude that online shopping is dead: CUC International will pay AOL $50 million for the privilege of selling and marketing to AOL customers.

Undaunted by the failure of IBM's World Avenue, America Online (AOL) announced plans today for a $50 million online shopping network.

CUC International, a major online marketing firm, announced that it is paying AOL $50 million for the privilege of selling and marketing its services to AOL customers.

While online stores are having a tough time making it on the Web, shopping centers have a better chance on online services.

That's what Brian Oakes, analyst with Lehman Brothers, concludes from today's dueling announcements.

"Do things work on online services and not on the Web?" Oakes asked. "This clearly indicates that. Starting things up on the Web is not a means of success, no matter who you are."

On the Web, even a company with a great product and a strong brand name has a tough time attracting sufficient customers. But many merchants feel uncomfortable in online malls with no recognizable identity of their own or that are too strongly identified with technology companies--that was the chief reason that IBM is closing its World Avenue, for example. (See related story)

With an online service, companies can leverage the power of aggregation, packaging, and direct marketing but without feeling like it's hidden behind the online service's brand name.

"CUC used to do this on the Web," Oakes said. "They're clearly stating it doesn't work as well."

Under the AOL deal, CUC will pay AOL a nonrefundable $50 million over the next 36 months. Bob Pittman, the president and CEO of AOL Networks, the online service portion of AOL, refused to disclose other details of the deal.

But sources say AOL will get money every time an AOL member signs up for one of CUC's shopper clubs such as Shopper's Advantage, Traveler's Advantage, AutoVantage, and PrivacyGuard, as well as NetMarket.

AOL is continually boosting itself as an online shopping Mecca because it attracts more mainstream, less technical users with disposable income who are willing to put their credit cards online. The service says it already has more than 400 online stores with products ranging from books to vacations to software.

The bottom line, analysts say, is that AOL has the customer base. No matter how people may criticize AOL for its poor connection rates, its sometimes frustratingly slow load times, intrusive marketing methods, and so on, at the end of the day, AOL still has 8 million customers, the most by far.

As the next wave of users comes online--folks who have never been online before--they're more likely to be attracted to online services like AOL and Microsoft Network than to the Internet in general, Oakes said.

That's good news for marketers. "AOL users look for packaging," he said. "They'll opt for the packager of information. If you look ahead, you're heading into the 'Joe Six-Pack' crowd. The next wave of people are much less inclined to do their own searching. They're going to go with whoever does the online packaging."

Emily Green, online retailing analyst with Forrester Research, thinks that AOL can make online shopping work because it coordinates its online content with its e-commerce offerings, for example putting a link to a shopping service within or close to a publication or chat area about a related subject.

Senior writer Tim Clark contributed to this report.