VitaminShoppe.com cuts AOL deal in half

The new deal significantly shortens the companies' original two-year, multimillion-dollar agreement inked last December. Originally, the online vitamin seller was slated to become an anchor tenant on a number of areas on AOL's proprietary service and given featured promotional areas throughout other AOL brands such as CompuServe, AOL.com, Digital City and Netscape Netcenter.

Now, VitaminShoppe will receive carriage solely on AOL's Health Channel until mid-October.

A VitaminShoppe representative would not comment on specific details regarding the new terms. She said the company would "leave our options open" once the deal expires next month.

AOL spokeswoman Wendy Goldberg said VitaminShoppe has "met their commitments to AOL," but declined to disclose any financial terms for the agreement.

VitaminShoppe becomes the latest dot-com start-up to renegotiate an existing multiyear, multimillion-dollar agreement with the online giant. In late April, online health site Drkoop.com restructured its four-year, $89 million deal with AOL after disclosing it was running out of cash. As a result, the Web start-up structured an agreement where AOL would take a 10 percent stake in the company, opening interpretation that AOL was forced to take the stake to recoup potential shortfalls from Drkoop's financial woes.

VitaminShoppe's history with AOL has been short-lived and troubled. In June, VitaminShoppe said it would discontinue its advertising on AOL due to a "dispute over the performance of their advertising relationship," according to a company statement.

While VitaminShoppe today declined to comment on the dispute, analysts say the fractured relationship is another example of big-dollar portal advertising deals that have fallen short of expectations.

Despite studies that indicate online advertising will continue growing in the coming years, online-advertising buyers are demanding more bang for their buck. This has shifted the power dynamics on the Web, where portals such as Yahoo have increasingly lost clout as advertisers question the effectiveness of multiyear, multimillion-dollar ad buys. In the meantime, companies such as Yahoo are finding ways to show advertisers a clear return on investment by developing different types of promotions and ad deals.

According to analysts, VitaminShoppe's experience with AOL underscores the changing dynamics of online-advertising strategies. In addition, dot-coms are focusing more intently on reaching profitability, which makes them less willing to ink expensive portal deals to bolster their businesses.

"Everyone wanted to sign a portal deal last year because it was your ticket to go public," said Scott van Winkle, a research analyst at Adams Harkness & Hill. "But the deal arrangements were weighted too heavily to benefit the portals."

Furthermore, VitaminShoppe's move away from AOL may indicate that the company will rely on its offline retail stores and mail-order catalogs to move its customer base online.

"It's more a function of them saying, 'You know, this has not worked as well as we hoped it worked, and we think we can get more customers by focusing on traditional methods,'" said Timothy Fogarty, a research analyst at Thomas Weisel Partners.