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1-800-Flowers.com re-waters its AOL deal

The online flower retailer renegotiates its marketing agreement with the giant Internet service provider, signing a five-year deal to be the exclusive flower retailer across AOL's network of sites.

Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
Stefanie Olsen
2 min read
In a sign that there's power in the flower, 1-800-Flowers.com today said it renegotiated its marketing deal with America Online, resulting in more favorable terms for the online retailer.

Under the deal, 1-800-Flowers will pay AOL $21.1 million over five years to be the exclusive flower retailer on the Dulles, Va., Internet service provider's network of sites. Previously, the company was paying $42 million for a four-year marketing deal, according to a filing with the Securities and Exchange Commission.

"This is a sign that 1-800-Flowers.com has some leverage here and is flexing its muscle," said Kristine Koerber, a senior analyst at WR Hambrecht.

"Given what's going on in the dot-com market, 1-800-Flowers.com is a good partner because it has a viable business model, good management and a strong brand name," she said. "They're not going out of business" like other online retailers.

The deal will help Westbury, N.Y.-based 1-800-Flowers improve its cash flow, allowing the company to better its financial position and push toward profitability in the fourth quarter of fiscal 2001, the company said.

"This lowers their sales and marketing expenses $1.4 million a quarter," said Bob Hiler, a vice president at Credit Suisse First Boston.

Many analysts say this deal is confirmation that 1-800-Flowers will continue to be a leader in the online flower market. The company has been renegotiating its deals with other portals as well, industry watchers say.

The partnership comes as many other online retailers are struggling to pay the bills--no longer striking multiyear, multimillion-dollar marketing deals, which a few years ago were more prevalent between portals and online retailers flush with cash. After paying heavily for real estate on sites such as Yahoo, Excite and AOL, many online retailers discovered that the investment was not worth the return.

CDNow and VitaminShoppe.com are among those that have renegotiated marketing deals with major portals after realizing that the expense outweighed the benefits, analysts said.

Portal addiction Seventy percent of 1-800-Flowers' sales come directly from customers typing in the company's Web address directly rather than from a portal site such as AOL, said Eric Beder, a research analyst with Ladenburg Thalmann.

"With that kind of recognition, some of these portal deals don't make sense anymore," Beder said. "The portals need them more than (the retailers) need the portals."

"Dot-coms have less cash, and those who do have cash have more power," Hiler said.

As part of today's deal, 1-800-Flowers will promote AOL on its Web site. The deal will go into effect Oct. 1.