In a move that may give America Online access to a stream of
less technologically savvy subscribers, the giant online services
firm today announced a far-reaching marketing alliance with retailing giant
Wal-Mart, including the launch of a low-cost Internet access service.
The alliance would create a co-branded ISP that caters to the needs of
consumers who live in the more remote communities across the United States
that are serviced by Wal-Mart's blanketing presence.
Bentonville, Ark.-based Wal-Mart operates more than 2,485 stores across
the United States. AOL has 19 million members, while its CompuServe
subsidiary has about another 2.2 million members.
The much-anticipated deal earlier this week pushed Wal-Mart stock to a new
record and helped Dulles, Va.-based AOL hit a 52-week high on expectations that each
company will get a piece of the puzzle that it lacked. Wal-Mart is set to
relaunch its e-commerce Web site, Wal-Mart.com, next month, and having a
greater number of its customers connected to the Internet is likely to mean
greater success for the site.
In return, AOL gets to pursue an increasingly popular strategy among
Internet companies: linking up with bricks-and-mortar outlets to draw new
customers onto the Net.
Microsoft today inked a similar
deal with computer and electronics retailer Best Buy to cross-promote each
others products and services. The deal, however, included a $200 million
investment by the software giant in Best Buy.
"It's always been a key priority for us to be everywhere our customers are,
and with new segments of the mass market coming online there's no better
way to do that than work with Wal-Mart," Bob Pittman, president of
AOL, said in a statement. "This relationship provides us with a great
opportunity to introduce new users to all the benefits of the Internet and
enrich the experience of all online consumers."
While still split over who is likely to benefit more from these
relationships--the established online players or the traditional retailers
piggy-backing on them--analysts agree that the moves may attract
subscribers to online services who may otherwise have never considered
Phil Leigh, an analyst at investment bank Raymond James, said Wal-Mart customers may be more willing to try an online service offered to
them by a brand-name retailer they have grown to trust.
"If someone is standing in Wal-Mart with a cart full of disks and handing
them out, it gives these people who may never have been on the Net a sense
of security," said Leigh.
The growing importance of this strategy is magnified as the number of
people coming onto the Internet has slowed, according to Media Metrix, and
Web players are searching for new ways to draw upon untapped markets.
Just yesterday, Yahoo and Softbank Venture Capital announced an agreement with Kmart to create a
co-branded free Internet access service.
Last month, Microsoft cut
a deal with Tandy-owned Radio Shack stores to promote its MSN services,
pumping $100 million into the electronics store and featuring it on the MSN
AOL has also been busy pursuing this strategy. Yesterday, it
announced a partnership with
computer retail chain Circuit City in which the chain will promote AOL's
products and services and in return get prominent placement on AOL's site.
Earlier this fall, AOL signed a marketing deal with Seagram's Universal
Studios that will bring AOL
kiosks to Universal's new Island of Adventure theme park in Orlando,
In today's deal, the new co-branded Wal-Mart/AOL ISP will be a customized
version of the CompuServe service--which is aimed at customers wanting
lower prices. Wal-Mart customers will be given software they can use to
quickly and easily create an online account with the new Internet service
offering local access.
In addition to distributing the co-branded Wal-Mart/AOL ISP, Wal-Mart will
also distribute AOL 5.0 software that will have an automatic link to
Wal-Mart's Internet shopping site. The retailer will also promote both the
Wal-Mart/AOL co-branded ISP and the AOL flagship service through print,
radio and television advertising, and in-store promotions.
Wal-Mart.com, set to be relaunched on Jan. 1, will also be placed on
Shop@ areas across AOL's brands.
The companies also said they would be exploring ways to market a
range of next-generation interactive devices and services--such as AOL TV--designed to appeal to Wal-Mart customers.