The week in review: Retailers, Net giants join forces

AOL signs cross-marketing agreements with Circuit City and Wal-Mart, while Yahoo forges a similar pact with Kmart in a year-end flurry of deals between Internet heavyweights and "brick and mortar" giants that may signal a new stage in the development of e-commerce.

7 min read
America Online signed cross-marketing agreements with retailers Circuit City and Wal-Mart, while Yahoo forged a similar pact with Kmart in a year-end flurry of deals between Internet heavyweights and "brick and mortar" giants that may signal a new stage in the development of e-commerce.

The common goal is to reach non-Internet-savvy consumers, but most of the benefits may go to the powerful retail chains that have yet to catch on with wired shoppers, analysts say.

Bricks to clicks, redux
The AOL-Circuit City pact calls for the online giant to be promoted in Circuit City's 615 stores, where customers will be able to sign up for AOL's Internet service. AOL also will feature in Circuit City's marketing programs. In return, Circuit City will become an anchor tenant on the Shop@AOL, increasing the retailer's Net presence.

AOL's deal with Wal-Mart will launch a low-cost Internet access service primarily catering to more rural consumers who live within reach of Wal-Mart's 2,485 locations. The retailer will distribute AOL software promoting Wal-Mart's shopping site--set to relaunch Jan. 1--and provide media advertising and in-store promotions. AOL's shopping service will tout the site.

Meanwhile, Yahoo will join Kmart in creating a free Net access service called BlueLight.com. The retailer will promote the service (powered by a free ISP company with backing from Softbank and Seagate founder Al Shugart) by distributing CD-ROMs throughout its 2,177 stores. Yahoo will pitch in content and personalization features; the ISP will promote Yahoo Messenger, the company's instant messaging client.

Internet companies have traditionally forged deals with other high-tech firms, paying one another for promotional consideration or using PC manufacturers to get their brands in front of users when people turn on their computers. Tapping the mass market offers a broad new scale, but may prove more valuable for offline giants struggling to crack the digital domain. "This is great for Kmart's brand, but it drags down Yahoo's brand, making them seem like the discount, mainstream Martha Stewart of the Internet," one analyst said.

The free Net access business model has been around for several years, but it wasn't until NetZero took off early in 1999 that the rest of the industry began paying attention. AltaVista was the first to follow, but the coming of well-established retail brands will likely attract a new group of potential users curious about free dial-up services and could prompt still more companies to offer similar free services.

Seemingly ever-present Microsoft also agreed to a cross-marketing pact, with Best Buy, although the software giant's $200 million investment in the electronics retailer seems to separate this tie from the others. Still, Microsoft's recent agreement with Tandy's RadioShack kicked off the wave.

Content everywhere
Like rival Yahoo, Excite@Home is expected to begin offering a free dial-up Net access service, using technology provided by CMGI-owned 1stUp.com, in hopes of luring a larger customer base. Excite@Home already is the largest provider of high-speed Net access over cable networks.

Separately, Excite@Home and Sega of America will blend the portal's content with Sega's interactive gaming site, Dreamcast Network. Besides being a video game player, the Dreamcast console accesses the Internet through a built-in 56-kbps modem. Sega already has sold over 1 million units in North America since it launched in September.

Redwood City, Calif.-based Excite@Home further said it is in talks with Microsoft to develop enhanced television services for set-top boxes and other devices. Excite@Home plans to develop a broadband TV portal and other applications to work with the Microsoft TV platform, yet another leg in the race to connect consumers to the Internet over devices other than the PC.

DSL service providers Covad Communications, Rhythms NetConnections and NorthPoint Communications are in the early stages of signing and negotiating partnerships with content providers, technology companies and caching firms, allowing them to combine Internet content with their high-speed networks. Executives face dwindling profits as the cost of broadband services falls.

CompuServe will phase out its wildly popular $400 rebate program--which saw subscriptions rise by 378,000 from July through October--in the first part of next year, but experts and executives agree that with the discount genie out of the bottle, more deals are likely to emerge.

Planning ahead
Intel shaved between 2 and 7 percent off the price of its Pentium III processors, a relatively modest discount for the holiday shopping season, but more cuts are coming. The chip giant trimmed processor prices 13 times in 1999, while rival AMD typically answered with discounts of its own--making for a banner year for consumers.

The Santa Clara, Calif.-based company will announce 750-MHz and 800-MHz versions of the "Coppermine" Pentium III processors next week, once again wresting the processor speed crown from AMD. But the move will be symbolic in that few of the new chips--originally scheduled for the first quarter of 2000--have been shipped to PC makers. Intel has usually waited until it was producing fairly substantial volumes of its newest microprocessors before making such announcements, but AMD's fastest offering has been gaining ground.

Covalent, which sells technical support and enhancements for the open-source, market-leading Apache Web server software, received $5 million in venture funding that it plans to use to emulate red-hot Red Hat. With Linux a proven technology to win the attention of Wall Street, Covalent is one of several companies hoping that business plans built around other open-source technologies will be their ticket to glory.

SGI released more of its software to the open-source community, trying to better fit the Linux operating system into the company's strategic plans. Hamstrung by weak financial performance, the hardware maker is casting its lot with Linux and chipmaker Intel for the long term, switching over a period of years from its current computers, which use MIPs chips with SGI's Irix version of Unix.

Microsoft is hiring three more programmers to bolster its competitive evaluation of Linux. In the past, Microsoft has denied it considers Linux a threat, but the company's actions prove it's not complacent that the Windows 2000 rival will go away.

Separately, after months of delays, Microsoft finally completed writing, testing and revising the code for Windows 2000 and released it to manufacturers. The company says it's on target to meet its scheduled ship date of Feb. 17, 2000. The revised version of its corporate operating system is widely thought to be the most important software development project in its history.

A bit of space
SAP plans to replace Oracle with Microsoft as the primary database for almost all of its internal development work on Windows. Last week, SAP announced it is forging a tighter relationship with IBM on other operating system "platforms," again distancing itself from the long-time database market leader. Oracle has historically been a close partner of companies it also competes against, such as SAP and Siebel, but those relationships have recently shifted as software makers have moved into new markets.

In response, Oracle simplified rates and slashed prices on its flagship software. Rates were cut by 50 percent, but the uniform prices will actually represent discounts of closer to 25 to 30 percent, executives admitted. To date, customers have had to negotiate the best deal on Oracle's software, since the company did not adhere to published prices.

USWeb/CKS and Whittman-Hart plan to merge in a stock-for-stock deal that will create a combined company worth about $14 billion. Both companies compete in the growing services market against giants EDS, CSC, Andersen Consulting, PricewaterhouseCoopers and smaller, boutique firms such as Razorfish, Viant, Scient and Proxicom. The industry has been moving to more lucrative, Internet-driven projects and consulting deals as companies make the transition to the Web. Wall Street was unimpressed.

Separately, USWeb and 3Com will jointly develop and sell wireless applications for mobile devices such as 3Com's popular PalmPilot. The collaboration also includes voice, video and data products, and 3Com will make a $100 million investment in USWeb. Executives said the deal goes hand-in-hand with the struggling network equipment maker's goal of selling its gear to businesses that need to connect customers, partners and workers to the Web.

No promises
Wal-Mart's Web store and Toysrus.com posted disclaimers saying they can't promise items ordered this past week will be delivered in time for Christmas. eToys said orders placed after Tuesday must be express-shipped to make it to customers by Dec. 24; the same applies to Amazon.com, Target.com, Macys.com and Buy.com orders placed after Wednesday. "This [shutdown] is happening a little bit earlier than expected," one analyst said. The shipping deadlines arrived as some e-tailers were fighting to shore up depleting inventories.

Eager to spur digital music sales, Virgin Megastores will stock Diamond Multimedia's Rio 500 players and teach CD buyers how to use the devices to download tracks from in-store kiosks. The devices will support specifications set by the recording industry's Secure Digital Music Initiative (SDMI) to curb the illegal copying of music. Until now, kiosk users could only download digital music to CDs, DVDs or minidiscs. The initiative will be closely watched as a sign of whether consumers are ready to start collecting and storing music for play on portable devices.

In launching a site featuring music entertainment, Tommy Hilfiger is apparently trying to avoid conflicts with retailers and other problems that come with e-commerce. The fashion designer could be taking a cue from Levi's, which tried to sell clothing directly but backed out after finding that it was too expensive and that it cut into its retail partners' sales.

Also of note
Compaq Computer tapped Samsung Electronics to manufacture its newest Alpha processor in a deal worth $500 million ... Content acceleration company Akamai Technologies announced a new strategy to speed the delivery of online applications too ? The Clinton administration surprisingly delayed the release of new rules easing the export of computer data-scrambling products by about a month ? A congressional panel charged with investigating Internet taxes elected to put off making any decisions until its March meeting, shortly before its final report is due ? The Justice Department hired Stephen Axinn, a renowned antitrust lawyer, to scrutinize MCI WorldCom's proposed acquisition of Sprint.