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Analyst: AOL, Wal-Mart deal "imminent"

The online service and retail giant could be closer to striking a cross-marketing deal to expand the scope of their services, according to an analyst report.

Online service America Online and retail giant Wal-Mart could be closer to striking a cross-marketing deal to expand the scope of their services, according to an analyst report published today.

"After much speculation and anticipation about a possible alignment taking place between Wal-Mart and America Online, we believe that an announcement is imminent," Richard Church, a retail analyst for investment firm Salomon Smith Barney, wrote in his report.

Church said the companies could explore two possible scenarios for their partnership. One scenario entails the companies entering into a "cross selling" arrangement in which Wal-Mart would create in-store kiosks powered by AOL and sell low-cost Internet access devices.

The other scenario involves the companies creating a Wal-Mart-branded Internet service provider coupled with the retailer selling low-priced or subsidized Internet access devices in its stores.

AOL and Wal-Mart representatives declined to comment on "rumors and speculation."

A deal with Wal-Mart could give AOL an opportunity to market its services to a more mainstream, less tech-savvy population. AOL is not alone in this attempt, as other online heavyweights are turning to brick-and-mortar stores as one channel for luring new Internet users to their services.

For example, Microsoft last month announced a deal to promote its services through Tandy-owned Radio Shack stores. Microsoft also invested $100 million in RadioShack.com and will feature the site on its MSN Web portal.

In Church's opinion, Puppet masters: Who controls the  Net a cross-marketing deal between AOL and Wal-Mart would allow both companies to tap new customers and markets that they desperately need.

"The overriding goal for Wal-Mart in addition to establishing credibility online [is to] devise an inexpensive Internet advertising strategy versus current portal advertising [and] to generate store traffic," Church wrote. "For AOL it is to expand AOL's current penetration and distribution by seeking out previously unreachable customers."

AOL has struck similar access deals with other non-Internet-related companies. In October, AOL invested $800 million in PC manufacturer Gateway, which allowed the companies to jointly manage the Gateway.net ISP and cross-market each others' products.

The timing of the announcement would likely coincide with Wal-Mart's expected plans to launch its revamped e-commerce site slated for Jan. 1, the report said. A deal with AOL could serve as a significant boost for the site's advertising and promotion. The company would likely have preferred placement on AOL's list of online properties, which include the AOL.com Web portal, online service CompuServe, Netscape Netcenter and instant messaging client ICQ.