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AOL books on Barnes & Noble

In a four-year pact, Barnes & Noble is paying the online service $40 million to be its exclusive bookseller.

When Barnes & Noble signed the deal to pay America Online (AOL) $40 million to be the exclusive bookseller on the online service, it upped the ante in the ongoing online book wars.

Barnes & Noble has sold books through links from AOL since January. The company has been the exclusive bookseller on AOL's Marketplace since March. Rival bookseller Amazon.com also has sold its books through AOL, and recently signed a deal with AOL.com, the recently expanded companion Web site to the online service.

The four-year pact extends the existing relationship to include better placement and visibility for Barnes & Noble on AOL's service, in such places as the AOL "Find Central" area and on AOL Studios properties such as Entertainment Asylum, Electra, Real Fans, Love@aol, and Digital City, according to AOL.

AOL said it will make it easier for its members to locate Barnes & Noble titles related to the content channel they are viewing. For example, according to the company, AOL users in the Personal Finance area will be able to link to related titles from Barnes & Noble.

Barnes & Noble is not the only online bookseller to strike deals with content providers to include "contextual links." Borders Books, which is scheduled to launch sometime in January, has struck a deal with CNET (CNET publishes NEWS.COM) to integrate contextual links throughout all CNET sites. And online community GeoCities announced a deal with Amazon recently to make the bookseller an anchor tenant on its site, selling titles relevant to the site's various interests as well as offering GeoCitizens a cut of the sales if they sell Amazon books off their personal home pages.

Although these links offer some of the most targeted marketing on the Web, analysts say they haven't proven themselves yet.

"It's really too early to tell," said Kate Delhagen, an analyst with Forrester Research. "The hypothesis is that they will trigger impulse buying, but we haven't heard any wild success stories yet."

However, Melissa Bane, analyst with the Yankee Group, noted, "Amazon.com won't come close to getting that kind of depth."

The deal also will give Barnes & Noble greater exposure internationally. AOL said the bookseller's presence will be prominent in most of its international services. Yesterday AOL said it now has more than 1 million members outside the United States.

This international exposure could be a real advantage. Especially since, according to Bane, international sales make up a quarter of Barnes & Noble's total sales.

While the deal between Barnes & Noble and AOL is undoubtedly daunting to existing online booksellers as well as those coming to the market in the next several months, an Amazon.com spokeswoman said the new deal doesn't preclude Amazon from selling its books through the AOL.com Web site.

Many analysts believe AOL is trying to cover its bets by signing the partnership deals with the competing booksellers. Delhagen believes that AOL will be scrutinizing the rival booksellers to see not only which company is selling more books, but also which distribution channel deserves AOL resources: the online service or the Web site.

"The good news for Amazon is that they are not displaced completely," said Delhagen. "But AOL will be watching very closely to see which deal will be more successful, and to see who's providing more money."

"If you were AOL, why wouldn't you [sign both deals]?" asked International Data Corporation analyst David Card. "Malls don't have just one bookstore."

AOL's deal with Barnes & Noble is the latest evolution of the online service's changing business models. AOL has gradually shifted from charging sales commissions from its online merchants to charging "rent" for anchor tenant positions.

The new strategy holds the advantage of encouraging the anchor tenants to create compelling content, which in turn benefits AOL. Under the commission system, the merchants had less of a stake in the success of their partnership with AOL.

AOL has leveraged its position as the No. 1 online service with more than 10 million subscribers to strike such partnerships. Over the last year, AOL has signed similar deals with CUC International, a major online marketing firm; Auto-By-Tel, a Web-based car-purchasing service; Preview Travel; and 1-800-Flowers.

For the right to sell to AOL subscribers, CUC International will pay $50 million over three years, Tele-Save will pay $100 million, Auto-By-Tel will pay $6 million, Preview Travel will pay $32 million, and 1-800-Flowers will pay $25 million.

Regardless of the outcome of this latest bout of one-upmanship between Amazon and Barnes & Noble, the clear victor is AOL.

"They stand to lose nothing. They're playing with everyone, because everyone needs to play with them," Bane said.