The companies agreed to jointly market their products through each other's venues, using broadband Internet, in-store and online efforts. The alliance includes print, broadcast and online advertising, profit-sharing and the promotion of BestBuy.com on Microsoft's MSN properties.
Under the partnership, MSN Internet access and Microsoft's full range of connectivity products will be displayed and demonstrated at the more than 350 Best Buy stores operating in 37 states. Redmond, Wash.-based Microsoft said it plans to invest $200 million in Best Buy common stock.
Microsoft's deal with Best Buy is part of the company's strategy to increase the profile of its products and services in the brick-and-mortar world, president Steve Ballmer said during a phone interview today. "There are some times when consumers need to see, feel and touch," he said.
He added that MSN, Microsoft's Internet unit, is at the top of the list of offerings the company wants to promote. "We are looking for a set of partners to tell the MSN story."
Microsoft stock traded higher for the second straight day. Shares surged 2.36 percent or 2.56 points to 111, besting the stock's previous 52-week high of 108.75.
Best Buy shares rocketed 8.47 percent or 4 points higher in early trading to 51.25. The stock has traded as high as 80.5 and as low as 24.31 during the past 52 weeks. Best Buy stock has taken a hit in the past few months, falling nearly 15 percent, as investors grew jittery about the retailer's prospects as the competition picked up while computer sales began to slow.
The rush to ink deals with retailers comes as online access services look for new markets to tap, hoping to entice customers who walk into retail locations to stroll onto to Net using their services. The wave of deals comes on the heels of what Web measurement firm Media Metrix says is a slowdown in the growth of new users accessing the Internet.
The deal comes on the same day that rival AOL announced an alliance with Wal-Mart to promote each other's online efforts. Yesterday, AOL announced a similar partnership with computer retail chain Circuit City.
These alliances underscore the sparring between software giant Microsoft and online services titan America Online, which has now spilled over into the shopping aisle as each company aims to push its online offerings in stores.
AOL and Microsoft are embroiled in battles on several other fronts, including interactive television, instant messaging and Web browsers.
Last month, Microsoft cut a deal with Tandy-owned RadioShack stores to promote its MSN services, pumping $100 million into the electronics store and featuring it on the MSN portal.
On the bricks-and-mortar front, the deals cut by these dominant companies keep multiplying.
Yesterday, Yahoo and Softbank Venture Capital linked up with Kmart to create a co-branded free Internet access service.
By partnering with RadioShack and Best Buy, Ballmer said Microsoft will attract different kinds of shoppers. The smaller RadioShack stores are spread across the United States, carry fewer products, and focus on customer service. Best Buy sells a plethora of goods out of warehouse-size stores and does business in fewer areas, he said.
"Our goal is to let consumers pursue the best shopping experience they want," Ballmer said.
Eden Prairie, Minn.-based Best Buy said it annually serves more than 200 million customers and sells more than 12.5 million connected devices.
"A deciding factor in forming this alliance is Microsoft's [vision of] making the Web as prevalent as the telephone and even more useful in our customers' daily lives," Richard Schulze, Best Buy chief executive, said in a statement.
As part of the alliance, Best Buy and BestBuy.com will receive prominent placement across Microsoft properties, including MSNBC, the Expedia.com travel service, Hotmail Web-based email service, WebTV Network and the MSN eShop online shopping service.
News.com's Greg Sandoval contributed to this report.