Microsoft, AOL Ink Retail Deals

Microsoft and America Online want to make Internet computing as pervasive for consumers as their telephone service, and the rival technology vendors each struck deals with big U.S. retailers today to advance their goals. Microsoft says it will invest $200 million in Best Buy Co. to promote its Internet services through Best Buy's 354 stores and Web site. AOL, meanwhile, said it will offer a co-branded version of its CompuServe Internet access service in conjunction with retail giant Wal-Mart Stores Inc.

Microsoft will purchase $200 million of Best Buy common stock, or about 2% of the retailer's outstanding shares, in exchange for preferred promotion of Microsoft Internet services and connectivity products such as WebTV. Best Buy has surpassed CompUSA Inc. as the leading retailer of computer products and has stores in 37 states. In addition to its stores and Web site, Best Buy distributes 40 million newspaper advertising circulars every week, and it will promote Microsoft services more prominently there, too, the companies say.

Microsoft president Steve Ballmer says his company possesses a compelling package of online access, search, and shopping services, but that the package needs more exposure. "Our problem--our opportunity, if you will--is to work with partners who can help us get visibility," he said in a conference call with reporters. The Best Buy deal marks the second retail marketing agreement struck by Microsoft in recent weeks. In November, Microsoft and Tandy Corp. unveiled a $100 million alliance to promote Microsoft software, Internet services, Windows handheld PCs, and WebTV in Tandy's 7,000 RadioShack stores and online shopping site.

AOL lost that deal to Microsoft, but the country's leading Internet service provider landed the Wal-Mart contract, and Wednesday disclosed a co-marketing agreement with Circuit City Stores.

Ballmer says retail stores have emerged as an important front between his company and AOL to influence the way consumers access the Internet. "Is it a battleground? I'm sure it is," he says. "You can spend your money giving the consumer a live experience." While Microsoft also advertises its products and Internet services on television, Ballmer questioned whether large investments in TV ads were the most effective way to attract online customers. "TV is not a bad medium, but frankly I don't understand why Internet companies are spending so much money there. There's nothing new there."

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