Amazon will promote AOL to its customers, making the behemoth conglomerate its exclusive Internet service provider. The retailer will also provide AOL customers with many of the services it provides on its own site, including personalization features and product comparisons.
The full benefits of the deal will not be realized until the 2002 holiday shopping season. That is when the companies intend to combine Amazon's shopping tools with the Shop@AOL category.
In documents filed with the Securities and Exchange Commission, Amazon said it will provide AOL with search and personalisation technology, as well as product comparisons, ratings and review services. AOL members spent US$7.8 billion shopping online in the three months ended June 2001.
Amazon on Monday posted a net loss of US$168 million, compared with a loss of US$317 million a year earlier.
"What we're going to be doing at Shop@AOL now is combining a lot of elements of Amazon's shopping platform to enhance the experience of the users of Shop@AOL," AOL spokesman David Theis said. "We will work together on future marketing initiatives. I can't give a drill-down on the future initiatives."
Under the equity investment, AOL said it has agreed to buy US$100 million in Amazon common stock. Additional financial terms of the deal were not disclosed.
Some AOL Time Warner analysts applauded the deal. The investment gives AOL a closer relationship with the undisputed leader in e-commerce.
"I think it's a way to make a strategic investment in someone you plan to do business with," said John Corcoran, an analyst at CIBC World Markets.
Other AOL Time Warner analysts were scratching their heads over the vague details of the announcement. Since financial terms were not disclosed, some analysts were unable to determine AOL's motivation for taking such a hefty stake in the struggling e-tailer.
"It would seem to me in the big-picture scheme of things that Amazon needs AOL and vice versa," said Katherine Styponias, an analyst at Prudential Securities. "I'm not sure that I understand why at this point."
Amazon has had a promotional deal with AOL since 1997, through which the retailer paid AOL millions of dollars over a number of years for premier sponsorship. AOL has been able to charge other retailers and Web media sites millions of dollars to be carried on its online service and other brands, such as Netscape, CompuServe and ICQ, to name a few.
Those deals were thought to be a way for companies to take advantage of AOL's valuable real estate. Given its more than 30 million paid subscribers, the company's population tends to spend more time on the service and more money than subscribers do on any other ISP.
But elements of typical commerce deals were missing from the press release. Notably, the companies would not comment on whether Amazon would buy advertising from AOL, which is typically the way these deals are structured.
Prudential's Styponias said she has been paying a lot of attention to AOL's advertising and commerce line, which reflects the value of AOL's real estate. AOL has had to restructure agreements with other dot-coms, such as Drkoop.com and VitaminShoppe.com. Now it's a question of whether traditional advertisers will compensate for lost deals with failed dot-coms.
"Are traditional advertisers going to spend money there?" Styponias asked rhetorically. "That's what keeps me up at night watching AOL. That and their subscriber growth."
