Is Fear Driving The Alliance Frenzy?

E-commerce has suddenly become about the “big move.” America Online nailed a deal with Wal-Mart. Yahoo! signed with K-Mart. AOL aligned with Circuit City. Microsoft formed a bond with Best Buy. It all happened in a couple of staggering days.

This flurry of alliance building makes one wonder if Sears is holding secret meetings with Amazon. It also makes one think that Toys “R” Us could have saved itself a bundle of trouble by aligning with eToys 12 months ago.

Handshaking Began As Hand Wringing

All of the press releases and most of the news stories describe these affiliations as opportunities for the online and offline giants to expand their reach through partnerships. The Web companies gain exposure in major retail stores, and the retail monsters get credible entry to the Internet world. Everyone wins.

True enough, except the motivation is not fueled by easy opportunity. It’s fueled by fear.

A Credible Net Presence

The brick-and-mortar retailers are worried. Web companies only have 10 percent of the retail pie, but they owned less than five percent last year. Additionally, since the percentage of retail sales moving online is sure to grow as the world population becomes increasingly Net-savvy, the CEO of every traditional retailer is expected to move online in order to head off the constant erosion of Net sales.

These CEOs watched in horror as Toys “R” Us stumbled all year long in trying to catch up with eToys. Toys “R” Us surprised everyone by nearly winning the Holiday ’99 e-commerce war, but the company lost every battle along the way. It is still not clear how much damage the company has suffered.

Casualties Of War

Barnes & Noble is another limping brick soldier. The book chain is reeling from the blows it has taken from over the past two years.

Quick, name two people who have bought a book from in the past year. Now try to name two people who have not bought a book from Amazon.

If you were K-Mart, Wal-Mart, Circuit City, Blockbuster, Radio Shack or Best Buy, what would you do as you watch hearty brands like Toys “R” Us and Barnes and Noble take it on the chin quarter after quarter? You certainly know that ignoring the Web is not an option.

By-Product Is Stability

As for the Web companies, they need legitimacy and stability in a market that changes way too quickly. AOL is afraid of being obliterated by high-speed cable. Microsoft caught a frightening glimpse of a PC-less future. Both companies know that if they can tie a tiny part of their fortunes to the heavy concrete of top-five retailers, they will never be marginalized.

The Web companies get a shot at legitimacy and stability, a firewall against potential shakeouts or technology upheavals. The brick-and-mortars gain a safe and sure entry into the rough waters of the Net wars. Ultimately, the consumer and the investor win, as online and offline majors stabilize their futures in tandem.

As for the CEOs, they dodge the big, fat, ugly bullets that tore gaping holes in Barnes and Noble and Toys “R” Us.

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