Yahoo! and Kmart Forge Alliance To Counter AOL

According to published reports, Yahoo! and Kmart will announce tomorrow that the two companies have forged a wide-ranging distribution pact that will include a co-branded free online service.

The free Internet access will be offered to all users via Kmart’s Web site. It will also be marketed to customers who shop at one of the company’s 2,160 brick-and-mortar discount locations.

Going Head-To-Head With AOL

The alliance signals a bold shift in strategy for the Santa Clara, California-based Yahoo! By offering free Internet access, the giant portal has decided to go head-to-head with number one online service provider America Online.

In the past, Yahoo! brass has steered the company clear of such a full-scale confrontation, opting instead to concentrate on making the Web-based media company the top Internet portal in the world.

However, the deal also underscores the growing need that online players have for a strong brick-and-mortar presence. For instance, AOL is reportedly in the process of forging a partnership with Wal-Mart to promote its online service in-store to the giant retailer’s customers. In return, AOL will help guide Wal-Mart’s foray into the e-commerce arena.

Additionally, in November, Microsoft Corp. cut a similar deal with Tandy’s Radio Shack, allowing the software giant to peddle its products in the electronic chain’s 7,000 locations.

Win/Win For Both Companies

By offering free Internet access through Kmart’s, Yahoo! hopes to reap the benefits of reaching a new group of customers without the headaches of running a complicated operation.

Being partnered with Yahoo! gives an immediate jump-start to Kmart’s sagging e-commerce foray, which has such heavyweight backers as Softbank Venture Capital.

Meanwhile, this effort is not the first time that Yahoo! has attempted to partner with an online service provider. The company had a similar deal with MCI Communications, Inc. in 1998. However, the service was scratched after the telecommunications company was purchased by WorldCom, Inc.

About Yahoo!

Yahoo! (Nasdaq: YHOO) attracts more than 33 million visitors to its Web site each month. The company derives revenue from more than 3,800 advertisers and offers users e-mail, chat rooms and news.

Softbank also owns about 28 percent of Yahoo!, while founders David Filo and Jerry Yang own about 11 percent each.

In its fiscal year ending December 1998, the company earned about $25 million (US$) on revenue of about $203 million.

About Kmart

Troy, Michigan-based Kmart Corp. (NYSE: KM) is the third-largest U.S. retailer. The company sells branded merchandise primarily to low and middle-income families.

In its fiscal year ending January 1999, Kmart earned about $518 million on revenue of $33.6 billion.

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