After once trying in vain to beat
will join it.
The 114-year-old retailer and the Internet powerhouse said Tuesday that they had formed an alliance to expand AOL's distribution into American homes, distribute Sears consumer products and connect its customers to service representatives through the Internet.
Shares of Dulles, Va.-based AOL gained 2 7/8, or 4%, to 64 3/16 around midday Tuesday, while Sears shares gained 15/16, or 3%, to 28 3/8.
Sears, an early investor in the
Internet service, hopes to promote itself to young families through "the number one Internet company," said Dennis Honan, Sears vice president and general manager of
Under the agreement, Sears' products will be sold through AOL's shopping service, and the Internet service will promote the retailer on its Web pages. In exchange, Sears will promote America Online in its stores and television and print advertisements.
The companies said they plan to develop a special version of America Online's software containing so-called instant messaging connections to Sears customer service representatives. They also plan to promote broadband Internet access together.
America Online already has joint marketing agreements with 14 other retailers, including
David Theis, spokesman for America Online, said the deal is similar in scope only to the company's agreements with Circuit City and
"I've seen so many of these," said Bernard Sosnick, an analyst for
& Co. "There's nothing wrong with trying to create business," he said, "but I'm more excited by leveraging the Internet where there is business." Sosnick rates Sears shares hold and does not cover AOL. His firm has done no underwriting for either company.
Last month, Sears, which is based in Hoffman Estates, Ill., announced a deal with online database software distributor
, the European retail giant, to create
, an online business to business market for retailers. The idea is similar to the auto parts exchange created by the Big Three auto makers last month.
Sears is wading back onto the Internet after fighting a decade-long losing battle against America Online. In the mid-1980s, Sears,
International Business Machines
invested in Prodigy, an Internet portal and service provider that was eventually well overshadowed by AOL. Sears sold its stake in 1996.
"Those guys were kind of ahead of the curve at the time; they didn't have the vision or the staying power to stay with it," said Steve Kernkraut, analyst for
. Kernkraut rates Sears shares neutral and does not cover AOL. Bear Stearns underwrote a debt offering for Sears within the past two years.
But Kernkraut said Sears' latest Internet strategy, though perhaps unremarkable in its current implications, may prove prescient within the next few years.
The deal could place Sears, which has a large market share in consumer electronics, in prime position to sell and service the new devices broadband Internet access and combined television and computing may eventually demand, he said.
"Your home is going to need a new device that will combine your TV and computer," Kernkraut said. "You're going to have to take care of that stuff."