August 30, 2001, 12:00 AM

Good for Amazon, good for AOL, but good for AOL’s retailers?

America Online invests $100 million in Amazon.com. Observers wonder what the effect might be on the Shop@AOL merchants, who might be competing with Amazon for premier placement within AOL.

Internet Retailer

Amazon.com seems to have more lives than a cat: just when investors turn up the heat on demands for profits, it manages to find a new revenue stream. To its recent deals with Borders.com and Toy “R” Us, Seattle-based Amazon in July added one more. It accepted a $100 million equity investment from America Online, Dulles, Va., in return for promoting AOL Time Warner products and services on its site over the next several years and for powering AOL’s shopping areas with its own e-commerce platform.

AOL.com, CompuServe and Netscape users will see the effects of the partnership online beginning in the holiday season of 2002. Under the deal, the companies also pledged to work together on future initiatives including marketing, customer authentication and wallet services, while expanding their alliance internationally.

The agreement “will create the best online shopping experience in cyberspace,” says AOL chairman and CEO Barry Schuler. Good for shoppers, good for the partners, but how will the deal affect other retailers currently camped out at Shop@AOL? They’d be wise to look sharp for potential trouble ahead, warn some industry analysts, who see a day when the retailers could be fighting Amazon for premier placement on AOL’s shopping channel.

Carrie Johnson, an analyst with Cambridge, Mass.-based Forrester Research Inc., points out that retailers looking for ways to sidestep the risk would have a tough time walking away from Shop@AOL. Shoppers spent nearly $8 billion at Shop@AOL in this year’s second quarter alone. When renegotiating agreements with AOL, says Johnson, “Retailers must negotiate very specific placements deals to ensure that Amazon’s DVD players don’t always surface in search results ahead of Circuit City’s.”

They also should seek pay-for-performance agreements that cut the risk of being on Shop@AOL, which, with the deal, acquires a vested interest in selling Amazon products, she adds.

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