America Online, Gateway Form $800 Million Alliance

The world’s leading interactive service company has paired up with the country’s biggest consumer computer retailer in an $800 million alliance.

America Online Inc. and Gateway Inc. late Wednesday announced an expansive agreement to accelerate distribution of each company’s products and services.

The companies plan to combine their sales and distribution channels to develop of hardware, software and Internet content for co-marketing to online consumers.

As part of the deal, AOL service will be featured and marketed on all Gateway PCs and Consumers can choose their Internet service and have it pre-loaded and personalized on the Gateway PC that’s built-to-order.

The agreement also advances America Online’s “AOL Anywhere” strategy by developing and marketing Internet and home networking appliances to their combines consumer base. The companies plan to begin introducing these Internet appliances within the next few months.

The agreement is a watershed for both companies, combining the strength of two national name brands with the marketing power of AOL’s 18 million members and Gateway’s 5 million customers.

As part of the agreement, America Online (AOL) will invest $800 million in Gateway (GTW) over a two-year period, in a combination of cash and equity securities. In addition, Gateway will make an $85 million commitment to market software and Gateway products and services on America Online’s brands.

Jeffrey Weitzen, Gateway president and chief operating officer, said that combining the strengths of the two companies would make it easier than ever for people to get online.

“As the Internet fans out into the mainstream and changes the way families live, work, learn and play, people are looking for technology leaders like Gateway and AOL to drive out complexity and simplify the
Internet,” Weitzen said. “This exciting new relationship does just that.”

Weitzen added that Gateway is extremely excited about what the new partnership means to their tens of millions of joint customers and potential customers.

“AOL’s infrastructure, scale, expertise and access to millions of potential customers will only strengthen Gateway’s position as the leading PC player in the Internet space,” Weitzen said. “Together, we’ll offer world-class products, services and brands at every point in the Internet value chain, from PCs, other connected devices and home networks to the full package of interactive services and training.”

Bob Pittman, AOL president and chief operating officer, said the deal is a first for the industry and that everyone would benefit from the partnership.

“For the first time, AOL and Gateway are joining forces, bringing together the world leaders in consumer interactive services and consumer PCs.” Pittman said. “This is a win-win agreement for both companies and our customers. AOL’s brands will benefit from Gateway’s industry-leading distribution channels and
their huge popularity among consumers.”

Pittman added that the two companies shared a common vision and that the future is bright for new Internet access and product developments.

“Gateway was the first PC manufacturer to start its own ISP, recognizing that the Internet was a major reason why people buy PCs, and we’re pleased they have decided to work with AOL to take this business to the next level,” Pittman said. “Because our strengths and vision are so complementary, we look forward to working with Gateway across a full range of initiatives.”

AOL and Gateway plan to collaborate on developing a co-branded online software store. The store and hardware shop is scheduled to be featured across AOL’s brands and Gateway marketing channels.

America Online plans to use its infrastructure to operate Gateway’s ISP, AOL will provide all network operations and back office support for Gateway’s 600,000 subscribers. Terms of the deal include for to continue to operate as a stand-alone brand, like CompuServe and Netscape.

The agreement significantly advances AOL’s strategy of leveraging its infrastructure across multiple brands, and furthers Gateway’s objective of becoming a world-class Internet service provider focused on the individual needs of its users.

The companies plan to leverage Gateway’s retail presence to create computer and Internet training programs for AOL subscribers and Gateway customers nationwide through at more than 180
Gateway Country Stores. The companies also agreed to explore international marketing opportunities.

News Around the Web