Microsoft and Radio Shack Strike E-Commerce Agreement

In an apparent attempt to counter America Online’s recent brick-and-mortar alliances, Microsoft announced yesterday that it has signed a five-year pact with Tandy Corp.’s Radio Shack to deliver online service to consumers through the chain’s 7,000 outlets.

According to Microsoft, the companies will establish a “store within a store” network across the U.S., allowing millions of consumers to try out and sign up for MSN dial-up or broadband access.

Additionally, as part of the deal, Microsoft has agreed to pump $100 million (US$) into making Radio Shack’s Web site a state-of-the-art e-commerce destination. The online store will have top placement across all of MSN and its properties, including the newly-launched MSN eShop.

Microsoft will also work with NorthPoint Communications, Inc. to provide free broadband access to Radio Shack company-owned stores. Revenue generated by the alliance will be split between the two companies.

Investors in Tandy (NYSE: TAN) responded favorably to the news, as shares of its stock rose $4.19 per share, or 6.4 percent, to $69.38 at the close of the New York Stock Exchange yesterday.

Microsoft (Nasdaq: MSFT) closed at $89.72 per share, up $2.50 per share.

Reacting To AOL?

According to a Merrill Lynch report, Microsoft fought AOL for the opportunity to transform Radio Shack into a local Internet partner.

While Microsoft has been tied up with its antitrust case, AOL has been busily forging dynamic partnerships with retailers such as CompUSA and Circuit City to increase the membership of its CompuServe subsidiary.

Additionally, the number one online service provider recently signed a pact with online computer seller Gateway, Inc. to promote its online services to Gateway’s millions of customers and to run the PC seller’s online service.

Combining Platforms

The alliance with Radio Shack will also give Microsoft a means to promote its many Internet platforms to consumers.

“At Microsoft, our everyday Web vision allows everyone to participate in the world of online commerce, entertainment and services, whether it’s from a PC, television, or mobile device,” said Microsoft chairman and CEO Bill Gates. “By forming an alliance with Radio Shack, we’re reaching customers in a new way, giving them a unique opportunity to experience and obtain online solutions through Radio Shack’s trained salespeople and expert home-installation team.”

A Big Win For Radio Shack

This deal is just the latest in a series of alliances forged by the Fort Worth, Texas-based Radio Shack. Other partnerships include such giants as RCA Digital Entertainment, Compaq Computer Corp. and Sprint Corp.

However, this alliance with the top software seller in the world gives the chain instant credibility and clout.

“We thought we were looking for an ISP partner, but what we found was much much more,” said Leonard Roberts, Radio Shack’s president and CEO.