October 2, 2002 8:32 AM PDT

AOL wants bigger slice of e-tail pie

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America Online is planning to launch an e-commerce service that allows vendors to sell discounted surplus items throughout its proprietary network, according to a source familiar with the plans.

Slated to launch in the first quarter of 2003, the new service will allow AOL to take a cut from all sales that pass through the network. The move is crucial for AOL because the company is trying to develop new revenue sources amid a weak online advertising market.

The service, which has not yet been named, will be operated under the AOL shopping channel. However, unlike its Shop@AOL online shopping destination, the new program will advertise its wares throughout AOL's network, including content areas, classifieds and search results.

AOL charges online retailers to be featured on Shop@AOL in the same way a mall charges tenant stores. But in the case of the new service, products for sale will not be hosted on one page. The new service could also put AOL one step closer to competing with its longtime partner eBay, which also sells discounted liquidation items. eBay currently has an agreement to offer its auction listings on AOL.

"This is a movement from a mall-based approach to multiple transaction points" throughout AOL, the source said.

AOL has been struggling of late. Stung by steep revenue declines, stalled subscriber growth, and internal strife from other divisions in the AOL Time Warner family, AOL is desperately trying to regain its luster. It has reshuffled its management, hired former USA Interactive executive Jonathan Miller as its CEO, and is pushing exclusive services for its members.

In a speech to investors Tuesday, AOL Time Warner Chairman Steve Case outlined a four-point strategy for turning around AOL. The company plans on growing its dial-up business, developing its broadband service, reaching profitability with its international operations, and rethinking its approach to e-commerce and advertising.

Still, AOL faces numerous challenges on all these fronts, including heightened competition from longtime competitors Yahoo and MSN, both of which are taking similar routes to win over the hearts of online consumers.

An AOL spokesman declined to comment on the new service but suggested that something was in the works.

"We're continually enhancing the AOL shopping experience, providing new buying and selling opportunities for members and partners," he said.


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