Costco Joins Free Internet Access Bandwagon

Warehouse club operator Costco Wholesale Corp. will tap its 25 million members in the United States to promote e-commerce through a deal signed last week with Yahoo Inc. and Spinway Inc., a provider of Internet access.

The deal enables Costco members to sign up for free, unlimited Internet access via a Costco site co-branded with Yahoo and powered by Spinway. It came in the same week as a similar deal by bookseller Barnes & Noble Inc. with Yahoo and Spinway.

“We would expect more traffic to come to our site … and also our association with Yahoo will give us more brand identification online,” said Paul Moulton, executive vice president of marketing, e-commerce and services at Costco, Issaquah, WA.

Dubbed Costco Free Unlimited Internet Access, the service is available to consumers by visiting and downloading the software or by picking up a CD distributed at most of the 237 Costco stores nationwide.

The co-branded site will offer the latest news on Costco programs, products and events. It also will direct traffic to the Costco site, which has been up for five years and has supported e-commerce for two years. Once there, consumers can shop for appliances, jewelry, electronics, computers, CDs, DVDs and books.

“Costco has a dramatically loyal user base from an offline standpoint, and they want to bring that base online,” said Drew Lanham, senior director of business development at Yahoo, Santa Clara, CA. “We're creating a set of tools that creates persistency for Costco. We're embedding their messaging in a set of tools that users are going to want to use every day.”

He would not provide figures on traffic to the Costco site, online revenue or additional e-commerce sales that Costco expected the free service to generate.

The deal continues Yahoo's strategy of pursuing big-brand retailers. Other clients with similar co-branding deals — also with Spinway providing the Internet access — are Kmart Corp.'s services in English and Spanish, Spiegel Catalog Inc. and Barnes & Noble.

“Certainly, we've formed a media relationship with Costco, so they've become a fusion marketing client for the Yahoo network, and this is just one of the many services that we hope to deliver in the very near future,” Lanham said.

“We've also found that retailers come to us with a common set of goals and generally they want to build up a captive audience, communicate with that audience and then sell something online,” he said.

Yahoo is one of the most highly visited Web sites worldwide, with 156 million registered users and attracting 680 million page views a day.

In Costco's case, the deal works not only to attract new members but also to attract lapsed members or those who have not renewed their annual membership at a local warehouse.

Consumers pay $45 for Costco's Gold Star or business membership and $100 for executive membership, which offers more benefits and discounted offers.

Costco last year reported worldwide sales of more than $31 billion. The deal is part of a Costco initiative to boost its online business and expand into new product areas.

“One of the most recent things that we've gotten into are books, CDs and DVDs,” Moulton said. “We didn't used to be competitive because there were a lot of folks out there that were selling things below what it was costing us to buy the merchandise. That's not our business model, to sell things below cost.

“So now that everyone's operating in a more normal business manner where they have to sell it for more than what they paid for, we can now use our buying power to bring things to market cheaper than people that are out there.”

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