Story Filed: Thursday, December 16, 1999 12:03 AM EST

NEW YORK (AP) -- Some of the biggest names on the Internet are joining forces with giants of traditional retailing as both look for new ways to expand their reach.

Yahoo! and Kmart announced Wednesday that they would launch a free Internet service provider and online store called Bluelight.com, while America Online linked with the electronics retailer Circuit City in a marketing deal.

``Co-branding is something we are seeing more and more of. ... These companies are very big and powerful and have a lot that they can share with each other,'' said Mohsen Moazami, vice president of the e-commerce practice at the retail consulting firm Kurt Salmon Associates.

The new alliances are the latest in a spate of deals over the last few months between Internet powerhouses and large bricks-and-mortar stores.

Microsoft has partnered with RadioShack and AOL has aligned with the Blockbuster video chain. There also is speculation that Wal-Mart, the largest retailer in the world, may soon sign a pact with AOL, and electronics chain Best Buy has said it is close to completing a technology alliance.

Though such deals, online companies hope to gain a new avenue to advertise their Web sites and expand their customer base. Traditional merchants, meantime, are gaining respected technology partners that can help them build their own Internet businesses.

``They are all realizing that this is a very worthwhile strategy to implement that will easily help them grow,'' said Kurt Barnard, who runs the retail consulting firm Barnard's Retail Trend Report in Upper Montclair, N.J. ``I think that this is just the start of the deal-making.''

Under the Kmart-Yahoo alliance, online shoppers can buy everything from toys to housewares from Bluelight.com. Those shoppers who log into the Kmart.com site, which was launched in 1998, are now immediately taken to Bluelight.com.

Shoppers will get Internet hookups for free, but they will have to put up with some annoying online advertising. There is a 30-second video ad promoting Kmart when a subscriber logs in, and ads for Bluelight.com and Yahoo remain at the bottom of the screen while users surf the Web. Users of the Bluelight.com Internet service also automatically get a Yahoo e-mail account.

The full lineup of Kmart goods -- including some of its exclusive brands such as Martha Stewart Everyday as well as large or hard-to-find products, such as pools and boats -- will be available next year.

Kmart is the majority shareholder of Bluelight.com, with about a 60 percent stake. The Troy, Mich.-based discount chain has made no financial investment in the new company, but will supply valuable resources, such as its database of 85 million shoppers.

Kmart will promote Bluelight.com in its stores, through signs and new Internet-ready kiosks, as well as in its weekly advertising circulars.

Yahoo has made an undisclosed investment in Bluelight.com. In turn, it will get to market its name and services in Kmart's more than 2,100 stores, which are shopped by more than 4 million consumers a day. Yahoo will also promote Bluelight.com on its Yahoo! Shopping area of its Web site.

Other partners in the new company include Softbank Venture Capital, which has contributed $62.5 million to Bluelight.com.

Under the AOL-Circuit City pact, Circuit City will promote AOL products and services in its 615 stores nationwide as well as through its advertising.

Circuit City, in turn, will become an anchor tenant in the shopping area on AOL and its other services, including CompuServe.

Copyright © 1999 Associated Press Information Services, all rights reserved.

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Thanks Anna!