The failure of an e-commerce example and its causes

eToys Inc. was founded by Edward C. Lenk, known as Toby. Lenk was born in Boston in 1961 and graduated with a degree in economics from Bowdoin College, Maine, in 1983. eToys Inc. is a leading on-line retailer of children's products. Its emphasis is toys, but it aims to sell parents a vast array of things that their children might want or need.

Being first to the market is always considered a business advantage, and investors began shoving money at Lenk. He collected over $15 million from the venture capital firm Sequoia and other venture capital firms, plus $250,000 in seed capital from a web business incubator called Idealab. He raised money from friends at Disney as well. eToys seemed to be in the position Amazon.com had been in when it became the first on-line bookstore. Lenk was sure that the giant mass-market toy retailer Toys `R' Us would soon start its own web site, and he rushed to get eToys going before that happened. In March 1997, eToys went on line.

By September 1999 eToys had announced that it had 80,000 children's book titles available for sale through its site. It hyped its new bookstore by arranging on-line interviews with notable children's authors, and it made sample pages of some 400 books available for on-line browsing. Then it teamed up with television talk show hostess Rosie O'Donnell. O'Donnell began a 'Rosie's Readers' children's book club on her show, and eToys tied in with her with a special 'Rosie's Readers' portion of its web site. Part of the proceeds of eToys' Rosie's Readers sales went to O'Donnell's charitable foundation.

To prepare for the Christmas season, eToys began running advertising on television and in parenting magazines. There is alsoa campaign with a tag line ran, 'Where will you find the perfect gift for your child? EToys. Where great ideas come to you.' The campaign cost eToys $20 million, which represented a significant portion of the company's total revenues. The soft tone of the advertising sought to convey a new, broader image of the company. eToys was not just another place to shop for toys, but a parent's ally in finding the best for a child.

Also to prepare for Christmas, eToys outsourced some of its order fulfillment to Fingerhut.

However, like many of its failed brethren, the spending of millions on advertising, marketing, and technology and battled a host of competitors was outweighed the company's income, and investors quickly jumped ship.

eToys closed in March 2001, but after being owned for a period by KayBee Toys, it's now back for a second run.