INTERACTIVE: ETOYS READIES FOR WEB COMPETITION: ONLINE TOYSTORE LEADS TOYS 'R' US WITH COMMERCE, AT LEAST FOR NOW

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Startup etoys is sinking millions into its effort to be the premiere toy store in cyberspace, just in time for the Christmas season.

And it's hoping that its early lead will give it an edge over competitor Toys "R" Us, which has yet to launch commerce on its Web site, and other online specialty toy stores such as FAO Schwarz.

eToys, Santa Monica, Calif., last week launched a spot in what will be a six-figure Web advertising campaign to drive traffic to its site, and earlier this month signed a $3 million deal with America Online.

CATEGORY KILLER

"They understand and have come to the [Web] medium with a unique offering in terms of content, service and selection," said Nicole Vanderbilt, director of digital commerce at Jupiter Communications.

"They are really truly trying to become a category killer, a la Amazon.com in books," she said, pointing to eToys' AOL deal as a strong move into electronic commerce on the Web.

Under the AOL deal, eToys is the exclusive toy anchor retailer on the shopping channel of AOL's Web site (www.aol.com), and has two buttons in the toys and collectibles department on the AOL network's shopping channel.

"We want to be the aggressive first mover in this space," said Toby Lenk, president and CEO of eToys (www.etoys.com), which launched in October and is funded by idealab!, an Internet incubator in Santa Monica.

"You have to spend a lot of money to do that," he said, pointing to the two-year AOL deal and its Web advertising campaign, most of which is being developed in-house.

Its first Christmas online campaign, launched Nov. 26, is a banner running on search engines and other sites promoting eToys' daily giveaway on its site of the popular Sing & Snore Ernie toy.

Since Ernie was featured on "The Rosie O'Donnell Show" recently, the toy has been hard to find.

CANNIBALIZING THE TREASURE HUNT

"The big retailers want you to go on a treasure hunt every time you go to their store to look for Ernie," said Mr. Lenk. "If toy stores come online, will they do something that cannibalizes the treasure hunt?" asked Mr. Lenk, pointing to what he says is one of eToys' greatest strengths over physical toy stores like Toys "R" Us that are going online.

Toys "R" Us is considering selling toys on its site , but so far has not announced a strategy to do so, (www.toysrus.com), said a spokeswoman.

Ms. Vanderbilt said that in the "real world," Toys "R" Us is able to offer shoppers the benefit of shopping for everything under one roof. "There is a convenience piece that is going to be hard to translate online," said Ms. Vanderbilt. "They are also late to market."

MORE THAN 100 MANUFACTURERS

eToys is positioning itself as an online toy store that carries both mass and specialty items at prices that meet or beat competitors' prices. It won't disclose its revenues since launching, but eToys has agreements with more than 100 toy manufacturers, including Mattel, Hasbro, Lego and others. It is now talking to Lycos, Excite, Yahoo! and Infoseek Corp. about a possible deal, said

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