# eToys (1997 – 2001)

- URL: https://girisimcikafasi.com/en/startup-graveyard/etoys/
- Sector: E-commerce
- Country: United States
- Total funding: unknown
- Cause of closure: Macroeconomic crisis

## What did it do?

eToys.com was a retail site that sold toys online. It went live on 3 November 1997 within the incubator Idealab and quickly became one of the toy sites regarded as the benchmark in the sector.

## Why did it shut down?

After its IPO in January 1999 the company's value soared on dotcom euphoria; shares offered at $20 closed their first day at $76. That rapid rise made eToys one of the emblems of the dotcom bubble, and when the bubble burst nothing was left to support the valuation. At the end of 1999 a domain-name lawsuit against the Swiss art group etoy also brought the company a fierce online backlash. Around March 2001 most of the remaining assets were sold to KB Toys for $5 million. The company went bankrupt on 1 April 2001 and shut down shortly afterwards.

## The story

eToys shares began trading on 4 January 1999, offered at $20, and closed their first day at $76. For a toy seller, this was a dazzling debut even in the midst of the dotcom frenzy. At the time the research firm eMarketer also described eToys as the benchmark against which every other toy site was measured.

eToys went live on 3 November 1997 within Idealab, an incubator that produced internet start-ups. The idea was to move toy shopping from store shelves to the screen. After the IPO the company's value rose rapidly and eToys soon became one of the emblems of the dotcom bubble.

At the end of 1999 the company found itself dealing with an unexpected reputational crisis. eToys sued etoy, a Swiss art group founded long before it, on the grounds that the etoy.com domain could be confused with its own name, and obtained a court order barring the group from using the domain. A huge backlash erupted online, etoy's supporters called for a “virtual uprising” and message boards filled with angry comments. According to a Wired report from December 1999, eToys announced under public pressure that it would not pursue the suit.

When the bubble burst, nothing was left to support eToys' valuation. According to a Wall Street Journal report in March 2001, KB Toys, owned by Bain Capital, bought most of eToys' remaining assets for $5 million. The company went bankrupt on 1 April 2001 and shut down shortly afterwards. During the bankruptcy, a business relationship between a partner at the law firm representing the creditors and the company's new CEO sparked a conflict-of-interest debate; a judge later found no wrongdoing.

The brand, however, lived on as it changed hands. The assets passed from KB Toys to the hedge fund D. E. Shaw, and the site was relaunched by eToys Direct. Its parent, Parent Company, filed for bankruptcy in December 2008, and the domain passed to Toys "R" Us in February 2009. eToys' story is a reminder that a valuation lifted by stock-market euphoria is no substitute for a lasting business.

## Lessons

- The price on IPO day is not a business plan; your valuation should rest on your own cash flow, not on market appetite.
- Before suing a small community in the name of brand protection, weigh the reputational cost; online opinion reacts fast and hard.
- Know what your assets are worth on a bad day; in hard times the sale price can be a tiny fraction of the valuation in good times.

## Sources

- [EToys.com](https://en.wikipedia.org/wiki/EToys.com)
- [EToys Relents, Won't Press Suit](https://www.wired.com/1999/12/etoys-relents-wont-press-suit/)
- [Parent Company, a Retailer, Files for Bankruptcy](https://www.nytimes.com/2008/12/30/business/30shop.html?_r=1&adxnnl=1&ref=business&adxnnlx=1244694327-mytT8mvOALlccVDE+/ks3A)