An example of an E-Commerce failure and its causes

eToys.com is a retail website that sells toys via the Internet. eToys.com was founded by CEO Toby Lenk, COO Frank Han and Bill Gross . eToys filed for an initial public offering (IPO) valued at $115 million in February 1999. However, eToys delayed the IPO due to the acquisition of BabyCenter Inc., announced in April 1999.

On May 20, 1999, eToys opened the sale of stock to the public. This helped generate praise for the online toy category. Despite the positives, eToys suffered a black eye after it failed to deliver some orders in time for Christmas 1999. eToys’ lead was put in jeopardy after major competitive of eToys; Toys “R” Us and Amazon.com formed a partnership in August 2000.

The company then spent heavily to build two enormous warehouses to handle inventory and delivery. But Christmas sales for the 2000 season drop, leaving the company out in the cold. Having run out of money and other funding options exhausted, eToys filed for bankruptcy in March 2001.

In the following months, eToys sold $5.4 million worth of inventory, trade names, logos, URL’s, and trademarks for $3.35 million to KB Toys.The reasons behind eToys' failure are an immediate need for a large infrastructure and plenty of cash to support an untested business model. eToys built too big infrastructure and spent too much money too quickly.

eToys was reborn in October 2001 as a subsidiary of KB Toys. In 2004, eToys separated from KB Toys and is owned and operated by The Parent Company.