eToys

eToys launched in 1997 when online toy sales seemed inevitable—parents were already buying books on Amazon, so why not toys? Early metrics looked promising: the site attracted millions of visitors during the 1998 and 1999 holiday seasons, with order volumes surging dramatically each November and December. Customer acquisition appeared successful, and venture investors including Sequoia Capital backed the company heavily, leading to a $166.4M IPO in 1999. However, eToys confused traffic with sustainable demand. The behavioral signal everyone missed was seasonality: purchases spiked only during holidays when parents shopped frantically online. Outside these windows, the business collapsed. The company measured interest through web visits and holiday revenue, but ignored the critical metric—repeat purchases and year-round engagement. By 2000, when holiday shopping declined and customer acquisition costs soared, eToys discovered their demand was artificial, driven by novelty and seasonal urgency rather than genuine preference for online toy shopping. The company filed for bankruptcy in 2001, revealing that impressive traffic numbers masked a fundamentally broken business model.