Networker: Unruly children

April 5, 2000

Networker: Unruly children

Unruly children

Selling things over the internet has become an obsession for modern capitalists. The internet is far better than television because all advertisements on a TV set can do is to encourage children to harass their parents to buy toys, lollies or soft drinks. The internet allows purchases to be made immediately.

Tens of thousands of business “analysts” are preparing business “plans” to turn e-mailers, web surfers and chat session participants into buyers. It doesn't really matter what they buy, as long as they are spending money rather than wasting their time on non-purchasing activities (like communicating).

According to the leading business “models”, the internet will soon be the way that everyone buys everything. Combine that with market “research”, and profits will inevitably flow to electronic businesses. (Words like analysts, plans, models and research are put in inverted commas here because they all have a scientific or rational connotation, and in the world of marketing there is nothing scientific or rational.)

Take the case of eToys, a US-based company, which started business in mid-1998. By May 1999, it was ready for its public launch, or IPO (initial public offering — the moment in every internet company when the people who thought up the idea try to become very rich in a few hours).

The new company met all the requirements: it had sold virtually nothing in its first 12 months (US$30.7 million in a market dominated by multi-billion dollar players) and it was promoted by Idealab!, a venture capital group putting together lots of other similarly unprofitable companies to sell to internet investors.

There are two tricks for successful IPO profiteering. The first is to release a relatively small number of shares, so that anyone wanting to join the gold rush pushes up the price. The second is to sell of the rest of the shares and escape with the money before investors get wise.

eToys launched at $20 a share, but as the Australian Financial Review reported at the time, “wild speculation from on-line traders quickly sent the shares soaring up to $120 before finally closing the day at $79.56”. This put the value the company at 50% more than Toys 'R' Us, which had sales of $14 billion for the previous year.

eToys was supposedly valuable for two reasons: it was the first internet company selling toys and it had a vision of trapping little babies into buying its products and then clinging to them for their whole life (that is called a “business plan”).

So what were they selling? The latest Star Wars movie was due to be the final word in child marketing. Toy business executives sat in on the film planning sessions, axing characters who could not be turned into products.

Sadly for eToys, children didn't harass their parents to buy Star Wars products. Today, eToys shares have collapsed, and are selling below their initial price.

While toy industry executives point to electronic games as the culprit, the unexpected success of the no-tech Pokemon cards leaves many questions unanswered. In the past 12 months, the proportion of people who “clicked” on each web site advertisement has fallen by half. Oblivious to this, millions of young people continue to enjoy using the internet.


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