EToys Revises ‘Affiliate Program’

Online toy seller EToys Inc. is scaling back the fees it pays to other Web sites that refer paying customers, a strategy analysts say is likely to become more popular as e-tailers establish their brands.

The move also will save the unprofitable Santa Monica-based company money, but EToys officials declined to say how much. Company officials said the changes have been in the works for months and were intended to focus on new-customer acquisition, not cost savings.

EToys, which has lost $172 million since 1997, said earlier this month that it had $200 million in cash, enough to get it through the rest of the year. But Barron’s this week forecast that EToys would run out of money in 11 months, if its quarterly sales and expenses continue at the present pace.

Beginning April 1, EToys will change its so-called affiliate program, paying a flat $10 per customer to Web-site operators who send EToys new customers. Since last March, EToys has paid $5 per customer and 5% to 12.5% of each sale that came to the company through another site, said Peter Brine, EToys director of online marketing.

As e-tailers become better known, such referral programs can become an unnecessary expenditure, said David Cooperstein, the director of online retailing for Forrester Research Inc. in Cambridge, Mass.

EToys’ new terms are the second modification the company has made to its affiliate program since the company first went online in 1997.

Initially, EToys offered small companies and individuals a straight 25% commission from sales stemming from referrals. The company retooled the program last year to focus on new buyers after it built its own customer base, Brine said.

“It’s a great way to get customers to your site when you’re in acquisition mode rather than retention mode,” Cooperstein said. “But over time, we expect people to get more strategic by doing more direct deals.”

EToys, whose traded as high as $86 a share in October, fell 50 cents Tuesday to close at $11.44 in Nasdaq trading.