Update: EToys makes shock announcement to partners

Troubled retail site eToys issued an email Friday stating it would terminate its business relationship with UK Web sites on 31 December.

The mail, simply headed "Termination Notice -- eToys Affiliate Programme", contained the following: "Thank you for participating in the eToys UK affiliate programme. Unfortunately, however, we have found it necessary to end this programme. Accordingly please accept this email as notice that the eToys UK affiliate programme will end on 31 December 2000."

The move could well herald the demise of eToys' UK operation which recently warned of an expected shortfall in sales.

eToys was not available for comment Friday evening.

This would be a sad move for the UK's retail Internet sector as eToys is probably the UK's best toy retail site.

Affiliate programmes, also known as associate programmes, are a viral marketing technique championed by Jeff Bezos of Amazon.com.

Amazon spread its message quickly by sharing a small percentage of its revenues with other web sites, effectively turning them into salespeople for the Amazon revolution.

How it works:

• Prospective purchaser visits Web site and clicks on a link to eToys on that site

Associate schemes are a cost effective way of promoting Web sites as fees are only paid on revenues generated. If, on subsequent visits, the shopper goes direct to eToys, the intermediary web site gets nothing.

For small sites the demise of this associate scheme is terrifying: many sites rely on these small revenues to bolster meagre revenue streams. Advertising revenues have dropped over the last year as the public has become apathetic toward Web banner advertising, associate revenues have held up quite well, providing much needed cash.

The worry is that eToys' move may signal to established sites that associate programs are something they no longer need to bother with.

Alternatively, the move could well simply signal the demise of the UK operation. The parent company eToys.com, has rarely been out of the papers in recent weeks with focus on its increasingly tenuous financial position.

The UK toys sector is currently dominated by eToys.co.uk, and ToysRUs.co.uk. Amazon.co.uk is just beginning to stick its toes in the water.

EToys gained a lead in the market with competitor ToysRUs lagging well behind dogged by technical problems.

EToys.com warned that business this quarter is down, halving Q3 forecasts. Sales of between $120m (£85m) and $130m, down from the $240m expected. The company earned $106m in Q3 1999.

Steve Homer is a freelance journalist who also operates QAZ.com, and TheGlobalGiftGuide.com

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