Will Disney play nice with Toysmart?

But if Disney moves to add its swinging Tarzan toy figures to Toysmart's site, it wouldn't be the first time an online toy seller in the educational market has been asked to set its roots aside and stock its cyber-shelves with more mainstream toys. After Consolidated Stores' KB Toys acquired Brainplay.com, the two sites merged to form KBKids.com, which has a much broader selection.

While the Toysmart executive team maintains a near crusade-like fervor for what they call the "good toy" market, some analysts say that Disney has a track record of bending its newly acquired companies to its will. For example, Disney turned Infoseek's search engine into the Go Network.

With the Toysmart deal, Disney appears to have turned its eye toward the smaller educational market, leaving eToys, Toysrus.com, KBKids.com, and Amazon.com to duke it out in a crowded space. For now, Disney is cross-marketing toys based on characters from its animated features through online store Disney.com. The company's toys will also make up 1 percent of the mix at Toysmart.

The mass-market temptation
But analysts questioned whether Disney will be tempted to expand Toysmart's offerings.

"Toysmart should be adamant about keeping certain toys off their site if they want to keep their integrity and the trust," said Carrie Ardito, a researcher at Forrester Research.

Educational toys are largely defined as toys that teach a child skills such as learning, sharing, playing, building, and creating. Many mass-market toys are built to entertain rather than teach, advocates of educational toys say.

Toysmart said it has a screening process to chose which Disney toys pass the "good toy" test. But with Disney controlling three of the five board seats, anything is possible, said industry observers.

Research firm Jupiter Communications expects the online toy market to grow to $500 million by 2002, while Forrester Research predicts a $1.5 billion market in 2003 from a $200 million market in 1999. Capturing even a small segment of the educational toys market--which Toysmart estimates is about 38 percent of the overall $23 billion retail toy sector--may keep Disney happy for a while.

Disney's brand power
Jupiter e-commerce analyst Michael May said he thinks Toysmart has little to fear from Disney imposing its will and absorbing or changing the toy seller's brand image.

"If you are going to get lost to anybody, getting lost to Disney is not a bad idea," said May. "Disney has a much stronger brand and Toysmart, as a result of the Disney partnership, will sell more toys," he said.

Disney has no reason to change the Toysmart focus, given the media company's reputation as one of the world's most trusted family brands, he added.

Others argue that mixing specialty toys with mass-market toys is a bad idea as they appeal to vastly different types of customers. Educational toys tend to be priced much higher than regular toys, appealing to a more affluent group.

As a result, the educational market has been left largely to mom-and-pop stores with no national presence."It is a very fragmented market in the brick-and-mortar world," said Ardito.

But Srikant Srinivasan, founder of KBKids.com, said the two categories don't have to be mutually exclusive online.

"We are going for a bigger market," said Srinivasan. "We firmly believe that we can sell to both markets pretty well."

Nonetheless, Toysmart.com's chief marketing officer Kelly McGovern, said the company will steer clear of mass-market toys while expanding into such categories as baby products, children's furniture, and teaching supplies.

"We turned down an opportunity to be acquired by Toys "R" Us mainly because we would not have been able to hold true to our mission of selling good toys," said McGovern. "The partnership with Disney gives us unprecedented leverage to build our brand with immediate access to millions of customers."