March 15, 2000

Dear Joe:

It's hard to believe that the eToys Affiliate Program is already two years old. These

past two years have been very productive and exciting, and we have learned a lot about affiliate marketing during this time. We are proud of how far we've come as a company and recognize the value of our affiliates in helping us achieve that.

Gaining new customers is a top priority for eToys and the main goal of our affiliate program, and your role in directing new people to our site is an important part of our success. In light of this fact, we have decided to change our compensation structure to increase your bonus for each new customer from $5 to $10. You'll get the $10 fee for each new customer. This is our way of better rewarding you for introducing new people to eToys.

At the same time, we are eliminating the commission on affiliate-generated purchases. Our purpose with this change is to concentrate efforts on our top objective of gaining new customers. The commission structure change will take effect on April 1, 2000. You do not need to change your links for this change to become effective; it will occur automatically.

We hope that this new system will motivate you to promote eToys to new users, and to further help, we are making several improvements to the resources we offer our affiliates. First, we are redesigning the http://etoys.reporting.net pages to make them an even better source of affiliate information and advice. The new look will not only be more user-friendly, but will also provide more guidance and advice on how to effectively attract new customers to eToys. In addition, we are redesigning our banners and adding new banner sizes, and we are also renovating our storefront and search boxes to assure higher performance.

Again, we want to thank you for being part of our Affiliate Program, and we look forward to a fruitful relationship with you. You may have seen that eToys was recently rated the number-one retail site by Fortune Magazine. We take this award as inspiration for our continued work to maintain eToys as the top destination for children's products. As our success continues, we are happy to extend that success to you in the form of your well-deserved fees. It is our hope that we will continue to share the goals of great success and exceptional service with all our affiliates.

Best regards,

Your eToys Affiliate Marketing Team

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