Monday, October 15, 2007

Virtual-world makers aim to hook kids

Virtual-world makers aim to hook kids

By Stefanie Olsen <>
Staff Writer, CNET
Published: October 15, 2007 4:00 a.m. PDT


SAN JOSE, Calif.--There's about to be a boomlet in kids' virtual worlds.

-6212826.html> and children can expect a raft of new 3D environments
for play and socializing in the coming year, thanks to projects from
established players like Disney and Neopets <> ,
as well as upstarts aiming to unseat them. Of course, momentum has been
building in this market all year, punctuated by Disney's $350 million
acquisition of kids' phenomenon Club Penguin
<> this summer. But more companies believe
that they can outdo the current crop and capitalize on kids' love of
virtual playgrounds.

One venture capitalist summed up why the market is so hot by saying that
kids' virtual worlds are the only ones that are successful so far. Club
Penguin, for example, expected $35 million in earnings before interest
and tax this year from subscriptions, according to Sharon Wienbar,
managing director of venture capitalist Scale Venture Partners. While
that's only an accounting figure and not necessarily a real indication
of profitability, it's certainly indicative of potential.

"In the children's market, that's where virtual worlds are really
mainstream," Wienbar said at an industry conference last week. She was
referring to sites like Webkinz <> and Club
Penguin, which have millions of active members, as opposed to adult
worlds like and Second Life, which have anywhere between tens
of thousands and hundreds of thousands of active users.

Another reason the industry is booming
190622.html> is because more kids are flocking to imaginative,
character-driven environments. An expected 53 percent of children on the
Web will belong to a virtual world within four years, more than doubling
the current population of 8.2 million members, according to a recent
report from eMarketer.

"This is the way people will interact in the future," said Scott Raney,
a venture capitalist from Redpoint Ventures, which backs the virtual
world Gaia Online. Raney also was at the Virtual Worlds conference, held
here last week.

The market is still relatively young, too, giving upstarts a chance to
rival brands like Disney and Nickelodeon. Companies like Webkinz have
proven that it's possible. In 2005, the company started selling plush
toys in stores that let kids adopt a virtual character in its online
world. In May this year, it had 4.1 million visitors, up 1,300 percent
from the previous year.

For that reason, more newbies are piling in. Fashion doll-makers Barbie
and Bratz both opened new virtual worlds for girls in recent months, in
an attempt to catch up with market-unknown
<> , a Sweden-based virtual paper-doll site. In
less than three years, Stardoll has attracted 6.4 million worldwide
members, according to the company. Aardman Animations
<> , creator of the
cartoon Wallace and Gromit, also recently opened a kids game site.

Showing that more relative unknowns will be here soon, at least a dozen
people raised their hands when asked if they were developing a new
online world for teens or kids during a panel at the Virtual Worlds

Executives from well-established players like Nickelodeon, Neopets and
Stardoll on the panel also were bullish about their expansion plans to
cater to children aged 6 and older. For example, MTV Networks-owned
Neopets, a community of 45 million people worldwide who own fantasy
pets, plans to launch another virtual world for kids by the end of 2008.

Disney also plans to open up a new virtual world game site based on its
popular theme of "Pirates of the Caribbean" by the end of the year.

"It's a little scary to see all these people coming," said Mattias
Miksche, CEO of "It's a pretty cluttered market already.
You have to make a really kick-ass product."

Venture capitalists said that they like kids' virtual worlds for their
diverse revenue sources--advertising, subscriptions and sales of virtual
goods like pets or accessories.

"We're looking for zero friction and virtual worlds (that simplify)
customer adoption," Raney said, referring to companies that his venture
capital firm is most likely to invest in. He said that they're looking
for new companies that focus less on superior graphics, and more on
making it easy for kids to use.

Because of all the interest, major brands also are experimenting with
extending what they're doing.

Neopets is the one of the oldest virtual worlds on the Net, with about
11 million average monthly visitors. Acquired by MTV two years ago,
Neopets plans to extend its characters to books, in partnership with
HarperCollins, and to toys and TV broadcasts through its parent company.

Neopets and Stardoll also separately plan to start selling prepaid cards
at retail store Target next week. Those prepaid cards will allow kids to
buy virtual goods like digital pets and furnishings on the sites.

Nickelodeon's virtual world Nicktropolis <>
launched in January, and now the virtual world has about 5.5 million
registered users who on average spend 55 minutes on the site per visit,
according to Jason Root, senior vice president of digital at
Building on its business, the company soon plans to introduce
advertising into the virtual world for kids, Root said.

Many executives in the packed audience were eager for pearls of wisdom
from the well-established players on the panel. "To anyone developing in
the space, it's not as simple (as you might think). It comes down to the
unique combination of gaming and personal expression," Root said.

"You can't underestimate the need to keep it fresh for kids and (get)
that playground chatter," Root said. "We can't get complacent--we can't
go a week without launching something new."

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