Virtual Worlds are for Kids

Paul PhadungchaiMay 3rd

TOCIndustry Analysis Slides 2-8Competitor Analysis Slides 9-13Conclusion Slide 14Exhibits and notes Slides 15-20

Millions of U.S. Children under age 9 have access to the internet

VWs for kids have exploded in the past two years

Year 2006 2007 2008 20090

50

100

150

200

250

# of Kids VWs in U.S.

Advertisers Dream…great way to market products to children

Disney purchased category leader Club Penguins for over $350 million and reportedly has 4 million active users

The industry has gone from a few worlds to over 200…Disney is working on 10 worlds itself and is rumored to be spending about $100 million

With Neopets Club Penguins leading older kids

Explosive Growth places Poptropica at top of the lower age bracket

Kids use VWs much differently than Adults

Often in conjunction with Instant Messenger

Hardly any sex appeal

More individual exploration

Higher value placed on virtual goods

Safety is a bigger concern than cheating

Trends/StatsThemes DinosaursMultiple revenue streamsCustomization

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Ideal Site

All Competitors want to be Club Penguin

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Club Penguin

-Perfect intro -Extremely easy to add friends and chat with people -Not Sporty

Action All-Stars should be called Penguin All-Stars

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Action Allstars

Owned by NBA amd MLB Entirely centered around sports Almost identical to Club Penguin's intro Can give friends trading cards

Poptropica challenges Dexterity and the Mind

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Poptropica

-Story themed

-High dexterity needed

-Must be clever

- 3 million unique monthly users (rough estimate)

There are a Kabillion ways to Customize yourself

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Kabillion

-A million different ways to accessorize avatars and customize home base

-No gifting

Neopets are Cuddly friends in the Real and Virtual world

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Neopets

-Very cute dragon that could appeal to boys or girls -Limited ability to customize avatar and no "home base" or locker

-Appeals to nurturers

ConclusionHere are some keys to success for the space:

-Customization-Gifting-Concepts with low saturation-Special attention to Virtual ownership

Sporty

Cuddly

Intro/Sticky

Ovrll/Sticky

CompetitveTeamwork

Customization

Gifting

Fun

0

5

10

Ideal Site

Has Club Penguin growth become stagnant?

Trends/StatsGiving avatars the always-on nature of IM mixed with a richer virtual world environment (Club Cooee)Dinosaurs (Dinosawrus, Dinosaur Junction Dinokids, Webosaurs, MyDinos)Multiple revenue streams, OurWorld has 1.3 million registered users makes 50/50 subscription and micro transactionsHasbro partners with EA for Littlest Pet ShopSuperSecret's functionality mimics that of MySpace, Facebook, and instant messaging tools in the same way that a younger sibling parrots the olderSuperSecret is free to play until users hit age 12, and then users will have to subscribe to continue to level up. IMVU has long stated that 90% of the company's monthly revenue comes from microtransaction sales of virtual goods and currency, generated either by direct sales to users or user-to-user transactions. The other 10% is generated by advertising and partner revenue.

Trends/Stats731,000 unique,repeated logins (unique accounts that log in more than once) per month as of the end of March.That's up from 582,000 a year agoMicrotransaction king Gaia uses speed-boosting Nike shirt and limits # of certain products to create scarcity and high valueGaia is an online advertiser's dream. 60% of users are between 16 and 24, with a 55% to 45% female-to-male ratio. The usual engagement time of a user interacting with a Gaia branded campaign area is between 15 to 30 minutesToys R’ Us debuts in WebkinsSulake could beat out Genkii's upcoming Sparkle for the title of first 3D virtual world on the iPhoneElf Island offers mirrored gaming, where kids complete missions that correspond to real-world problems, like building a house to raise money for actual houses in Honduras. Survey data, In early surveys, players of all ages that had not yet decided to subscribe were asked what would help them make their decision. Of all the respondents, only one selected “I can pay for the game in micropayments.” Several others cited time-related reasons such as “If I have enough time to play” and “I need to play more to see if I like it.” Interestingly, we found that while players were not specifically asking for micropayments, an alternative to subscriptions for premium content fulfilled a number of their wishes.

Trends/Stats 28M+ Xbox and Playstation Online Accounts 11/09

How virtual worlds and consoles will work is still a big questionUniversal Avatars may or may not come into existenceAccording to a study (Yankelovich 2007), only 25% of US residents trust conventional advertising. By and large they want to Tivo over advertising. Almost 70%, though, trust what their friends recommend.Habbo, Gaia, and Stardoll, it’s a market of 100 million people.Out of the 6.6 billion people on Earth, 2.3 billion have mobile phones. Approximately 1.2 billion have Internet connectivity.What could really shake up this segment is the pending launch of Lego Universe. The applications of this world are obvious and extremely engaging. What’s of interest here is the element of content creation that could be on offer to the residents of Lego universe. Very few (possible none) of the under 10’s virtual worlds allow third tier creation (first tier: avatar, second tier: objects, third tier: environment). Allowing kids to make buildings etc could be a killer app and something we haven’t seen much of. Whether or not they engage in this activity remains to be seen, but I’d suggest it will be extremely popular.

•Toy brands and franchises: Real world toy brand owners creating virtual playgrounds for their assets. Just as almost every toy has a dedicated website at present, expect to see a similar trend emerge in the virtual space. •‘Spaces to play’: Linked to the first point, creating virtual spaces for kids to play (and learn) will be popular. •Relationship building: Platforms such as Neopets prove the success of teaching kids to look after ‘things’. This early type of relationship building could be a trigger to mass adoption. •Virtual to real : Revenue opportunities for taking assets created in virtual worlds and bring them alive in the real. The segment below shows 10 - 20 year olds - the ‘Battle Zone’. This is a segment with a great deal of existing competition and as many worlds pending launch are as live.NFLRUSH is using Youtube to create awareness, data and demand

Trends/Stats

Even the rapidly declining Millsberry.com--down 17% from last year, but still at #5--saw 2.5 million unique users. Webkinz led the pack with 6 million unique users.Club penguins values each user at over $100

Trends/Stats