TOC Sala Rossa11:00am

March 18, 2012

The Hardware Conundrum: How Children Are Shaping the Next Generation of Mobile Devices

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Who Am I?

Matthew

Venture Investor, Entrepreneur, @IAmGrowney

Educated on Encyclopedias, TRS-80, & Flash Cards.

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Who Am I?

….but more importantly now:

Father, Uncle, and Godfather.

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How Are My Kids Learning?

Playful Discovery.

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How Are My Kids Learning?

And Digitally.

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Ultimately….

Learning = Atoms + Bits

(Device) + (Content)

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A Kid’s Desire vs. A Parent’s Wallet

Huge current demand coupled with strong desire for a better solution

USER DEMAND BUYER RELUCTANCE

(Source: Nielsen, 2011)

Interest in Buying in the Next 6 Mo. (Kids 6-12)

PlayStation Portable

PlayStation Move

Nintendo Wii

Other Mobile Phone

Microsoft Xbox 360

e-Reader

Blu-Ray Player

PlayStation 3 / PS3 Slim

Smartphone (non-iPhone)

Television Set

Nintendo DS / Dsi / DS Lite

Tablet Computer (non-iPad)

Computer

iPhone

iPod Touch

iPad

0% 5% 10%15%20%25%30%35%40%45%50%

10%

10%

11%

12%

16%

17%

17%

17%

19%

20%

22%

25%25%

27%30%

44%

Device PRICE

CONTROLContent

"Everyone wants their children to have a tablet, but not everyone wants to spend

$500 for a iPad that a child can throw onto the floor.” –Gary Storch, CEO Toys “R” Us

“…the industry faces hurdles. That includes setting a price parents can live with and dealing with concerns about kids getting hooked on technology too

early.” –Bloomberg

“Amazon Kindle Fire Criticized for Lack of Parental Controls” –PCWorld

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Understanding Your Content Opportunities

It will become increasingly important for Publishers, Content Developers, and Authors to understand:

(1) How is your content being consumed?

(2) How is it being distributed?(3) How can it sell a zillion copies?

In the end, your BITS are very dependent on the ATOMS that present them.

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Will it Be On Toy or Tablet or Something New?

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I. How Is Content Being Consumed?

1. The Device’s Cost (Toy or Tablet)- Toys are inherently cheap. Can’t do

much in digital.- Tier 2 or “Value Brand” tablets are

also cheap. Price and performance.- Tier 1 brands have created an almost

unattainable price point for much of the human population (especially children).

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Tablet Price and Demand

2010 2011 2012 2013 2014 2015$0

$100

$200

$300

$400

$500

$600

$700

0

100

200

300

400

500

600

700

29

162

243

349

481

$647

$533

$400

$340 $289

$246

Tablet Sales, Millions Average Selling Price - Tablet Computers

(M)

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I. How Is Content Being Consumed? Cont.

2. The Device’s Construction- Toys typically are constructed w/

extreme cost sensitivity and sell content as an accessory.

- Tier 2 tablets won’t withstand children’s usage, cheaper components equals lack of functionality.

- Even Tier 1 tablets won’t survive a Drop Test or are “juice-proof”.

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Example of a Tier 2 Tablet

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I. How Is Content Being Consumed? Cont.

3. The Device’s Connectivity- Toys are not typically connected to the

Internet.- Tier 2 tablets are typically WiFi.- Tier 1 tablets offer both WiFi & Cellular

4. The Device’s Lifecycle- Toys typically churn in 20 days (left in the toy

box with sporadic reuse).- Tier 2 tablets are being used on average 3-6

months before being churned out due to performance issues (memory, battery).

- Tier 1 tablets are being handed down as new models are selected.

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II. How Is The Content Being Distributed?

1. Content Availability/Discoverability- Toy Companies typically preload their

content and are extremely price sensitive and prone to working with only large Publishers (eg. Disney, Hasbro).

- Tier 2 tablets rely heavily on what they can afford to preload or the AppStore.

- Tier 1 tablets select more preloaded content based on the device’s functionalities.

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II. How Is The Content Being Distributed? Cont.

2. Content Curation- Toy companies curate based on their

target demographic (Toddler, Early Reader, K-6), but again work primarily with larger publishers.

- Tier 2 tablets work almost exclusively with a minimally curated AppStore. Category definition, age grading, Rating, are typically not provided.

- Tier 1 tablets are not much better organized in presenting content selections then Tier 2.

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Children’s Content Use/Purchase Is Soaring

Over 80% of the top selling apps in the Education category of the iTunes Store target children

In 2011, 72% of the top selling apps targeted preschool or elementary aged children

Game-based Learning Mobile Learning

% of Apps by Target Age

DEM

AND

MAR

KET

RESP

ON

SE

2010 2015

$232M

$413M

2010 2015

$959M

$1.82B

12.3%CAGR 13.7%

CAGR

(Source: Ambient Insight, 2011)

Toddler/Preschool Elementary Adult

35%

12%

57%58%

29%

40%

(Source: Ambient Insight, 2012)

(Source: The Joan Ganz Cooney Center, 2012)(Source: The Joan Ganz Cooney Center, 2012)

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3. How Can I Sell A Zillion Copies?

1. Marketplace- “Free” is important for Discovery, but not a

good business model.- Content prices need to be diverse and

allow for a “Pay”- model to function.- iTunes averaged $100 in paid purchases

from iPad owners for children in 2011.- Create a Discovery experience for your

brand

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3. How Can I Sell A Zillion Copies? Cont.

2. Artistic / Literary Excellence- Content still needs to preserve its

authenticity, integrity, and originality.- Not everything needs to be a “shiny”

object like an App. A PDF is sometimes just as good if tells an amazing story.

- Understand the “Game-ification” trend. - Experiment with Touch, Audio,

Highlighting, but don’t use it all for everything.

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3. How Can I Sell A Zillion Copies? Cont.

3. Education- Support pilot programs with ALA, Non-for-

Profits, and other Verticals to help validate the children’s digital education model.

- Education content is much needed in various commercial book stores.

- Much classroom testing of devices is still needed.

4. Other Distribution Considerations- New devices with private content collections- White labeled or private labeled eReader

application for individual publishers

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Is There Room For A Tier 1 Children’s Tablet?

High-end Tablet Designed and Priced for Children

Affordability for Children

Suita

bilit

y fo

r chi

ldre

n

($389)($80)

($200)

($130)

($80)

($200)

($250)($499) ($499)

($499)

for Children

for Adults($380) ($330)

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The Journey For Such Has Begun…

Learn more at www.IsabellaProducts.com.

(Shameless plug)

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Thank you.

Matthew Growney, CEO Email: matthew.growney@isabellaproducts.com Phone: +1 (978) 287 – 0007 x11