LeapFrog’s Toddler-Safe Texting Aims to
Fend Off Amazon
By Matt Townsend - Aug 30,
2013 7:30 AM PT
(Corrects market gain in sixth paragraph
of story published Aug. 28.)
Toddler-safe texting has arrived.
By tackling parents' fears
about their kids going online, these toymakers are seeking to extend their
dominance in a niche category of the booming tablet market that they created
two years ago after releasing the first versions of LeapFrog's LeapPad and
VTech's InnoTab. Photographer: Alain Jocard/AFP/Getty Images
Spurred by burgeoning demand for
kid-styled tablets, LeapFrog
Enterprises Inc. (LF) and VTech Holdings Ltd. (303) revamped
their tyke-targeted devices to add features that let three-year-olds send short
messages to grandma and even watch online videos without stumbling across
websites kids shouldn’t see.
“Exposing our children to the Internet at
an early age is incredibly valuable, but how do you do it safely?” John
Barbour, chief executive officer of Emeryville, California-based LeapFrog, said
in an interview.
By tackling parents’ fears about their
kids going online, these toymakers are seeking to extend their dominance in a
niche category of the booming tablet market that they created two years ago
after releasing the first versions of LeapFrog’s LeapPad and VTech’s InnoTab.
With the added Web features in the
recently released $150 LeapPad Ultra and $100 InnoTab 3s, they are also
presenting more of an alternative to devices from Amazon.com Inc. (AMZN),
Samsung Electronics Co. and Apple Inc. (AAPL) in
the larger market for tablets that is projected by researcher IDC to increase
34 percent to 67 million units shipped this year.
LeapFrog and VTech faced little
competition early on for tablets made specifically for children -- as opposed
to parents handing over an iPad to their kids. The LeapPad became a runaway
hit, and its success helped turn around the company’s fortunes. The shares have
more than doubled since the first version went on sale in July 2011, compared
with a 22 percent gain for the Standard & Poor’s 500 Index. The shares
fell 1 percent to $9.83 at 1:19 p.m. in New York. VTech’s InnoTab has become
its best-selling product.
Mattel’s Absence
That easy ride has ended and it’s not
because Mattel Inc.
(MAT) and Hasbro Inc.
(HAS), the world’s largest toymakers, have entered the market.
Despite these devices being one of the few bright spots in the sluggish U.S.
toy industry, they’ve stayed out, saying making tablets is too expensive and
risky and will instead focus on creating branded content for mobile devices.
Meanwhile, Samsung announced a
kid tablet yesterday that will be released next month, and Amazon’s recent
television advertising features a parade of children. It’s offering a monthly
subscription service with unlimited kid content, more parental controls and
marketing the 7-inch Kindle Fire at $174 as “the perfect family tablet.”
While sales of children’s tablets account
for a small part of the total tablet market, which includes Apple’s top-selling
iPad, there may be plenty of room to keep carving out this niche with more
families now buying more than one tablet, IDC said.
Wal-Mart Backing
Given that LeapFrog has established itself
as a leader in kid tablets and has increasing support from retailers such
as Wal-Mart Stores Inc. (WMT),
the Ultra is projected to be one of the top-selling toys this holiday-shopping
season, said Michael Swartz, an analyst with SunTrust Banks Inc. (STI) in
Atlanta who recommends buying the shares.
LeapFrog executives thought long and hard
about adding adult features to the LeapPad because while kids are begging to
get online, parents feel the need to hover over them, said Jill Waller, vice
president of multimedia learning. VTech also spent months designing a tablet
kids could use on their own.
Both companies curated the online
experience, limiting access to such sites as PBS.org. LeapFrog makes all these
decisions through its LeapSearch browser, while VTech uses filters and also
lets parents add or block content.
Toddler Texting
Another LeapFrog innovation is its texting
app, Pet Chat. Users are restricted to sending messages to each other from a
pre-determined list of phrases such as “I’m being silly.” Hong Kong-based VTech
has Kid Connect, which allows tykes to text another InnoTab or parent-approved
smartphone.
“A pre-schooler will have the same ability
as everyone else in terms of staying connected to mom and their friends,” said
William To, VTech’s North America chief.
Adding Wi-Fi to the Ultra could help make
it LeapFrog’s most successful tablet yet, Barbour said. The first two versions
were among the top 10 best-selling toys last year, according to NPD Group, and
helped boost companywide revenue 28 percent in 2012
for its best growth in nine years.
LeapFrog and VTech are using their status
as trusted education brands to win over parents after years of making content
and other electronic devices focused on learning. Another advantage is that Wal-Mart
and other retailers typically put LeapPads in the toy aisle, which walls them
off from adult tablets in the electronics department.
Target Mom
“We don’t want to be in the electronics
aisle because mom doesn’t shop there,” VTech’s To said. “Teenagers walk that
aisle. Maybe dad walks that aisle. Our target audience is really mom. She is
the decision maker.”
Other new entrants are piling into the
market as well with inexpensive “family tablets” designed to have it both ways.
Parents can configure them to create multiple profiles so only dad can watch
“Breaking Bad” while junior is confined to “Angry Birds.” Many, like the
$150-priced Kurio 7s from Techno Source, run on Google Inc.’s Android software
while LeapFrog and VTech feature their own operating systems.
“You can do anything you want but also
hand it to your 6-year-old,” said Eric Levin, division head of Techno Source, a
unit of Li &
Fung Co. (494) Sales of the 7s should more than double this
year to 1 million-plus units, he said.
Closely held Fuhu Inc. takes segmentation
further with three devices that each target a few years of childhood, from the
5-inch nabi Jr. for
preschoolers at $100 to the 10-inch nabi XD aimed at tweens for $250. After
releasing its first tablet in late 2011, the company realized that how kids
used the devices varied greatly, even for children just a few years apart, and
parents wanted a more targeted experience.
CEO Unfazed
Barbour, the LeapFrog CEO, says he is
unfazed by the mounting competition. Many customers loyal to the brand’s
emphasis on education will upgrade to the Ultra, he said. Plus, he expects to
win new customers switching from low-priced tablets that don’t offer much for
kids or have moms in mind.
Even as the company has moved to offering
downloads of its software, it will continue to sell cartridges with content
such as electronic books and spelling games that are inserted into the tablets.
That’s because the cartridges, which sell for as much as $25 apiece, remain
appealing to mothers, he said.
“When mom is in Wal-Mart or Target, it’s
actually easier for her to pick up a cartridge and use it, then it is to go and
download,” said Barbour, who joined LeapFrog as CEO in March 2011 and oversaw
the release of the first LeapPad. “Any time mom has to spend time being the
head of IT at home, she’s very unhappy. Mom needs safety, she needs trust and she
needs simplicity.”
To contact the reporter on this story:
Matt Townsend in New York atmtownsend9@bloomberg.net
To contact the editor responsible for this
story: Robin Ajello at rajello@bloomberg.net
http://www.bloomberg.com/news/2013-08-28/leapfrog-s-toddler-safe-texting-aims-to-fend-off-amazon.html
