Webkinz: the next Club Penguin?

Last week, I was blown away to hear that Disney was acquiring Club Penguin for $350 million dollars with an option for the price to top $700 million over the to next couple years. Sure, I had heard of Club Penguin but $700 million, really?

For those of you without kids at home, Club Penguin is a snow-covered virtual world where tweeners between the ages of 6 and 14 play online games, adopt puffles, interact with each other and trick-out their igloos. The site is an advertising-free zone with a subscription based business model with 12 million activated members and 700,000 paid accounts ranging from $5.95 per month to $57.95 annually.

But come on, $700 million? I had to dig deeper. What I learned was that, by all accounts, Club Penguin is truly a remarkable success with well over $50 million in revenue, a great business model, high member retention, little or no venture money invested and a huge return for shareholders. This kind of success will surely create a flood of interest from entrepreneurs and the venture capitalists in the space. But does that next big hit already exist?

Using a completely un-scientific approach, I looked at a couple of leading leisure gaming sites that appear to focus on social networking and gaming for kids. I poked around on gaiaonline.com, neopets.com, stardoll.com and webkinz.com using People Counts as a proxy for success. What I learned is that webkinz.com is the clear momentum leader with 25% MOM growth and thundering 1424% YOY growth, surpassing clubpenguin.com in March, in terms of the number of kids hitting the site on a monthly basis.

Now, I had heard of Webkinz and truth be told there are a bunch these plush toys around my house and I have watched my own kids show me their virtual pets wearing crazy hats and, of all things, running on a treadmill. Webkinz, however, is not a subscription model like clubpenguin.com but is an interesting twist combining specialty retailing and this virtual community. Each Webkinz plush toy comes with its own secret code that unlocks membership in Webkinz world where kids play games, earn kinzcash and chat with others on their friends list. The secret to this success is that these toys are highly desired and kids collect them. Retail prices for Webkinz start at $12.99 and up and my kids have at least ten each and a wish list that’s even longer. Hot on the list for my son is the Black Lab which is rare find causing my wife to constantly scour the shelves of our local retailers looking for the next addition to our extended family. My daughter proudly declares that her friend Shannon has over two dozen Webkinz and Lil’Kinz in her collection.

Webkinz momentum is even further demonstrated by looking at the daily Velocity between webkinz.com and clubpenguin.com. Velocity quantifies the relative change in daily engagement between these two sites. This means that not only has webkinz.com passed clubpenguin.com in people visiting the site but that, over the last 45 days, kids using webzinz.com are more engaged on webkinz.com.

Will Webkinz be the next acquisition? Can Webkinz model of buying toys create more value than a subscription model? These are certainly tougher questions. One thing is certain, however; tweeners are a highly desirable segment of online consumers and sites that can effectively engage them in a safe and trusted environment will have the opportunity to create a great business and generate significant return for their shareholders.

Got to go, my wife just called and the Paper Store in Acton has both the Black Lab and the Chocolate Lab on the shelves and I cannot come home empty handed, again.

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