The Kids App Market, Part 3: A Wish List

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As my third and final post on the kids app market, I have made a wish list. What if things were different? How could the market improve?

Even if all of my wishes were to come true, the majority of the market complexities would remain. Your user is not your customer. That won’t ever change. But as I’ve stated before – things can still improve. All parts of the ecosystem can do better.

This wish list is my way of contributing to these improvements. I want to show that there are many things that could be reworked, changed, or improved. I sometimes get the feeling that people look at this market as stagnant – almost impossible. With this wishlist I’m simply saying: it doesn’t have to be this way. Let’s make some changes!

If you missed the first two parts, take a look here first for some more context:
Part 1: The Kids App Market – A Strategic Overview
Part 2: The Kids App Market: Q&A


Product & Developers

  • There’s more to kids apps than ABCs and 123s
    One of the reasons it is hard to find great apps is that so many of them are going for the exact same concept. With the same sort of developer name. With the same sort of art style. Everything looks and feels the same, and it creates the impression of a non-differentiated market.

    I wish developers would take it a step or two further. Yes, ABCs are important. But that app concept is pretty well covered by now. There’s so much more to be done.

  • Define your authorship
    Go beyond the most immediate common denominator when it comes to design. Look at children’s books for inspiration – Jon Klassen or Chris Haughton for example. They have a tone of voice, a look, a sense of authorship. This is far too often missing from kids apps.

  • Where is the Pixar of apps?
    By saying Pixar, I don’t necessarily mean that exact studio (although that would have been lovely too). But where are the studios that have that amount of care and attention to detail? The app studios that love their craft like Pixar loves movies? I understand the financial reality of developing for this space – I really do. But ambition is free. And I rarely even see an experiment with a sense of curiosity or adventurousness. It would reinvigorate the market in a way that is needed to get the excitement back.

  • Don’t forget the parents
    There’s more to this ecosystem than just apps for kids. Apps for parents live in their own ecosystem currently, but there’s a lot of overlap here in terms of communication and discovery. There’s loads of room for innovation in this area.

Platforms & App Stores

  • Delay App Store charges by 24h
    I’ve spoken to countless parents that bought an app (or an IAP) that ended up being bad or disappointing. This had discouraged them from buying other apps in general. This is a huge problem, but an understandable situation.

    To me, there’s a very simple change that would increase product quality across the App Store overnight: move the credit card charge 24h forwards in time. Ask the consumer one day later if they’d like to keep the purchase they made, and if not the charge (and purchase) is reverted. What’s more – the ranking in the store should only kick in based on the purchases kept, which instantly rewards quality and longevity. Finally – let bought in-app purchases be shared across all family devices.

  • Checkbox for kids search
    Identify the searches that are clearly intended for kids and add a checkbox to filter out all results that aren’t in the Kids category. If you want to show up in search, comply with the rules of the kids category (more on that below).

  • Clean up the store
    Screen out the garbage that is cluttering up the search results. Plenty of apps aren’t accepted anyway. It is long overdue to make that list considerably longer. We don’t need more apps like Baby Vampire-dentist office ultimate game for kids. Start by enforcing your own guidelines. These apps are predatory and make the store look bad. Turn them off.

  • Encourage inclusion in the Kids category
    During WWDC this year, Apple announced that they would ban all use of analytics for apps in the Kids category. And while I can understand the intent, this sends the wrong message to the developer community. The Kids category already has more strict requirements than the rest, and several kids developers simply avoid the category and rely on discovery outside it instead. This change penalizes the developers that are trying to comply with best practices and leaves the blatant category misuse from certain developers to continue.

    In my opinion, Apple should be doing the opposite. They should be strongly incentivizing developers to join the Kids category (and by doing so, comply with a higher standard of regulation – which is a good thing).

    In the context of the App Store, incentives mean promotion. Make a Kids tab in the store. Stop promoting any kids directed app that isn’t in the Kids category. Remove apps from kids directed search (as per above). There’s lots to do here to make the Kids category safer for families and better for developers.

  • Follow a developer
    Developers don’t have any way of contacting their former customers in the App Store today. It relies on parents signing up for a mailing list or a social media account and then catch that message when the time comes. There are a lot of steps that can go wrong there. At the same time, consumers don’t want to be spammed from every developer that they ever downloaded an app from.

    A solution could be to let consumers follow a developer in the App Store. That way they could voluntarily get notified when developers of their choice released new products, and receive it as a push notification from the App Store. This would encourage loyalty and help with discovery of new products.

  • Incentivize referrals
    Apple had an affiliate program that they removed recently. Given how difficult discovery in this category is, they should incentivize outside ecosystems to help with this. Finding quality products will lead to more spending since the experience is better. Sharing this spending with the broader community that helps with the discovery seems very fair and reasonable to me. If there has been issues around fraud in certain categories, only turn this on for the Kids category to begin with.

Parents

  • Parents, please pay
    This is simple and perhaps naive, but this is a wish list after all. Please pay for apps. One way or another. Generally, I’m not a big fan of industries complaining that their customers don’t understand their own greatness. But this is an industry that needs support in order to become self-sustaining. And if you want your favorite developers to keep producing great apps for kids, then my wish would be that they got financially supported to a higher extent than today.

  • Take an informed view of screen time
    This is a long and complicated topic that I won’t get into here. The jury is also still out on many issues as we wait for the research to come in. But until then, take a look at the American Academy of Pediatrics’ recommendations. And while I don’t agree with everything there, their view on quality over quantity provides a useful lens to have when determining how you want technology to be used in your family. This shouldn’t be a binary matter.

Media

  • Treat apps like culture
    I wish we would stop thinking about apps as software and start treating them as a part of culture instead. Or as a part of media at the very least. Technology is only the carrier – not the category. When apps are seen as small pieces of tech hidden away in the back section of magazines, so much of the potential is lost. I’m not saying all apps deserve to be on the cover of Time Magazine. But looking at them as a part of a broader culture would encourage more developers – and not only kids ditto – to aim higher.

  • Where are Oprah & Ellen?
    This space needs a cultural icon that points people to good things. Like Oprah and Ellen do. They carry massive influence, are trusted in their spaces, and help guide people to great products. Kids apps really needs their own Oprah and Ellen.

Regulation & Privacy

  • Clarity
    In my experience, most kids app developers have the best of intentions. There are easier ways of making money than this, so the immediate gold rush tends to go in other directions. Nevertheless, all of them get tangled up in the regulation that guides this space. Developers are treading on eggshells to not break a law – by mistake.

    It doesn’t have to be this way. The developer community just needs clarity in regulation. I’m all for safe harbor programs, but you shouldn’t need one to comply with regulation. I’m not advocating watering the law down – I just want it to be crystal clear when you are compliant and not.

  • Neutral, private, authentication
    Account and data management are often needed to create a great experience. It is also the beginning of a privacy nightmare – for everyone. The kids space would benefit from a neutral, private, cross-platform, COPPA/GDPR-K compliant way of handling identity, authentication, and data management. That way developers could use this and therefore not have to solve these issues individually. Quick for the developers, simple for the user, transparent for parent.

That was my wish list. Please add your own in the comments!

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The Kids App Market, Part 2: Q&A

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My last post about the kids app market received a lot of interest and a fair bit of feedback too. It’s very rewarding to write when people take the time to read it. Thank you.

To honor the feedback that I got, I will address a few additions and questions here below. The third and last part of this series will be a wish list of improvements and changes that I think would improve the market.


– Where is the publishing and toy industry?

This is a fair question, especially since the early days of kids apps was mainly animated books. Toca Boca was also acquired by a toy company, so clearly there is a connection here.

In short, I look at them in the same way as the entertainment market. Both their strategy and outcomes are the same, more or less.

Longer version: In my model of the market, I chose to only include Gaming, Technology, Education, and Entertainment. This was a simplification to make it more clear. From a structural perspective, however, the publishing and toy industry treat the market very similarly to the entertainment industry. It is a supplement to their main business, and primarily serves a marketing purpose. Their apps are, mainly, created as a consequence of other products being developed first. This is what makes them a good candidate for licensing. You generally wouldn’t license out the categories that you consider your core business.

It is fair to say that there are more players in the market than I initially described, but the additions don’t warrant further analysis if you understand the entertainment side. Their strategies are almost identical.


– What’s the responsibility of parents that don’t pay for high quality apps?

Simply put: Why don’t parents pay for great apps? Wouldn’t this solve everything? In fact, many do pay. But they have stopped paying in the way that a lot of developers prefer, which is upfront. They are also not buying the apps of the highest quality, but rather the ones that are the best at marketing. But since the kids grossing top list is still growing, it means that more money is being spent in the category overall. So where is this discrepancy of perception coming from?

A large part of the kids market frowned upon using in-app purchases for a very long time. It was seen as unethical to try to sell to kids in the middle of their app experience. There’s still a strong case to be made for this, from an experiential point of view.

What’s changed is how parents choose to spend their money. They want to try before they buy. They are surprisingly fine with subscriptions. But the developers of high quality apps don’t necessarily have a product strategy (or overall philosophy) that aligns with this shift in consumer spending. It’s a bit of an indie mentality where you hold onto what you think is right, even if the world has moved on. For better or worse. The paying parents are still there though – they are just paying in different ways.

Then there are the parents that don’t pay at all. Regardless of the business model. And this is the vast majority of parents. They simply don’t value or perceive the quality to be high enough to justify the price. There are countless free apps for kids that seem fine. Why pay?

One reason for them to pay could be to avoid advertising or to not get your kids’ privacy violated. But in order for that to drive a purchase, you have to:

a) know that it is happening,
b) perceive it as an issue you’d like to avoid,
c) preferably have an equivalent alternative to purchase instead.

There are issues with all three of these prerequisites in the market today. For many parents, this is not clear at all. That being said – there are countless parents that do acknowledge it, complain loudly, and still won’t pay a penny to solve it. It would be better if they did. But this is unlikely to change.

I’m not saying that it is parents fault that the kids app market is hard. It’s not Apple’s or Google’s fault either. Or the developers themselves. But I am saying that all three parties could have – and can – do better.


– What are the advantages of making kids apps?

Perhaps my last post came across as more gloomy than intended. You can be successful in this market. I have been so myself. What I tried to illustrate were the complexities of the market. That naturally skews towards challenges rather than opportunities. But let’s switch sides a little, and shine some light on three positive aspects instead.

1. A recurring target group

If you’re 35, an app you downloaded five years ago is going to be pretty dated by now. Your expectations are higher than they were then. Your taste may have changed.

For a 3 year old, this is not necessarily the case. The 3 year old that is now 8 will feel similarly, but now there’s a new 3 year old in the market instead. And a 3 year old now, compared to a 3 year old five years ago, is going to be pretty similar.

What does this mean? It means that if you make a fantastic app for a 3 year old, it’s probably going to be fantastic for 3 year olds for a very long time. This creates a steady stream of new customers to a product that you finished a long time ago. This is a huge opportunity, if played the right way.

Some regular games fall into the retro category and experience something similar. But it is rare and tends to take much longer. Super Mario Bros 3 is still awesome (and was released in 1988).

2. International kids are similar

With a similar line of reasoning as above, a Chinese 3 year old is considerably more similar to an American or a Norwegian 3 year old than the 35 year olds. Cultural context gets added over time, and in school especially. For developers this means that if you have a great app in one country, other countries are likely to agree. With ecosystems like the App Store that lets you publish to over 100 territories with a single click – this is a big deal and something you should make the most of.

Parents, however, are not especially similar. Language alone can be a barrier. So the marketing will be a challenge. But compared to making a completely new app for a geographical market, this is a big opportunity to take advantage of.

3. It’s simple (but not easy)

Compared to many other categories, developing for kids can be quite simple. By simple, I mean that you don’t need to run constant A/B tests, yield optimizers for ads, price sensitivity testing, live ops management, or community engagement campaigns.

Look at Toca Hair Salon for instance. It is one of the most successful kids apps of all time. It doesn’t even have a backend. Everything lives in the app itself, works offline, and requires no server costs. Over time, this means the app is running at 0% margin cost and 0% distribution cost (minus the 30% cost of sales). Year after year (as per point 1), and in every market (as per point 2). That is a great business.

Now, it isn’t easy to make an app like Toca Hair Salon. But it is simple to run it, once you have it. That’s more than can be said for most regular games and online services.


– What about the ethics of marketing to kids?

This is a tricky one. And I’m no ethicist either. But I’ll offer a few pieces of advice to consider at least.

  • Do your homework before you start. There are a lot of resources in this space. I suggest you start looking at the Designing for Children’s Rights Guide.
  • Take kids seriously. They’re not small adults. They’re not stupid. They shouldn’t have to settle for less. This might sound obvious, but spend five minutes looking at marketing for kids and you’ll see why this is advice is needed.
  • Make your own guidelines, and stick to them. It is easy to get caught up in trying to increase conversions or click-throughs. But making your own framework can be a good ethical railing to hold onto when you get deep into operations.
  • Avoid all dark patterns.
  • Consider the context you are in. This isn’t your average “buy-500-gems-get-250-for-free” game. Or at least it shouldn’t be. Because the notion of buying virtual gems is predatory if the user can’t distinguish what that transaction entails. This goes for how the product is designed, and subsequently for how it is marketed (inside and outside of the app).
  • Follow the law. Know your COPPA and your GDPR-K. They are there for a reason.

This summarizes the majority of the feedback and questions that I received. As mentioned, the third and final part of this series will be a wish list of how things could be improved to make this market better for all parties.

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The Kids App Market, Part 1: A Strategic Overview

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How do you take on a market where the user isn’t your customer? A market that overlaps and competes with four major industries, but doesn’t belong to any of them? These are questions I have been working with for the past nine years.

Since 2010, I’ve been in the kids app market. First it was as CEO and Co-Founder of Toca Boca, and more recently as an independent advisor.

Still to this day, I get contacted every week by people that want to learn more about how this early stage digital market works. This blog post is a summary of my experiences, and my perspective on how to think about it.


Introduction: Is this app educational?

Five minutes into your initial research, you’ll notice that kids apps and educational apps are terms that are used interchangeably. This primarily comes from the US, where childhood and education are often treated as synonymous.

While there is much more to being a kid than learning math, the market makes little difference between the two. This confusing notion is the starting point for why this market is complex. What does the market even consist of? Coloring books, next to phonics software, next to roleplaying apps. It’s a mess.

One of the reasons why it is messy is that the kids sections of the app stores are still young and underdeveloped. There is hardly any categorization, far too little curation, and search is bad (and often misleading).

When we started Toca Boca in 2010, we used to joke about the app stores. The physical equivalent would have been like walking into a toy store and finding all the toys laying in a huge pile. Hanging above the pile, there would be a sign that simply said “TOYS“. No categorization, differences in merchandising, or segmentation of any kind. To find something, you would have to dig in the pile and hope that you found something good.

Now – almost ten years later – that joke isn’t as funny anymore. Because we’re more or less in the same place.

But while discoverability is still bad and immature, some things have improved. Product quality is consistently higher now. Business models are more sustainable, but only for the developers that have managed to break through already. More on this below. But first we need to take a look at some of the definitions.


Definitions: What is educational, really?

As you browse the App Store and Google Play, you will come across numerous educational claims. Teach your kids to read! Get excited about math! Loved by teachers! If you look just one layer deeper, you will find very little support for these claims. That’s not to say that the developers are necessarily lying, but the burden of proof is very low. In fact, there are no neutral and independent parties that make assessments of these claims in the market. This may sound like a minor issue, but it really isn’t.

With no one to verify claims of educational content, parents are left to their own devices to assess these products. This is a very hard thing to do. It’s a little bit like walking down the cereal aisle at a super market. All the boxes are trying to make you think that they are a healthy choice. But with cereal you at least have the Nutritions Facts Label that helps you to compare. Kids apps don’t even have that.

With educational value being the primary requirement from parents, but no one there to verify or guide, the market ends up being like the wild west. Any developer can make any type of claim. The actual results differ a lot. As does the overall experience. If a parent searches for “educational apps” they’re almost certainly not going to find the best ditto. Therefore their experience of educational apps is going to be worse than it could have been. Imagine wanting to buy a great car, and leaving the lot with a Lada. You’re going to think all cars suck. Which is a shame, and also inaccurate.

This confusion puts the kids app market in a bad light. It makes it hard for real quality to shine through. And as if that wasn’t hard enough, there’s also the issue of the business models. Read on.


Business Models: It’s hard to make money from kids

Everyone loves a good story. In 2018, Apple said that they had paid out over $100bn to developers. At WWDC next week we’ll hear an updated and higher figure. What ever it is, it’s going to be a big number. But what the app stores never talk about is how that money is distributed among developers. Supercell alone made almost $6bn, just in the last three years (not all of it from iOS, but a very healthy share was). What’s the median – not average – revenue for app makers? We don’t know. But it would be a very different story. It would also be very different if we just looked at the different categories of apps.

The Kids category is tricky to monetize for several reasons. You have two audiences to begin with: kids and their parents. These two groups share very little in terms of incentives and overall interest alignment. One controls all of the money, and also the vast majority of all screen time control (of kids under 13).

This dynamic creates a very unusual use case for monetization. The user is not the customer. In order to monetize you must either create an alignment of interest between the two (kid and parent agrees that they should buy something) or rely on the one of them convincing the other (kid nags parent to buy something). This has more in common with selling pet products than most regular gaming.

To add to this complexity, the vast majority of money being spent in the app stores is consumables, bought through in-app purchases. You buy something, but you can always buy more (and that tends to be better). This is how you catch the whales.

The consumables model does not fit kids apps, generally speaking. Virtual currencies are always intentionally abstract, but for a 5 year old it is closer to plain trickery. Parents don’t want this for their kids (but they might feel fine buying boosters in Candy Crush for themselves). The Kids/Family section on the App Store and Google Play also has restrictions since a few years back, limiting the way you can sell in-app purchases. It now requires a few extra clicks and an age gate. This is, of course, a good thing.

If you can’t sell consumables, what are you left with? Four basic models. How they perform in the market primarily depends on your products, but you can oversimplify and segment it like I have in the model below.

Business Models in the kids app market
A simplified look at the business models in the kids app market.
  • Paid Apps – Pay once, play forever. The dominant business model in the early 2010’s, but one that has been in a very steady decline ever since. A good fit for parents for the reasons above, but not an especially good model for developers.
  • Free, with in-app purchase – Try before you buy, basically. Even if you don’t sell consumables, you can still sell permanent expansion packs. And you can sell many more of them in the same app, as opposed to having to make brand new products all the time.
  • Subscription – Monthly updates, monthly payments. This is the by far fastest growing category for revenue in the kids app space. It also aligns with Apple’s general interests of driving revenue through services. They’ve been building out their subscription offering for developers substantially over the last few years. And remember, Apple didn’t even allow for App Store-based subscriptions outside of media products until 2016. So this is a big shift.
  • Advertising – Selling privacy compliant ads. Kids apps can drive a lot of traffic, but because of what I’ve described above this traffic doesn’t necessarily convert to sales. This is where the ads come in. Many parents are skeptical to the concept of ads for kids, but they are generally accepted in products that don’t require you to pay.

The question you should be asking yourself after reading this above is: how big is this market then? It depends what you define as the market.


Market Definition: Education + Technology + Entertainment + Gaming

The kids app market doesn’t fit into one existing industry. To understand it, you instead need to look at the adjacent industries that it touches upon. It lives between four different industries – neither of which understand each other particularly well. And they’re not use to competing with each other either.

The kids app market lives between Entertainment, Education, Gaming, and Technology.

In fact, the kids app market lives between – and overlaps with – four giant industries, but doesn’t really belong to either of them. This explains why newcomers (like Toca Boca and Sago Mini) have been able to take such strong positions in a market that has a huge amount of incumbents. They’re all incumbents in their own field. Not in the combined field. Identifying this was the initial opportunity in 2010, and I would argue it is still the opportunity in 2019.

Let’s look at each of them:

Gaming: Has never really taken kids’ products seriously, or considered it to be a major discipline of gaming. There’s an endless amount of new game studios that pop up every year. But very, very few of them have even the broader family has their target group. Nintendo being a slight exception here. Look at any Gaming conference and you’d be lucky to find kids’ games having more than a single session.

Education: Sells books to schools, broadly speaking. And they do that well. Given the complicated sales cycles of educational products to institutions, they have well established barriers to keep upcoming companies out of their core B2B business. These lock-in effects don’t, however, create especially good environments for innovation. Oligopolies rarely do. When new B2C companies started touching upon educational topics in their periphery, they didn’t really pay much attention. And still don’t.

Technology: Are often dependent on families as a unit, since the use of services often works best within the same ecosystem. Apple families sharing iCloud, Apple Music, Find My Friends etc. But catering to families means that you can’t completely exclude the youngest kids. Also, the tech companies run the app stores and the mobile operating systems which is their main contribution to this market. But kids’ products is not their focus.

Entertainment: Makes TV & movies, and considers most other categories to be better suited for licensing. Nickelodeon is a classic example of the innovator’s dilemma in this space. They don’t consider kids apps to be a big enough business for them to care about (compared to TV ads), and therefore it is treated as a secondary category – at best. The result is poor products, with generally poor performance too. At least in comparison to the strength of their brands. Disney and Sesame Street are very similar in this regard. They should be crushing everyone in this market on brand recognition alone. But they don’t.

So what is the size of the kids app market? It depends how you cut and slice these four markets above. Generally, people use the figure for the Education market since that seems to be the closest proxy. This isn’t a perfect comparison by any means, but an understandable escape route to a difficult question.

I think a more fair way to assess the market size would be to look at the following:

a) the assumed size of the kids app market (including kids games) itself
+
b) the share of the Education and Entertainment markets that you think will be digitized
+
c) the digital advertising spend on kids

I can’t give you an exact figure since there isn’t one to give. The point of writing this is to say that the market depends on how you define it. But that’s not what you’re here for! So let me contradict myself slightly and make a very rough and conservative estimate:

– Let’s say that the kids app category on iOS and Google Play globally grossed around $350 million in 2018. For simplicity, let’s ignore all consoles and PC games (Nintendo, Steam, Xbox, Playstation, etc). I’m also skipping Amazon here (that is a major player) and all of the games outside of the kids category.

– The Education market has an endless amount of estimates. This one says the global market in 2018 was around $6 trillion, of which less than 3% was spent on digital in 2018. But that’s still $152 billion. All of that isn’t for kids, so let’s give that a conservative haircut of 50%.

– The Entertainment market consists of all general TV and video entertainment. Disney+ will be an app for instance. Does that make it a kids app? Maybe. Netflix? Sometimes. But let’s be conservative here too. The global OTT market was $22.6 billion in 2018. Let’s say you can attribute 5% of this market to kids and family, even if it likely much higher than that.

– The digital part of kids advertising is around $1.6-2 billion in 2019, according to PwC and SuperAwesome. For comparison, the global figure for all internet advertising in 2017 was estimated to around $220 billion.

In total, that would mean the total market size is around $80 billion globally in 2019. This assumes no growth and a lot of caveats, as you can see above. It’s still a respectable figure.


Competitive Landscape: Ages, stages, & competitors

To make things more complicated, it isn’t entirely obvious what constitutes a “kids app”. The Entertainment section above illustrates this well. Is Angry Birds a kids app? A lot of adults play that. Is YouTube? A lot of kids use that. And so on.

The reality is that the whole market is on a sliding scale. It doesn’t fit neatly into demographic boxes. 6 year olds are playing Clash of Clans. 14 year olds are playing Toca Life. 2 year olds are also playing Toca Life. These products aren’t intentionally designed for them, but there’s also very little stopping kids from playing. Everything is everything, as Lauryn Hill once said.

Understanding this is important for a few different reasons:

1. You are competing with the best of the best, in terms of expectations.

Look at something like Clash Royale. Regardless of your opinion on their suitability for kids or methods of monetization – this is an incredibly polished and well-made game. No doubt about it. The creators, Supercell, is also one of the most successful and profitable games companies in the world.

Many of the kids you are trying to reach have played Clash Royale. They’re used to that level of fidelity and richness in graphics. This doesn’t mean you need to be like Supercell, but it does mean you can’t ignore the context that includes them.

2. Many kids are outside of the kids category.

It’s easy to look at the Kids top list rankings and think of that as the addressable market. But a closer look will reveal that a few major players aren’t even on that list, even if they definitely have a lot of kids as players. Apps like Minecraft or Roblox for instance. Disney is also largely absent from the Kids category on iOS.

The main reason for developers to not have their apps in the Kids category is to avoid the restrictions that Apple and Google have put in place. Take a look here for Apple’s version. They require parental locks and additional clicks when linking to a purchase or outside of the app, for instance. This is an inherently good thing for families’ safety, but is easily circumvented by simply not putting the app in the category in the first place. And by not doing so, they are also distorting the market perception. This may be changing though, as the FTC is putting some pressure on this issue. But regardless you should remember that this is only looking at apps that arguably are kids apps already, not the ones in point 1 above.

3. You’re competing for attention. Particularly on the device.

Ultimately, you are not competing with other kids apps but rather for their time and attention when they use their devices. Sometimes with the time spent without their devices too. Who is Toca Boca’s biggest competitor? I’d say it is YouTube. The amount of time that YouTube gets on these devices limits the time spent with Toca Boca. Neither company are intentionally going head to head with each other in a traditional sense (in fact, Toca Boca uses YouTube extensively). But in reality, there is a strong competitive force here. You could even make the case that the biggest competitor is school, given the time spent there.

I emphasize this because the reality is more muddy than one would have wanted it to be. Video competes with games. Homework competes with video. Sports competes with homework. Again, when understanding the kids market you need to take this context into consideration. The kids app market is not an island. It’s interlinked with everything else in kids’ and families’ lives. Time allocation, expectations, money spent – they are all connected far outside of their originally defined markets.


Marketing: The Incentives of Kids & Parents

Given the complex market dynamic described above, how can you effectively market to kids and families? The short answer is: you can’t. Or being slightly more optimistic: marketing is by far the most difficult part of this market.

There are several reasons for this. One of them is the simple fact that I stated above: Your user is not the customer. The majority of app makers will never have encountered this. Kids and parents are two completely different people with different interests, motives, incentives, and views on what quality is. To make things worse – a lot of times, your user can’t read. So there goes all UI and communication based on written language. These two things alone are a tricky challenge.

What’s more, the level of control and agency that kids have as they grow varies a lot. Below I have made an intentionally oversimplified model to illustrate this.

A simplified model to illustrate who really controls kids media and spending.

If you’re going for preschoolers, you can safely market to parents as your primary target group. It is unlikely that parents are going to let their kids roam freely in the app stores. And they have likely taken a look at the apps that they download before their kids start playing with them.

Once kids start school (around age 5-6), the influence of kids to kids starts to increase. Parents still know what’s going on, but they can’t control their kids interests to the same extent. Kids come home and ask for certain apps. Parents make the call if they can have them or not.

As kids become tweens and teens, parents start losing track of what they are really doing. It becomes tricky to both enforce rules, or to have any transparency into the reality of what apps they are using. A challenging time for many parents.

Regardless of age, kids’ and parents’ interests and perception of quality vary a lot. To generalize, parents care more about educational content than kids do. So depending on how your product is positioned, consider the likely recipient of your marketing message. Offering tutoring to a 10 year old is going to be a hard sell. Offering to the 10 year olds’ parent might work though. And vice versa with a game that is just plain fun.


Summary: How to think about the kids app market

When I first looked at this market in 2010, I thought we were already too late. The ship had already sailed. I quickly realized that in fact, the market had hardly even started.

When I look at it now, in 2019, I think it’s still early. The eco systems are yet to develop. There is supply and there is demand. But they’re not meeting each other adequately. As I described above, this is a market living between other markets. Until it grows up and becomes its own thing, it is going to be misunderstood and underdeveloped.

My macro view in 2010 was also pretty much the same as I have now. I posed three questions then:

– Will the amount of kids with access to touchscreen based devices increase over the coming 5-10 years?

– Will these devices decrease in cost and significantly increase in capacity and performance?

– Is it reasonable to assume that kids will use these devices for some form of entertainment and/or education?

If your answer to these three questions is “yes”, then there’s a market here. It doesn’t mean it is an easy one to capture, for all the reasons I’ve written about above. But it’s there, it’s early, and it’s waiting for the next generation of great products for kids.


Edit: I have written two follow up pieces that includes the role of parents, the toy and publishing market, thoughts on the ethics of marketing to kids, and an overall wish list for the future.


This post was written by Björn Jeffery, former CEO and Co-Founder of Toca Boca, and a strategic advisor in this space.


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One year of advisory

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A year ago today, I launched my advisory business. It’s been really great. The independence, flexibility, diversity of client work – all in all a very pleasurable working experience. And one that I’m intending to continue.

Five months in, I wrote a brief update about what I actually have been doing. I thought I would do the same now. I can’t mention any client names since some of the work is confidential. You’ll get the general idea though.

Some of the projects mentioned earlier are still ongoing, but this is a selection of the new projects I’ve been working on lately:

  • I wrote an extensive report on voice assistants and smart speakers for a Nordic media company. It was a combination of market data, strategic analysis, and case studies.
  • I did a full week workshop in New York that produced a new business concept together with a very interesting group of people.
  • I helped an XR company from Israel go to market.
  • I joined the team behind the chatbot Shim to help create a new product, Enjo, and reposition the company towards American parents. Earlier this week it was announced that the healthcare company KRY/LIVI had acquired Enjo. There’s a longer story to be told here, but that’s for another day.
  • I wrote a strategic overview of the kids app market for a new startup in Sweden.
  • I started working with the femtech company Clue (my first seed investment) as their acting VP of Special Projects.
  • I went to Denmark and spoke about how to create components of corporate culture.
  • I helped a California based edtech company with marketing and App Store Optimization.
  • I prepared a report on trends in corporate venture capital for a company in that sector.

Quite a year. A great balance between loads of interesting projects while still having time to read and learn more than in many years. If you have a project you’d like to work on together, please get in touch.

The Curse of the Modus Operandi

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The Daily

In any business there’s a series of rules to follow. Most of them aren’t explicitly stated, but follow a type of common (business) sense. A general modus operandi (MO) develops.

Both as a founder or an employee it’s easiest to stick to this MO. It feels sensible and like it saves time. But by doing so, you are recreating the same issues that these structures have created for all companies before you. To make it worse, people have a higher level of tolerance for these types of issues. They’re annoying but also implicitly accepted as “that’s just what office life is like“.

This is lazy. These commonly accepted problems are holding you back. And a lot of them make no sense. You want to buy a few books for $100? Ask your manager. Maybe expense it. You want to invite six people for a two hour meeting? That’s free. (Except it’s not. It actually costs $840, assuming $100K salaries).

As I wrote in The Strategy Tax, “doing the same thing as last year requires no preparation and little effort”. Your modus operandi starts to own you. It dictates rules that you can’t be bothered to challenge, or even think about.

Questions to ask yourself:

Why is it okay to lie in a budget, but not in a meeting?

Why does it matter how many hours someone works?

Why is an upward trajectory for your title assumed to be good?

No one knows. It just is.

The systems that you use to run your business, shape it too. Break the curse of the modus operandi and you’ve unlocked a new way to run and differentiate your business.


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Two Types of Strategy Tax

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There are two different types of strategy tax in a company. One for product strategy and one for corporate strategy. The former is what people usually refer to, and it often comes up when describing Microsoft and its strategy in the 90s. Blogging legend Dave Winer wrote a good explanation of this in 2001, for instance.

In more modern times, Ben Thompson from Stratechery has defined it like this:

A strategy tax is anything that makes a product less likely to succeed, yet is included to further larger corporate goals

Dave explains Microsoft holding back functionality from Internet Explorer to not cannibalize Word. Ben describes Google requiring Hangouts users to get a Google+ account. These are both good examples, albeit a bit dated now of course.

Expanding the definition
But there’s more to it than that. For me, The Strategy Tax illustrates not only questionable choices within existing product but also general strategic inaction. I think about it as an inevitable duality of the choices you make as a company. You cannot have a strategy without having a strategy tax. But the amount varies. And how you manage it varies too.

In my last post, I defined it like this:

It’s the cost of not taking a new opportunity, or passing on an acquisition. 

This makes for two different categories of a similar phenomenon. That would mean a definition that looks like this:

Product Strategy Tax
Suboptimizing new products to not inversely affect current ones.

Corporate Strategy Tax
Indefinitely postponing change, regardless of the world around you.

Both are relevant and useful models to apply when understanding a company and its choices. They are lenses through which you can analyze company’s choices to better understand why they do what they do – and what they don’t do.


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The Strategy Tax

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Scene: the board room. You’re presenting a new idea for investment. Your CFO is concerned. How much will it cost? How many FTEs will you need?

It’s predictable, but not unreasonable.

What is unreasonable is the asymmetry of continuing with business as usual. Doing the same thing as last year requires no preparation and little effort. But it represents the largest hidden cost of all big companies.

The cost of status quo
This hidden cost is the tax you are paying for your current strategy. It’s the cost of not taking a new opportunity, or passing on an acquisition. Since it can’t be immediately quantified, it gets ignored.

Identifying your strategy tax is hard. It poses the question how to account for things that have not yet happened. That sounds impossible, but a budget is supposed to be just that too. Except of course it isn’t. It’s cognitive dissonance stemming from the finance department. Budgets and forecasts are, at best, partially wrong. But a map which is half wrong becomes all wrong if you don’t know what part of it can be trusted.

You know that part where you just extend whatever you did last year into the following budget year? It’s wrong (and lazy). Your 10% growth multiplier is enough to not cause your CFO to choke on their morning coffee, but small enough to not matter if you miss it. Nobody ever got fired for buying IBM. Nobody ever got fired for projecting 10% revenue growth either.

Budgets have no answers
What to do? Stop looking to your budget for answers about the future. It’s not in there. Instead, file a strategy tax form to your CFO annually. It should state what it is going to cost if you do not change what you’re currently doing. You’ll need to guess, but you’re doing that in your budget anyway.

Things like meeting calculators are crude, but serve the purpose of illustrating an otherwise hidden cost. The absence of action has a cost that must be shown. Compare that cost to the investment cost and the board can favor the bold. Today they favor the ones who play it safe. And without knowing it, they pay a hefty strategy tax while doing so.


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Startups and Unions

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The political cliché in Silicon Valley is that everyone is a libertarian (and that they want to be seen as a contrarian). The first part is in fact a myth, as disproven by this Stanford study. Actually most people here are some form of Democrat. But a Quartz article stated that this political leaning came with two big exceptions:

There were two key areas where the entrepreneurs’ views diverged from Democrats, hewing much more closely to most Republican donors and voters: strong opposition to labor unions and government regulation

This caught my eye a little. How many Silicon Valley CEOs have even dealt with a unionized workforce? And how much is this just an orthodoxy? In the spirit of offering a different perspective, I thought I would share my own experiences. I ran a startup and I thought working with unions was no problem at all. Let me tell you why.

Before I start – there are some caveats. My experiences of this was in Sweden where the unions work differently than in the US. Employer acceptance of them is also different, since the overall union membership in the whole country is 71% (the equivalent US figure is 11.1%). Unions obviously also differ a lot among themselves depending on trade category, but come along with me for this oversimplification anyway.

Here are three good things about having your startup employees unionized:

  1. You get a framework for compensation
    • We ran Toca Boca under a collective bargaining agreement which means that the unions and the representatives for the employers negotiate the overarching framework for salary increases and things of that nature. This may sound like socialist hell to some perhaps, but the reality is that is saves you an immense amount of time.
    • Generally, the agreement sets the lowest salary increase and then the employer can choose to go higher. Say it is 1.8%. While employees can still negotiate for more, it also sets an expectation across the whole company. It’s going be around 1.8% – not 15% or 30%. The collective agreements take inflation and a whole bunch of variables into consideration.
    • As a startup CEO, you now have a framework to work with which has been deemed and fair from both parties. You think it sounds expensive giving everyone a certain set wage increase? Disgruntled employees’ productivity loss is way more expensive.
  2. It creates a formalized outlet for change at work
    • Unionized workers create a structured group to handle issues and changes at work. As an employer this might sound like a bad thing. However, as most CEOs know, formations will undoubtably take place anyway. And they don’t necessarily act, meet, or run, in the most formalized of ways. This creates unpredictability for you as a leader, and that you do not want.
    • In having an existing structure for discussions with union representatives, you can decrease the amount of ad hoc meetings that come up. There is already a body through which to organize and have these discussions. It is streamlined, structured, and relatively efficient.
    • I should add that I very rarely had any issues with things that were brought up from the staff (whether it was through a union or not). The vast majority of suggestions were completely reasonable and improvements to what we had. These experiences go against the antagonistic nature that the image of employer and employee can sometimes have. It doesn’t have to be like that.
  3. It helps you avoid unnecessary mistakes
    • Labor disputes are hardly new. It is safe to say that most issues that you’re dealing with a startup CEO have been dealt with before, at least with one additional layer of abstraction. Similarly, the modus operandi developed between employer and union has been tested many times. There’s – generally – a reason why things work the way they do.
    • What I found was that having to stick to these rules, actually helped me avoid some unnecessary mistakes. It could be situations around letting someone go where I would have easily overlooked the risks and taken a shortcut. Instead, I had to do it by the book. And it turns out the book is pretty useful. It lowers your risk significantly.

Are there difficult or bad things dealing with unions from startups’ perspective? Sure. But they are are obvious, and the understanding of them is prevalent. There’s no need for an additional blog post about that.

I know my experiences constitute a focus group of one. As such it is unreliable as a data source. It is, however, real life experiences from a situation that clearly many have strong opinions about. See it as an opportunity to challenge your own orthodoxies. And who knows – perhaps adopt what would genuinely be a contrarian position in Silicon Valley: the pro-union CEO.

(Thanks to Peter Rojas who encouraged me to blog about this a long time ago.)


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Three acquisition predictions

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The Daily

I love a good prediction. For it to be good, it should be specific in time, detailed, and the more unexpected the better. Scott Galloway does a great job with this. Boring predictions are vague and don’t specify a time frame. Things like “consumers will increasingly want to be part of a conversation”. That’s the kind of thing Nostradamus would have said if he was still around.

Simply because I enjoy it, I’m making three predictions myself. They’re all rumored IPOs in some capacity. I don’t think either of them will make it to the market. I don’t have any inside information or knowledge that’s not publicly available, so take it for what it’s worth.

Microsoft will acquire Unity

Microsoft have almost abandoned the consumer space over the last few years. The clearest focus areas now are Azure (Cloud) and Office 365 (Word & Excel online). But there are also other things going on. Microsoft owns Xbox and bought two new studios this past November. They now own 13 game studios in total (Mojang/Minecraft being one of the more prominent ones). Aside from this, they made a huge bet on Github in October. It fits with their focus on B2B developer tools. Also, it was a refreshingly agnostic move in how it supports more than the Microsoft coding languages of choice.

Add these two together: a belief in gaming as a growing macro + the interest in underlying B2B tools for developers. Add the bonus of the overall importance of 3D for developing AR/VR. To me, that says Unity. They are rumored to go public in 2020 but they’re not going to get there. Microsoft will pick them up before that and establish themselves firmly as a key player in the developer tools ecosystem.

Who else could it be: Adobe. Unity is not just a receptacle for code, it is a part of the workflow for creatives too. This should be in Adobe’s interest. But I think they will think it is too tech heavy and miss the opportunity.


Naspers will acquire Adevinta (part of Schibsted)

My all-time favorite media company Naspers (which arguably has very little to do with media anymore) is a gigantic player in marketplaces and classifieds already. This is a highly competitive space where the market leader has a disproportionate advantage. You’re either #1 in the market, on your way to becoming #1, or you should probably get out. A few weeks ago they looked at Avito (#1 classified site in Russia) and bought the remaining shares of it in a billion dollar deal.

Classified marketplaces don’t often go across geographic borders. This means that you can have different market leaders in neighboring countries. But as the market dynamic dictates, there’s really only room for one major player per country. This means it is the perfect field for M&A.

In September, the Norwegian media house Schibsted announced that it was splitting their operations into two. Nordic Media & Growth Companies in one company, and International Marketplaces in another (I’m oversimplifying somewhat – more exact details here). The Schibsted name will stay with the media properties, and the marketplaces will be known as Adevinta (previously MPI – Marketplaces International).

Schibsted are the classified market leaders in France, Spain, and have strong positions in several other European and Northern African markets. They already have a joint venture together with Naspers through OLX in Brazil. All in all – Adevinta will never be spun out. Naspers will buy them and become the unthreatened world leader in online classifieds. Schibsted will be an exceptionally well capitalized media company. Win-win.

Who else could it be: Ebay. But it’s very unlikely. They are a large classifieds player, but this would be out of context for how they have been operating. Naspers is the given player here.


Salesforce will acquire Zoom

Video conferencing – every company’s pet hate. The true unfulfilled promise of seamless remote meetings. Microsoft bungled Skype. It’s main selling point now is that IT-departments can have it as an integrated part of their overall MSFT software stack. Google had Hangouts, then Meet, now Hangouts Meet(?!). It’s their equivalent within the G Suite. Fair enough. But the one player that I keep hearing about – and one that is still independent (albeit with a unicorn valuation) – is Zoom.

For this to happen, Zoom needs a buyer with some specific traits. An acquisitive B2B player that is big enough to write huge checks, interested in integrating a variety of B2B services into one platform, and one that preferably doesn’t already have a good video service in place. This means it is Salesforce. They’ve already gone after document collaboration when they bought Quip a few years ago. It’s their Google Docs. They’re very acquisitive. They don’t have their own video communication service in place. Done.

Who else could it be: Dropbox. If – and this is a big if – Dropbox wants to build out their offering to businesses, then communication outside of file and document management would make sense. Both Microsoft and Google could easily do it, but that would require them scrapping their current services. Which they won’t do. So Dropbox is an unlikely wild card here.


Three IPOs that won’t happen. Three billion dollar deals coming up this year. That’s my prediction. Let me know what you think in the comments.


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Sans-serifs as comfort

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Design parameters for branding have changed a lot. Screen legibility and name suitability for Instagram weren’t exactly top of mind for Paul Rand. Last year this caught up with the fashion industry. The effects yielded this wide-spread image below.

From Bloomberg

Bloomberg wrote a good round-up of the discussions around these design changes. They were divided, as expected. The first camp said that it was dull and generic. The second camp said that it was classic and indicative of luxury. Bloomberg quoted Armin Vit that called it “like wearing a black-tie tuxedo” which is a good, albeit generous interpretation.

The startup scene has a less glamorous past and design heritage. Less to lose, I suppose. Instead, they’ve skipped straight to the sans-serifs. Eliza Brooke at Vox put this elegantly back in 2017:

If there is one style of corporate branding that defines the 2010s, it is this: sans-serif lettering, neatly presented in black, white, and ultra-flat colors.

From OH No Type Co’s Twitter.

She is right. And it has been a very consistent design trend since (although there’s a slight indication of change happening). While reading Lean Luxe, I found an article in Fast Company that poked at this, calling it blanding:

The formula is sort of a brand paint-by-numbers. Start with a made-up-word name. Put it in a sans-serif typeface. Make it clean and readable, with just the right amount of white space. Use a direct tone of voice. Nope, no need for a logo. Maybe throw in some cheerful illustrations. Just don’t forget the vibrant colors. Bonus points for purple and turquoise. Blah blah blah.

Glossier.

You’ve seen it too. So, why is it like this?

Sidestepping the obvious critique of companies being boring and unwilling to take risk, I think there’s something else at play. There’s a global corporate aesthetic developing that implies a set of values and perceived modernity. Look at Sildenafil and how differently it can be packaged. It’s the same product.

Roman Health
Pfizer

The aesthetic implies that it is young, modern, quick, delivered to your door, available on your phone, cheaper. Even if it isn’t necessarily any of those things. It feels like you’ve bought things like this before. And in the case with Roman, it also turns one of the least desirable packages to have in your bathroom cabinet into something you could leave on your nightstand.

We’ve seen this before, but in interior design. Coffee shops now look the same everywhere in the world. Exposed brick walls, industrial chic, and the odd (often knock-off) design classic here and there. It isn’t exactly original. But it is familiar and comforting. And that serves a purpose in its own right.

Brooklyn? Paris? Actually Bandung, Indonesia. Photo: Unsplash.

The Economist defended this development as being less about the world going generic, and more about making connections to a grander collective of people and values:

For the people who live in towns and cities far from the top-tier of globally-connected metropolises, these spaces signal membership of the world beyond the narrow boundaries of their homes. The Ukrainians who hang out at the Molodost Bar in Odessa don’t look around and complain that their neighbourhood looks like Brooklyn. […] On the contrary, the global aesthetic that these establishments bring to their towns contribute to a sense of connection with their peers in Copenhagen and San Francisco.

I think this is what is going on with the sans-serif branding too. It plays to a familiarity of experiences that your customer has already had – or felt like they’ve had – before. And while it does little for differentiation, the branding serves the purpose of charging your brand with a long set of values and traits that otherwise would be difficult to attain. Just like the exposed brick and the Kees Van Der Westen espresso machine does in a coffee shop.

Branding should serve a purpose. Originality can be one of them. But there are others too. It’s lazy to assume that the choice of certain colors and fonts means the designer hasn’t considered the options. They may simply have opted for a different purpose. Like offering the comfort and familiarity of a sans-serif font.


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