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.
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.
- 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.
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.
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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