Masters of Disruption: How the Gamer Generation Built the Future [10]

How the Webkinz craze seeded Generation Metaverse.

This post is part of a longform project I’m serializing exclusively in my newsletter, Disruptor. It’s a follow-up to my first book, Masters of Doom: How Two Guys Built an Empire and Transformed Pop Culture, and it’s called Masters of Disruption: How the Gamer Generation Built the Future. To follow along, please subscribe to Disruptor and spread the word. Thanks!

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This is an unpublished story I wrote about Webkinz in 2008. I later wrote a shorter story on “The Webkinz Effect” for Wired.

When the limited-edition Snowman and Love Monkey stuffed animals land in toy and gift shops around the country this holiday season, you’ll be hard pressed to find them sitting on the shelves.  Erudite store owners will be stocking them safely.  behind the counter. They’re not afraid of shoplifters stealing the dolls.  They’re worried about little girls who want to rip off the specially-coded tags from the animals fuzzy bright fur.   

These are no ordinary toys, they are Webkinz. As a generation of beleaguered parents have learned, Webkinz exist in the real world and in a virtual world simultaneously. Each stuffed animal, from a pudgy blue hippo to a spry pink poodle, comes with a plastic tag – and printed on that there’s an eight-digit code. Type that code in at, and it unlocks a pixilated version of that creature that requires care and attention and, most importantly, unlocks a metaverse of fun. 

Once named and “adopted” online, the Webkinz sparkles to life as a virtual pet. Kids feed and accessorize their pet with virtual KinzCash earned from playing casual games. Getting the code, for some, is more crucial than the toy – as evident by some stores decision to stock the animals behind the counter, where kids can’t rip off the tags and split. It’s the Willy Wonka model made real, where the chocolate bar (the stuffed animal) is secondary to the golden ticket (the coded tag).

 “We would not have a product without this kind of virtual world going forward.”

The combination of a stuffed animal with an online experience has created a new category in the toy business, one that’s radically transforming the nature of how kids play and how companies sell toys.  In the coming months, we’ll see the dawn of metaverse toys from the biggest names in the business including Disney, Hasbro, McDonald’s, and Mattel. “Webkinz got it exactly right,” says Steve Parkis, senior vice president of Disney Online Studios. “The right product, the right placement in stores, the right online experience. It’s one hell of a Pong.”

It’s telling that Parkis compares Webkinz to the 1970s arcade hit that heralded the birth of video games industry. This fall, the company is imitating Webkinz with a line of plastic Tinkerbell jewelry linked to an online world. “We would not have a product without this kind of virtual world going forward,” says Parkis.

Despite all the attention, Ganz, the company responsible for the Webkinz phenomenon, has been keeping a Wonka-like low profile. “We like to fly under the radar,” Howard Ganz, president of the company that bears his family name, says.  In the industry, Ganz, a 58-year-old company based outside of Toronto, has been known primarily as a low-concept outfit, selling stuffed Smurfs and Big Birds. But with the 2005 launch of Webkinz, they touched off a craze, becoming the new Tribbles of suburbia.

There have been toy crazes before—Beanie Babies in the ‘90s or Cabbage Patch Dolls in the ‘80s. There have also been kid-friendly virtual worlds before—the still-popular NeoPets site is 9 years old, and Club Penguin has been waddling around since 2005.  But Ganz was the first to synthesize the two effectively, and the company is reaping enormous rewards for getting there first.  Though the company is hiding its balance sheet, analysts estimate sales of two million Webkinz products since 2005, at more than $100 million a year, and online traffic at has increased thirteenfold annually, with about 6.4 million unique visitors a month -  double the traffic of NeoPets. 

Unlike NeoPets, however, the Wrbkinz metaverse is not an ad-driven revenue source.  Instead, it’s the online hangout where Webkinz obsessed kiddies live and play.  The more stuff they buy offline, the more content gets unlocked in the world.   The Webkinz model is redefining the toy as a hybrid product that can—and increasingly must—exist in both cyberspace and meatspace. Because of Ganz, many of the hottest toys of this holiday shopping season will be gateways leading kids into cyberworlds.

The secret of Webkinz is the filling. “We hug stuffed bears all day long,” says Howard Ganz. “We have a concept of what ‘cute’ is, and we have artists making nice new designs every day. People will always want a soft, well-made plush with an appealing face and a bit of personality.”

That’s been the core tenet of the company since the 1950s, when his grandfather Samuel Ganz started selling stuffed dolls to amusement parks for midway prizes. The Ganz company had great success with licenses for Smurfs and Sesame Street. Along the way, they also branched out into tchotchkes, selling candles, purses, picture frames, garden décor and table accessories. It was six years ago when Ganz had the idea that led to the most innovative toy breakthrough since Star Wars action figures let kids reenact the blockbuster film. “In 2002, I had an epiphany about what made toys and action figures come alive,” says Ganz. “What are kids doing when they are playing house with an Easy-Bake oven, pretending they’re Barbie or Ken, or building with Legos? They’re pretending to be someone else; they’re pretending to be adults.”

He envisioned a way to take the protective, nurturing instincts that a cute plush animal inspires and transfer that bond into the online realm. What if you could get kids to buy a stuffed animal, and immediately “adopt” a virtual version of it that desperately needs to played with and cared for? “They become alive on the Net,” says Ganz. “I knew the idea was good from the moment it came into my mind. I actually tried to get it out of my mind, because I knew it would totally disrupt my life.”

Ganz had trouble getting Webkinz off the ground: Building out a virtual world was very different from making Elmo dolls and scented candles. “I didn’t know anything about anything,” concedes Ganz. “Here’s how naïve I was: When I had the idea, I went to our IT guy and told him I needed a website. I thought he could put it together in a heartbeat.”

In April 2005, Ganz rolled out and eight stuffed animals.  Webkinz launched with no advertising…but word travels fast on the elementary school grounds. The dolls themselves looked completely innocuous. Still, kids who logged on and “adopted” the toys discovered that the virtual pets needs you in a way that a tangible toy doesn’t—forget to feed them and they will become sick, and you’ll have to spend the in-game currency of Kinzcash on medicine at Dr. Quack’s office to restore them.

The online alter ego changed the relationship between the child and the toy. “Most plush just sits there; it’s a thing in itself,” says Ganz. Online though, Webkinz pets respond and interact in a way that a “smart” physical toy like Teddy Ruxpin or even AIBO never could. Each breed of pet has their own tastes and distinctive features: The cocker spaniel’s favorite food is beef-flavored gum drops, and the pig is partial to mud burgers. Each animal also has its own unique items: The cow unlocks a milk truck and the hippo grants access to a wallowing tub. Kids could also personalize the online version of their Webkinz, dressing it and furnishing its home as they pleased, or leveling up its skills [see sidebar.] “Kids treat them like pets,” says Ganz. “They know they’re not alive, but in their mind it’s closer to how you relate to a dog than how you relate to a generic stuffed animal.”

Once kids get home with their furry green snake, they tend to bee-line to the computer with the coded-tag – chucking the doll on the floor behind.   It’s only after they’ve adopted the pet online and tooled around in the world that they may come back to the tag-bearer after all.  From here, the cozy cuties serve the age-old purpose of companionship at bedtime or during car rides. If you think about it, stuffed animals aren’t really the kind of toys kids play with anyway – that’s the kind of thing left for Barbies and Power Rangers.  But part of Webkinz brilliance is how they subverted that tradition. They made teddy bears into action figures online. 

Apart from the physical toy, the experience of the Webkinz site is similar to NeoPets. But the business model is far, far more lucrative. Access to NeoPets is free; it makes its money selling kid’s eyeballs to advertisers. But Ganz was charging admission to their virtual world, one that kids would gladly pay over and over again to gather a menagerie of virtual pets that can play together and unlock new items for each other. (In the summer of 2005, NeoPets was acquired by Viacom for $160 million. The value of the Webkinz franchise has been estimated at more than $2 billion.)

There are now over a hundred Webkinz, and Ganz rolls out several more every month. There are also a hundred L’ilKinz—half-sized and half-priced versions of the toys with the same online counterparts. Tales of toy shops doubling staff to keep up with demand are commonplace. Many stores have taken to keeping the Webkinz behind the counter, to prevent people from pulling off the tags with the precious online codes.

Ganz has also branched out into Webkinz-branded giftware:  The Limited Too clothing store reports that a tenth of its sales are Webkinz-related items like purses, lip gloss, pencil cases and mango-scented body spray. Naturally, each of these items comes with a special code that opens up new objects for the virtual pets.  Webkinz are sold in a wide range of places, way wider than most of toys:  Hallmark stores, clothing stores, drug stores, candy shops, you name it.  

The companies that have traditionally been the juggernauts of the toy industry are now scrambling to catch up with the low-key Canadian company. Ty, creator of 1990s sensation Beanie Babies, released the Ty Girlz line last April. Buy a plush Sizzlin’ Sue or Punky Penny doll, and you’ll find a scratch-off code to gain access to, a world of makeup and clothing and chat.

For the avatar generation, virtual worlds are increasingly an indispensable source of entertainment and interaction, like cell phones. 

Last August, Hasbro digitized their Littlest Pet Shop line of toys, which has been around since 1995, with a virtual world. Each VIP—Virtual Interactive Pet—has a code in its collar that lets you enter the Littlest Pets site, where you can earn the virtual currency of Kibbles to buy wallpaper or plants for your pet. Mark Blecher, general manager of digital media and gaming for Hasbro,  believes they can match the success that Ganz has had. “Littlest Pet Shop has a longer history than Webkinz,” he says wistfully. “Our pets live in a deeper and richer world.”

Next year, Disney will roll out a virtual world based on the Pixar movie Cars. Aimed at boys – and positioned as the scrappy alternative to Pixie Hollow – the Cars metaverse will let kids create and design their own auto-avatars, and interact with icons from the film. 

While Disney seeks to exploit its brands in plastic and pixels, Mattel’s Barbie is making the leap to remedy problems of its own. The company is facing increased competition from the newer, sluttier Bratz line of toys, In response, they launched the Barbie Girls website last April. The virtual world was free to anyone who bought a Barbie MP3 player—plug it into the charger and it allows you to log on and unlock special content.  It was a gamble for Mattel—the MP3 player looked vaguely like a girl, but the form factor was closer to a Flash memory stick than the voluptuous plastic doll. (Girls could change her appearance by swapping out faceplate-like skins.) But the Barbie Girl’s site featured a robust  dress-up, dollhouse, games, and chat.

Barbie Girls has attracted 13 million members. This June, it became the first virtual toy site to go entirely subscription-based. For a sliding scale – roughly $5 per month – girls sign up to become VIPs on the site, with special access and privileges.  A free “basic” membership is still being offered but, as my nine-year-old daughter puts it, “There’s nothing to do unless you’re a VIP.”  VIPs can be distinguished from serfs playing the normal free accounts  by their sparkly tiaras.

Barbie Girls skews older than the toys alone did. Tweens have increasingly become jaded sophisticates, far too cool to cuddle with plushes or play with Barbie dolls. Yet 65% of the Barbie virtual world visitors are age 9-12. This may be the most important development: A product like that can allow big toy brands to hang onto their audiences for a few more precious, lucrative years before they graduate to Facebook.

What’s the next step for metaverse toys?  Becoming so commonplace that we barely notice them. This past April, McDonald’s rolled out digital Happy Meal toys in 40 countries throughout Europe. The product, Fairies and Dragons, is a plastic toy (for the fairies) or Magic-like trading card set (dragons) that comes with a CD-ROM. The discs loads a desktop game onto the PC. McDonald’s is considering expansion into North America in 2009. In November, Hasbro’s will release a Wii-compatible Nerf dart gun. When you buy the N-Strike, you can use it to fire foam darts in the real world. Or you can attach Nintendo’s Wii controller to the gun and fire ammo at CG targets in an accompanying game.

The venerable toy company LEGO is preparing to unveil the Lego Universe, a massively multiplayer world for brickheads. Due out next spring in time for the 60th anniversary of the physical toy, the virtual sandbox will allow players to construct their own gravity-defying creations alone or collaboratively.  Players will have to hoard the game’s virtual currency—plastic—if they want to create enormous skyscrapers. But at any time, they’ll be able to shell out real money to Lego Factory, a service that mails them all of the pieces they’d need to recreate their virtual creations in the real world.

For the avatar generation, virtual worlds are increasingly an indispensable source of entertainment and interaction, like cell phones. The research firm eMarketer predicts that by 2011, the number of kids surfing online lands on a monthly basis will jump from 34% to 53%.  Given Webkinz unlikely rise, some are wondering whether they can deftly stick around in the future. “The challenge is, how do you stay popular when you don’t know why you’re popular in the first place?” says Sean McGowan, a toy industry analyst at Needham and Company.

Ganz recently released a beta of a social networking site, My Page, where kids can create a MySpace-like personal site with links to their friends. They’re also experimenting with cutting out the middleman and charging for the virtual accessories without buying a physical toy. In June, they launched the Webkinz eStore, where people can straight-up buy virtual goods. (It’s $5 for a stove or $9.50 for a pond with an animated fountain.) 

But Howard Ganz, fittingly, takes a philosophically Wonkaesque long view.  Whether toys are online or offline, the weird magic stays the same.  “The overriding challenge is one that every parent faces:  how do you make kids happy?” he tells, “Getting inside the mind of a child isn’t easy.  Our interactive creative team certainly stands out from other product development groups…they brought a new attitude and a lot more cool desk décor. But, they get it. Making kids happy makes parents happy, which makes our retailers happy, which makes our sales force happy, all the way up the pipeline to putting a smile on my face.”  But as he’s not tipping his hand anytime soon.  

“What can consumers expect from us?”  he concludes, “Even if I knew the answer, I wouldn’t talk about it!”

This post is part of a longform project I’m serializing exclusively in my newsletter, Disruptor. It’s a follow-up to my first book, Masters of Doom: How Two Guys Built an Empire and Transformed Pop Culture, and it’s called Masters of Disruption: How the Gamer Generation Built the Future. To follow along, please subscribe to Disruptor and spread the word. Thanks!

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