ToyTalk, a San Francisco startup, raised $31+ million to boost the toy market by creating The Kid’s Internet of Things. The company partnered with Mattel and launched a two-way communication Barbie in late November 2015.
Value creation and capture for kids: Pay premium to get a “real” friend
To be able to talk to Barbie has been the number one request of children for decades. Hello Barbie is connected to cloud via wifi; it records, remembers, processes and reacts to kids’ speech through artificial intelligence programming. Your “real friend” Barbie understands you, is excited to chat with you and can even help with tough life questions aka “What would you like to be when you grow up?”! Mattel and ToyTalk launched a dream Barbie just in time to capture part of the $6 billion Christmas toy market. Mattel positions Hello Barbie as a true premium product with a price point of $75 several times above the average Barbie price ($10 – $30).
Value creation and capture for ToyTalk: Data is king, Barbie serves as a pilot
ToyTalk creates value in two ways. First, whenever a kid engages with their product, ToyTalk’s kids speech recognition technology receives feedback and improves. Second, ToyTalk collects an immense database of unstructured data that could unlock deeper psychological understanding of what kids want, and how they react to products.
So far, ToyTalk has monetized its unique technology by selling proprietary iPad apps (the Winston Show, SpeakaZoo, SpeakaLegend), and now by licensing the technology to Mattel (Hello Barbie, Thomas & Friends Talk to You). ToyTalk is a software company, not interested in making physical products. They don’t have to be to capture value. Several toy majors (Mattel, Hasbro) have seen decreasing or flat sales over the last years of digitalization, and are ready to bet on The Kid Internet of Things.
ToyTalk will have to navigate carefully the delicate world of children data privacy
I see two other lucrative paths ToyTalk could pursue in the near future: commercialization of their data and products for parents. The data giants, Google and Amazon, are hungry for tapping into new customer interaction spheres. Google paid $3.2 billion for Nest, a learning thermostat technology and part of new smart-home systems. Will kids be their next focus? If ToyTalk will not be able to sell the children’s speech data or analysis per se, will the only option be to acquire the company?
Many parents have protested against the Hello Barbie model worried that their children’s data may be hacked or misused. Besides high security standards, ToyTalk could address this issue by creating value for parents themselves. The 21st century parents seek permanent control and surveillance. What if ToyTalk incorporated a streaming option that parents could use to see “if everything was fine with their little Mary ” while they are at work? What if ToyTalk database could serve as a kid’s audio diary?
ToyTalk has mastered the world of unstructured big data and found a very promising growth segment. It is clear that Hello Barbie is just a first swallow.
ToyTalk is a pioneer company of kids’ speech recognition and natural language processing. Kids’ speech is more complex that that of adults because of unexpected language usage and different voice frequencies. ToyTalk not only cracked the technology, it moved it a level up by creating a live improv for kids in cloud.