The Convergence of Toys and Mobile Devices

BusinessWeek has two articles on the toy industry that provides good insights for the mobile crowd as well. The first article covers electronic toy company LeapFrog, which is pinning its hopes on two new tech products to help turn its fortunes around. The first is the Leapster L-Max, the company's next generation educational handheld that now lets kids interact with the TV too.

The other is the anxiously awaited Fly pentop computer, which debuts in October. Targeted at "tweens" (ages 9-14), the Fly is expected to retail at $99 and "will allow kids to keep a schedule, jot down notes, and play games with it. It can "see" what children write through a special camera and responds to written commands."

Many analysts believe the Fly won't have a big impact on revenue and that LeapFrog should stick with the little kid market. "If kids have $100, they'll spend it on an iPod [music player] or a video game," said Anthony Gikas at Piper Jaffray.

The second article looks at some of the hot toys for the upcoming holiday season. The trend is towards higher-tech gadgets, such as MP3 players, video cameras, communications devices and handhelds.

One product covered is the Chatnow handheld communication device from Hasbro that "lets kids talk, send text messages, and take photos." Mirroring his Gikas' comments in the first article, toy-industry analyst Sean McGowan at Harris Nesbitt Securities, said, "Kids don't want a walkie-talkie that looks like a cell phone. They want a cell phone."

Kids today are getting more technologically sophisticated at even younger ages due to the proliferation of PCs and the Internet as well as products like the Leapster, Game Boy and, video games. As they get older they want to mimic older siblings, parents and role models and use the same type of devices, such as cell phones, camera phones, iPods, etc.

This is leading to a convergence in toys and mobile consumer electronic devices. Kids want more interactivity and mobility, but will no longer accept dumbed-down devices the toy industry tries to peddle. Why buy a proprietary CD-based video player such as VideoNow for $50+ and shell out another $5-1$15 for each piece of content, when you can buy a portable DVD player for a little more than $100 and use the DVDs already in your library? Seems like a no brainer.

This trend hasn't gone unnoticed by the toy industry. According to The NPD Group, traditional-toy sales in the U.S. fell 3 percent, to $20.1 billion. When you factor in crossover consumer tech products,that are taking away mind and market share, such as handheld gaming devices, video games, and iPods, the toy industry must really be scared.

So how does this long rambling post apply to the mobile industry? For starters, an opportunity exists to grab more customers from the toy industry by selling appealing mass market mobile devices, content and services at sub $99 price points. For example, a $49 or $59 iPod Shuffle could really propel MP3 players into the mainstream, and push U.S. household penetration easily beyond 11 percent of all U.S. households. Second, the industry needs to design well-thought-out products that people want, are easy to use and perform their function(s) well. Don't add all kinds of bells and whistles just for the sake of it. And oh yeah, make it less than $99.

It'll be interesting to see who will win the hearts and wallets of tomorrow's kids and parents. Can the toy companies move upstream and offer compelling gadgets that can compete with the Apples and Sony's of the world or will the consumer technology companies continue to make serious inroads? I really don't know, but it's time to get off the soapbox and play my son's PSP...