Several weeks ago we posted an analysis of the virtual worlds for kids market. In that post we spotlighted Rehovot-based startup Shidonni, a virtual world for kids targeted at 4-10 year olds, which focuses on unleashing the creativity of its users by allowing them to draw their own characters for use in game play. The company recently announced a new service offering, One-of-a-Kind, which provides users – or, more likely, their parents – with the opportunity to purchase plush toys that are custom produced according to user drawings as they appear online. The toys, which are hand-made in Israel, are roughly 12 inches tall and cost $79.99.
A key challenge for the company will be to maintain the compelling economics that make virtual worlds such a good business and an attractive investment opportunity. Selling subscriptions and virtual goods – Shidonni currently offers subscriptions which provide premium users with a richer creative toolset – is a high gross margin activity which is at risk of being undermined by this extension into the production of physical goods. And it will be interesting to see how this service line can scale, give that the manufacturing process is highly labor intensive. Presumably, in the face of increased demand, there would be scope to introduce further automation into the manufacturing process.
Despite the added complexity, however, the concept of bridging the virtual and real worlds is compelling and will position Shidonni with a unique offering relative to the competition. Because users that order the physical toys will be vested in maintaining the pet’s online activities, Shidonni is also likely to extend the lifetime value of its customer base. Further, by venturing into the market for physical toys, albeit one that is closely tied to the online experience, the company is leveraging its management team’s industry experience and contacts (CEO and co-founder Ido Mazursky was formerly General Manager of Toys R Us Israel). From an outsider’s perspective, it appears that a well-honed strategy is coming into fruition some two years after the company’s inception.