Is Webkinz for Sale?

Club Penguin got bought -- is Webkinz next?

Looks like Webkinz is BIG business.....

Mathew Ingram, August 2, 2007

It's rare enough to have an industry-leading Web service that is based in Canada, let alone two of the top 10. But if you define "online virtual worlds aimed at children" as an industry, then that's what we've got with Club Penguin and Webkinz. The former just got acquired by Disney for an eye-popping $700-million (with $350-million of that in cash and the rest in future payments based on performance, in what is called an "earnout" provision), after less than two years in business.

In what is sure to become a legendary Canadian example of bootstrapping a company into the big leagues, the popular social networking/game site -- which lets its users play virtual games in the form of cartoon-like penguin characters or "avatars" -- was created by three friends in Kelowna, B.C. as a wholesome place for their young children to play and was completely self-funded by credit cards, angel investors and friends (much to the chagrin of several venture capitalists).

Webkinz is a little different from Club Penguin. While the latter is strictly an online phenomenon, Webkinz -- which also got its start about two years ago, but in Toronto -- is a clever blend of online virtual world and offline toy. The company behind the site, a third-generation toy company called Ganz, came up with the idea of creating a toy that had a virtual doppelganger on a social-networking style website.

Webkinz plush animals (which cost $15 each) come with a code that gives their owner access to the Webkinz world. They can then design a "house" for their avatar, and buy toys or furniture with their virtual money, or Kinz Cash. They also have to take care of their virtual pet, in the same way that an earlier generation of kids did with their Tamagotchis. And players can chat -- but only using stock phrases generated by the site -- as well as play games and win Kinz Cash.

Club Penguin and Webkinz are alike in one thing, apart from their appeal for young children and "tweens": although Ganz (a private company) doesn't release membership figures, it and Club Penguin appear to have roughly the same number of subscribers -- about 4 million or so, according to several estimates. Does that mean Webkinz might be worth $700-million too? After all, Club Penguin reportedly talked to several other companies about an acquisition, including Sony, which was ready to offer $500-million, as well as News Corp. (although Ganz itself has not confirmed any previous talks).