Virtual Playground

A whole generation of kids is growing up in the internet age. They're web savvy and find a lot of their entertainment online, giving entrepreneurs plenty of opportunities to cater to the kid crowd. But there are important issues these startups need to be aware of.

One booming area is in virtual worlds. A 2007 report from eMarketer found that 34 percent of the 35.2 million U.S. child and teen internet users will visit virtual worlds at least once a month in 2008--a figure expected to rise to 53 percent by 2011. Virtual-world startup Dizzywood, which caters to 8- to 12-year-olds with its interactive, story-driven environment, is one of the early players in this market. Scott Arpajian co-founded the San Francisco business with Ken Marden, 36, and Sean Kelly, 37. "It has a back story that focuses on exploration, imagination and discovery," says Arpajian, 37. "It's a social media site that borrows a lot from classic game mechanics."

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Advertising-based revenue models are popular with many online companies but can be a tricky fit when it comes to sites aimed at kids. "I felt that the current delivery mechanisms for ads on the internet weren't really suitable for a site that wants to focus on an audience of children," says Arpajian. Dizzywood, which was founded in February 2007, is advertising-free and instead will build its revenue from subscriptions. With a public beta launch last November, the trio expects sales to top $250,000 for their first year.

Any entrepreneur who plans to start a site for children has to be aware of the Children's Online Privacy Protection Act and maintain compliance with the rules for collecting children's information online. It's also important to maintain a site that is safe for kids. "You can't cut any corners. You really have to think through how you are going to make it safe," says Arpajian. "We've done a lot behind the scenes with technology in terms of chat filters and other safeguards." They also employ live moderators to keep an eye on Dizzywood interactions.

Perhaps the most important factor in building a kid-focused startup is the kids themselves. Getting feedback from focus groups can help guide the process. And be prepared for some old-fashioned marketing. "The way that a lot of virtual-world sites grow is through word-of-mouth," says Arpajian. Building partnerships with established companies that have kid audiences can also be a big boost for a startup. But most of all, an interactive and engaging site will keep them coming back.