February 22nd, 2005

Web's Addictive Neopets Are Ready for Big Career Leap

By Nick Wingfield
Wall Street Journal

David Carliner, a Maplewood, N.J., 10-year-old, isn’t supposed to use his computer Mondays through Thursdays. But he has been sneaking online recently to complete a brief but important mission: feeding a small menagerie of virtual pets on Neopets.com.

“I feed them until they’re bloated so they’ll be full for a couple of days,” the fourth-grader says.

In the 1990s, Tamagotchi pets taught kids how to care for virtual critters that inhabited small, egg-shaped electronic gadgets. During the past several years, Neopets Inc. has quietly taken the phenomenon to new extremes with a vast online world that is one of the most popular and addictive Web sites among kids. Users of the site become custodians of colorful, cartoon-like critters in Neopia, an imaginary world with its own currency (Neopoints), stock market (the Neodaq) and weather system. Users also get a dose of product plugs from companies such as General Mills Inc. and McDonald’s Corp.

In coming years, parents may see and hear a lot more about Neopets, as the creatures march off computer screens and into toy stores, videogames and even movie theaters—a rare leap for characters that originated on the Internet.  And Neopets is stepping up efforts to make money from the huge volume of traffic on its free Web site by signing licensing deals and selling ads, which are already stirring up controversy among some parents and watchdog groups.

Neopets Inc. is in talks to develop videogames, cellphone games and even a feature film for the virtual menagerie.

Most of Neopets’ revenue comes from advertising, both banner ads and a form Neopets calls “immersive advertising” (it has even trademarked the term). Immersive ads are branded games on the Web site in which the brand and the message are inseparable from the rest of the content. One example: “Chocolate Lucky Charms: Mine Car Chase,” a game in which players earn points by snapping up pieces of breakfast cereal.

Neopets declines to say how much General Mills, the maker of Lucky Charms cereal, paid for the brand exposure in the game. Online ads contribute 60% of Neopets’ annual revenue, which is in the “eight figures,” says Doug Dohring, Neopets’ chairman and chief executive.

Offline businesses contribute the remaining 40%. Retailers such as Target Corp.  sell Neopets plush toys, trading cards and jewelry. McDonald’s Corp. gave away Neopets toys and cards with Happy Meals last year. Sony Corp. is developing a Neopets videogame for its PlayStation 2 and PSP consoles. Neopets is talking to game makers about delivering Neopets characters to cellphones, and in what may be its biggest partnership yet, the company says it is close to a deal with a Hollywood studio for a computer-animated Neopets movie.

“Neopets is really the only example of media I’ve seen that started online that might have the ability to capture market share in the offline world,” says Quincy Smith, an investment banker at Allen & Co. in New York, which represents Neopets in discussions with potential partners.

Retailers and promotional partners warn against dismissing Neopets as just another kid fad. Mr. Dohring has “been very conscientious about building long-term awareness,” says Paula Damaso, an executive vice president at Too Inc.’s Limited Too, which sells Neopets merchandise.

Like all media aimed at kids, Neopets is likely to come under more scrutiny as it sells more advertising. Online games incorporating brands of fast food, snacks and other kid-targeted products have rankled some watchdog groups. Such content should be clearly labeled as advertising, says Gary Ruskin, executive director of Commercial Alert, a nonprofit group founded by Ralph Nader.

Neopets’ Mr. Dohring says immersive ads on the Neopets site are identified as advertising. On the page where users start the Lucky Charms game, for instance, a small-type disclaimer says the game is an ad, but no such message is within the game itself. Mr. Dohring says there is less advertising on Neopets.com than on many other Web sites. Neopets doesn’t run ads on its home page, nor does it take pop-up ads.

Last fall in Australia, a parents group complained to McDonald’s, Neopets’ partner in a local promotion, saying games of chance found on Neopets.com were exposing children to gambling. In response, Neopets removed a handful of games from the Australian version of the Web site. “We were happy to accommodate them,” says Stephanie Yost Cameron, Neopets’ general counsel.

Neopets stands out among Web sites for its “stickiness,” an industry term referring to how much time users spend on a site. During December, the 2.9 million visitors to Neopets.com spent on average more than three hours there, ranking the site fourth among all U.S. Internet users on that basis, according to measurement firm Nielsen//Netratings. That puts Neopets ahead of popular sites such as eBay and Yahoo. (Internet service providers AOL.com and Juno.com rank first and second respectively, with Electronic Arts’ online gaming sites in third place.)

In contrast to many other online game sites, Neopets’ audience is predominantly female. More than 25 million individuals around the world have created 90 million accounts on the site, the company estimates.

New users get started by providing their e-mail addresses and anonymous demographic information (users 13 and over are asked for their names), then selecting a Neopet to adopt; some of the critters, like the bovine Kau and the reptilian Krawk, vaguely resemble real animals. Users give their Neopets names, colors and preferred activities, such as “making friends” or “bullying others.” Then users wander off to play games and fight other creatures inside the Battledome. The combat is decidedly bloodless: One weapon is a bent fork tied in a knot.

By playing games and doing other activities on the site, players earn Neopoints, a virtual currency they can use to buy food for their Neopets. Users are encouraged to visit often, whether to feed their Neopets or collect the virtual interest on the hoard of Neopoints many players amass. Neopets says it doesn’t share e-mail addresses with marketers.

But there are no overall victors on the site. And Neopets that are left unfed don’t die; they just become withered.

Some users become Neopets millionaires: Gordon Davidescu, a 27-year-old who works at a Starbucks in Seattle, has about two million Neopoints accumulated over three years of visiting the site. (Most Neopets users are under 18, but there is a sizable adult audience.) Mr. Davidescu also belongs to one of the many independent Neopets “guilds,” online groups of like-minded Neopets users who share strategy and playing tips.

The site was launched on a lark in November 1999 by two British college students living in the U.S. Its rapid growth caught the attention of Mr. Dohring, at the time an entrepreneur who had previously founded a market-research company.  Mr. Dohring and a group of other investors acquired the Neopets Web site with a plan to use it as a launch pad into other areas. “I saw what was beyond an Internet company, what was the makings of an entertainment and media company —a mini-Disney,” says Mr. Dohring. The games and animations are the product of about 60 animators, writers and other creative staff working at Neopets headquarters, in an office in Glendale, Calif.

Some users have complained about policies restricting discussions of certain topics on the Neopets site, including bans on religious and political postings.  Discussions of the Sept. 11, 2001, terrorist attacks are banned, too. The religious prohibition has sparked online petitions from Christian, Jewish and wiccan Neopet users. Without such policies, Mr. Dohring says debates on the site could disrupt the fun of Neopets. “We don’t want to allow things that could be controversial among the community,” he says.

Mr. Dohring himself is a longtime member of the Church of Scientology. He says his own religious affiliation doesn’t influence the content of the site, though he says he follows some of the administrative principles of L. Ron Hubbard, Scientology’s founder, in running the business side of Neopets, which include guidelines for keeping track of statistics and decision-making within an organization.

Comments

  1. Posted by viollinartist20-a neopian that just finished readi on September 6th, 2005

    thanks! I mean, no one really understands the world of Neopia. Sadly, there is the other half of the world out there who believe that neopets are plain “dumb”. It’s wrong isn’t it? :(

  2. Posted by Kris on September 19th, 2005

    Neopets rocks!

  3. Posted by SupaStar101 on October 3rd, 2005

    Neopets rocks! I have no idea why my friends says neopets are for babies.. they’re stupid, they dont even know play or know neopets >=(

  4. Posted by Sarah on October 9th, 2005

    Well, seeing as I PAY for neopets, I know it’s not a baby game or anything of that sort. It’s really addicting...and actually, if I would, I’d jsut play on neopets all day. =) Nice to see I’m not the only addict. =D

  5. Posted by Saharm_frozen on December 1st, 2005

    I sometimes agree, neopets is addictive. I play everyday, and sometimes wake up at 3:00 am in the morning because I’m sucked into the Neopets craze. Even though, neopets has a wide range of games, boards, and Activites for young children, I personally think neopets also introduces a bad message somehow, by the “Battledome”, and the harrasment and shallow people on the boards. The parental consent thing I find exceptional, but I think there should be limits bettween virtual and reality. Just to wrap up, Neopets MAY be a good family entertainment site, But I wouldn’t put my dollar on it.
    Neomail me at saharm_frozen or tecknokitty with comments.

  6. Posted by l0nelywolfspirit on January 2nd, 2006

    Ah....I spend every morning on Neopets and I sometimes spend 6 hours(rare) on it...I CAN’T WAIT FOR THE NEOPETS MOVIE!!!!

  7. Posted by Rachel on February 8th, 2006

    Neopets is extemely addictive, and sometimes I find myself also sneaking around to get onto the computer. That worries me some, that the whole word is obsessed with something virtual. I love neopets as much as the next person, but there’s a limit.

  8. Posted by Frankie on June 20th, 2006

    I go on each day and follow a pattern. Daily free stuff first, then i make about 15,000 neopoints on games collect intrest feed pets and then just chill. Its addicting and paying for the EXTRA stuff in premium just makes it all the more addicting :)

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