Nine-year-old Tara has a stuffed black bear that she has named Midnight. She purchased him at a store on the boardwalk in Ocean City, N.J., for $12.95, plus tax. As with any stuffed animal, Tara can play with Midnight in her living room and take him wherever she goes. But the real fun begins when she sits in front of a computer and, using the unique “secret code” that accompanied her purchase, logs onto a website to play with a virtual version of Midnight.

Midnight is a Webkinz pet. If you don’t yet know about the Webkinz craze, you soon will, especially if you have children of your own or at least know one or two on your block. What makes Webkinz different from other hot toys of years gone by — Cabbage Patch Kids, Beanie Babies, Tickle Me Elmo and even the century-old teddy bear — is the business model behind them. By melding the old-fashioned bricks-and-mortar world of toy retailing with an opportunity to participate in an online community, Webkinz taps into the kiddie zeitgeist and shows a deep understanding of how to use the concept of virtual worlds to full advantage, according to marketing experts at Wharton and elsewhere.

A child buys a tangible Webkinz animal not for its own sake, but for the website access that the purchase of the animal includes — a year’s use of the online Webkinz World where they feed and take care of their animals, which could be a dog, raccoon, koala bear, platypus, hippo or a host of other creatures. They also play games, amass “money” to buy virtual products for their pets, and can chat with one another. Kids renew their online accounts after one year by purchasing — or “adopting,” in Webkinz parlance — another pet. If they don’t buy another pet, they cannot gain access to the site.

“Other companies have done online games, social networking and product information, and tied them to the sale of a product, but they haven’t pulled all of those elements together,” says Lisa Bolton, a Wharton marketing professor. “The difference is Webkinz seems to be doing it really well.”

A Virtual World for Kids

Children are spending more and more time online, yet they still love to play with old-fashioned stuffed animals, so why not mesh the two concepts? Ganz, a privately held company in Woodbridge, Ontario, that also sells giftware, candles and fashion accessories, did just that by launching Webkinz in April 2005.

Ganz’s use of the internet to build a business is obviously not new. All companies, to some extent, use cyberspace to sell products and strengthen brand loyalty; some, like Webkinz, create virtual worlds for customers to experience. What makes Webkinz successful is the creative way in which Ganz has brought together various elements that appeal to its young customers.

Virtual worlds, like the one offered by Webkinz, were dubbed “the next big thing” in an article in the August 29 issue of The Outlook, a publication of Standard & Poor’s. Disney, for instance, has paid $350 million to acquire Club Penguin, a virtual world for kids that is a competitor of Webkinz, although Club Penguin does not include a tangible toy. The “dynamic growth” of virtual worlds is luring big businesses that want to advertise their products and services in those worlds, according to The Outlook.

Warren Buckleitner, editor of Children’s Technology Review, a publication based in Flemington, N.J., says Webkinz has “basically shown the [toy] industry that the web cannot be ignored and that there is an incredible potential for play, for extending a brand and for providing an experience that kids are hungry for.”

Kevin Werbach, a Wharton legal studies professor whose son and daughter have Webkinz pets, says Webkinz has “powerful” appeal to kids because “it has both a personal dynamic — you have to take care of your pet — and a communal dynamic, where you interact with others.”

In broad terms, Webkinz World “is like other online entertainment,” adds Werbach, whose research interests include electronic commerce. “It’s a visual experience that extends the imaginary experience that people have always had. Kids sit down and play on a PlayStation or Xbox because it’s the same as if they were playing knights or what have you. Being able to see a high-resolution, graphic version of it is exciting. What do kids do with toys like stuffed animals? They take them home and play with them and make up an environment around the toys and get accessories. Then they go and play with friends and make up stories and situations around the toys.”

What Ganz is doing with Webkinz is “taking that play experience that kids are already having and leveraging the potential of the Internet to facilitate that more extensively,” he adds. “The online service of Webkinz is an opportunity to play with other kids any time you want — and with a broader universe of friends.”

Another key reason for Webkinz’ success is that Webkinz World allows children to chat online with other Webkinz owners using “Kinzchat.” (Because of privacy and child-protection concerns, users of the site can communicate with each other by clicking on pre-written sentences to hold a conversation.) Children can also earn play money called “Kinzcash” by playing online games in an arcade or answering questions in Quizzy’s Corner. Armed with Kinzcash, boys and girls can buy things for their pets.

Buckleitner, whose daughter owns Webkinz, says giving kids a chance to chat onscreen with one another is pivotal to Webkinz appeal. “People are innately social, so they want to chat. Kids love this notion of going online and sending a message to a real person.”

In addition, he notes, children get a “feeling of ownership” because they can decorate their online houses for their pets. “From a child development perspective, it gives kids a chance to play with symbolic thinking, what [psychologist Jean] Piaget called ‘representational thinking.'” Another Webkinz strength: The site remembers a child’s online progress from day to day, as he or she amasses Kinzcash or decorates rooms.

Buckleitner, who holds a doctorate in educational psychology, also says Webkinz offers good value — the kind that appeals to parents. “The online experience has to be worth $13 and the toy needs to be worth $13. Both are sold together for $13, so there is perceived value.” In addition, Webkinz avoids what Buckleitner sees as an online turnoff: requiring customers to provide a credit card number that will allow a company to bill them monthly. “That kind of thinking has really damaged the credibility of the Internet and it’s been bad business for everybody,” he says.

Tamagotchi and TamaTown

James Gilmore, a consultant and visiting lecturer at the Darden School of Business at the University of Virginia, says his daughter, Anna, has three Webkinz pets. By talking with Anna about Webkinz, Gilmore has found that the Webkinz site is, oddly enough, something of a throwback to an earlier era because it offers kids an opportunity to engage in spontaneous play with friends.

“When I was growing up, summer time meant you would drop by a friend’s house to play wiffle ball or shoot hoops,” says Gilmore, co-author of the forthcoming book Authenticity: What Consumers Really Want. “Today, we live in an age of play dates. My daughter says she likes Webkinz because her friends can ‘come over’ to visit her — online, not come to the house.” Gilmore says that his daughter and one of her friends interact with one another via their Webkinz accounts far more than they do in person, even though they live just two doors apart.

Webkinz allows Anna’s friend to “just drop in” and “restores a sense of real childhood relationships, even though it’s an online relationship,” according to Gilmore. Cyberspace is “the medium through which [children] get real interaction.”

Jonah Berger, a Wharton marketing professor, says Webkinz is similar to a toy called Tamagotchi, which was introduced in 1996 by Bandai, a Japanese firm, and is still on the market. The Tamagotchi is not a tangible, cuddly pet like a Webkinz; it is a digital pet that lives inside a small, egg-shaped, handheld computer that children carry around. Three buttons on the computer allow the child to feed the Tamagotchi, play games with it, and check on how hungry and happy it is. Users with Versions 4 and 4.5 of the toy can now enter the Tamagotchi website, go to TamaTown and, for the first time, have a chance to “mentor” their pets “through the stages of life.”

Ganz is not the first company to latch onto the idea that you can help sell your tangible product by also offering the buyer exclusive access to a special website. Textbook publishers have been doing this for some years now. Candy companies, breakfast cereal manufacturers and other corporations with websites that kids — and adults — can log onto have found that a site can strengthen a buyer’s connections with the product.

“Companies want to encourage people to interact with their products,” Berger says. “Academic research suggests that the more people are involved with a product, the more it becomes linked to their identity. People buy Apple computers or iPods because that brand is part of who they are. Apple fanatics will stick with that brand even if other brands offer better deals. So when kids see another product that’s like Webkinz, they may not switch to that product because they are already tied to Webkinz.”

Harvesting Pumpkins and Watermelons

Hema, Tara’s mother, says her daughter’s Webkinz experience has been a good one. Tara not only has fun with Midnight but she is learning about responsibility.

“She is aware of what it takes to care for pets,” Hema says. “She’ll tell me, ‘My bear needs to be fed’ or ‘I have to budget my money because Midnight needs a trampoline to play with’ or ‘I need to buy another room because my bear needs a place to play.’ It’s strange to hear these things from her. But Webkinz allows her to realize the importance of balancing things.”

Hema is not so happy, however, about the increasing amount of time Tara is spending on the Webkinz site. Initially, Tara went online once a day for perhaps half an hour; more recently, she has been logging on three times a day for up to an hour each visit in order to get freebies offered only at certain times of the day. “What I don’t like is that it not only increases her time on the computer, but the website dictates that you have to be there,” says Hema. “Sometimes you get free food if you go at a certain time, or you get coupons for the shop where you can buy things for the pet.”

Hema, a native of India, says she regrets that Tara is not spending more time outside. “I’m more old fashioned. I feel you should spend summer days outdoors biking and playing with friends. But that’s me. I grew up in a totally different time and country.”

According to Tara, one of her favorite Webkinz activities “is to go to the garden” to “harvest” pumpkins and watermelons for Midnight to eat. She may want to buy another Webkinz pet, she says, but not for a while. “Maybe next summer, because when I go to school I don’t want as many distractions from homework.”

Susan McVeigh, a Ganz spokeswoman, notes that the company does no advertising for Webkinz. “Our sales reps introduced the pets and we have done grass-roots outreach,” she says. “Most of our success comes from word of mouth. We say it spreads playground to playground.”

Webkinz could run into trouble if it ever lost the trust of its young customers, according to Buckleitner and Wharton’s Bolton. One way it could lose that trust is to commercialize the site by allowing companies to advertise on it or allowing companies to use the site for product placements — a brand-name pet food to feed your Webkinz dog, for instance — in the same way the movie industry does.

“Trust is the new currency,” says Buckleitner. “There are ways to lose trust.” He fears that if “corporate folks get sneaky and start playing with kids,” then children will “end up spending hours and hours with mediocre content. There are finite minutes of childhood and we need to fight for quality of play on screen and off screen.”

Bolton notes that Ganz’s decision to rely on word of mouth rather than an ad campaign to spread the word about Webkinz was a smart move. “The lack of ads keeps it less commercial and more community focused,” says Bolton. “Kids find what their friends recommend more appealing than what marketers say. These are pre-teens and they begin to get suspicious of advertising and react against it. So marketers are tying to get under these defenses in other ways. Word of mouth makes it special. The kids have discovered it for themselves; they haven’t had it pushed on them by a parent or a marketer.”

Bolton echoes Hema’s concern about kids spending too much time on the Webkinz site. Bolton points out that the American Academy of Pediatrics warns parents not to allow web use to take the place of homework or playing outside with friends and to set limits on the amount of time a child can spend online each day or week.

Wharton’s Berger says sales of Webkinz are likely to keep growing. Ganz does not disclose sales figures, but some two million Webkinz have reportedly been sold. Ganz “has not gotten even close to maxing out their market yet,” he suggests. “There are lots more kids who want to play with these things.”

What is worth noting, however, is that no one really knows why some products capture the imagination of kids while others fizzle out. “Every year, there’s some new children’s toy that just takes off,” according to Bolton. “We don’t totally understand why. We can analyze it after the fact and see clever elements. But we haven’t figured out how to forecast these spectacular successes.”