With the holiday season approaching, many parents are hunting for innovative toys to give to their children.
One sector of the toy industry that is small, but rapidly emerging is the connected toy sector.
According to Juli Lennett, a toy industry analyst with the NPD Group, connected toy sales were up 96 percent in the twelve months ending Sept. 30, 2016, while toys in general saw a six percent increase in sales over the same period.
"There's not a lot of connected toys on the market today relative to everything else but I think it's very promising," she said. "We're already seeing it is growing at an explosive rate."
Since connected toys tend to have a higher price point than traditional toys, Lennett points out they tend to have a bit of seasonality, meaning they tend to be sold more during the holidays.
"That's when parents are more willing to spend a lot of money for one big toy," she said.
Global funding in connected toy startups surged to $104.3 million in 2015 compared with $6.6 million in 2011, according to a December 2015 report from Tandem Capital, which cited CB Insights and CrunchBase as sources. The biggest jump took place between 2012 and 2013, when funding surged from $27.3 million to $72.2 million.
Two Sigma Ventures Managing Director Colin Beirne believes the sector has great potential. His firm has invested in two connected toy startups – Anki and littleBits. Put simply, Beirne believes the future of toys is headed in the smart direction since children these days become digitally literate from a young age.
"Kids are expecting it. The market is going to have to meet customer demand," he told Venture Capital Journal earlier this year. "And the cost is making it easier to build these kinds of products. I see the space just continuing to evolve."
San Francisco-based Anki is perhaps the highest profile startup – and darling – in the emerging field. The company's mobile app uses Anki-developed artificial intelligence (AI) to bring its toy cars to virtual life. Venture Capitalist Marc Andreessen reportedly called Anki the "best robotics startup" he'd ever seen. Tech giant Apple, too, was impressed. Anki's first product, Drive, was originally only available exclusively at Apple retail stores.
The company was founded in 2010 by three Carnegie Mellon Robotics Institute graduates and has raised a total of $182.5 million.
"We started Anki with the goal of harnessing robotics and AI to bring to life consumer products with unprecedented level of intellect and interactive capabilities," said Boris Sofman, Anki's CEO & co-founder.
Anki currently has two products – Anki OVERDRIVE and Cozmo. Anki OVERDRIVE is an intelligent battle racing system, in which a player uses their mobile device to take control of robotic Supercars, driven by AI. More recently, Anki launched Cozmo, a small robot.
Both toys are designed to be enjoyed by both children and "kids at heart," Sofman said. They are sold at major retailers such as Toys"R"Us, Apple, Best Buy, Target and Amazon.com.
Looking ahead, Sofman expects to see a continued trend of robotics entering increasingly diverse consumer categories.
"At Anki, we are leveraging these trends to take a bottoms-up approach to robotics," he said. "The toy space is one that hasn't evolved much in decades, meaning there's opportunities for great innovation."
According to NPD Group, Anki OVERDRIVE was the fourth best-selling toy in the U.S. in the month of December 2015 by revenue and the third best-selling toy with MSRP over $100 in the U.S. for the entire 2015 calendar year.
Connected STEM learning
In 2011, MIT Media Lab alumni Ayah Bdeir founded littleBits as a way to provide for anyone to be creative with electronics without needing an engineering degree.
The company's top kits are Gizmos & Gadgets Kit and Rule Your Room Kit both geared toward children from the ages of eight to 13. Children can create connected inventions they can control via the littleBits Invent app with their smartphone or tablet. The company also sells kits geared toward teens and adults. It has so far raised $60 million.
"We see this as a hugely growing field," Bdeir said, "and believe there is an opportunity to turn kids' screen time into hands-on, powerful STEM/STEAM learning."
Filippo Yacob co-founded Primo Toys with partner Matteo Loglio in 2013. The already-profitable startup was born as a new kind of educational toy company for the early years and is focused on helping children develop 21st century skills like coding through hands-on interaction and tangible interfaces.
"I decided to start Primo Toys after finding out I would become a father," Yacob says. "I've always worked in technology and believe programming to be an essential skill for children born today. I couldn't find any decent coding toy that would introduce my son to programming during early years, so I teamed up with a friend and made one."
Cubetto is a wooden robot that helps young girls and boys ages 3+ discover programming through storytelling, adventure, collaboration, and a hands-on programming language that merges LOGO Turtle coding with hands on Montessori-inspired learning.
In March, Cubetto became the most crowdfunded educational technology invention in Kickstarter history, raising $1.6 million. It won the Best of the Best prize for design excellence for this year's Red Dot Design Award.
Another connected toy geared toward a younger demographic is Edwin the Duck. Don Inmon founded Pi Lab, which makes the app-connected smart toy in late 2013.
A former Apple executive, Inmon recognized that most Internet of Things (IoT) products were geared toward adults but that "no one was targeting kids."
So he came up with Edwin the Duck, an interactive toy focused on hands-on and experiential learning tied to an animated app. Within two months, the company had a physical product prototype. And within 18 months, the first version of the app was complete.
Edwin formally launched in November 2015 at Apple and select Best Buy stores. In the first quarter of 2016, the product was launched in all of the retailers' locations. Edwin is now being sold in Target, Toys"R"Us and on Amazon.com as well as in specialty boutiques.
The duck retails for about $99 and can perform a variety of functions such as serving as a sleep machine, music player and white noise sound provider. Proof that even kids can benefit from the growing Internet of Things.