After Weathering First-Year Challenges, KidZui Launches a ‘YouTube for Kids’
KidZui, a San Diego Internet startup for children, says it is launching ZuiTube—a kind of YouTube with a user-interface designed for kids and a library of almost 60,000 videos pre-approved by an editorial team of parents and teachers.
The online video destination is free, but the essential challenge for ZuiTube, like KidZui itself, is differentiating itself from such child-friendly rivals as PBSkids, Webkinz, Nickelodeon, and Club Penguin. KidZui’s chief advantage is it provides a way for children to visit thousands of Web sites while preventing them from straying into the seamy and even predatory parts of the Internet.”KidZui is not a walled garden,” says co-founder Cliff Boro, the startup’s chairman and CEO. “From a kid’s point of view, this is all about freedom and independence.”
Yet KidZui has boundaries. The late architect Charles W. Moore famously described Disneyland as a place where children can safely learn the skills of adulthood (by driving the looping concrete freeway of Autotopia, for example) without risking any permanent harm. The same can be said for KidZui, which offers s a different sort of magic kingdom—where kids can safely hone their skills in Internet browsing, online gaming, social networking, and video sharing. The company was founded three years ago by Boro, Vidar Vignisson, and Tom Broadhead with the goal of erasing parental fears about websites that might be icky, shocking, and even dangerous for children while at the same time empowering kids to independently explore the Web.
The company launched its parental-control Internet service with considerable fanfare in March 2008. The company says its KidZui browser, which is an add-on for the Firefox Web browser, allows children to explore more than 600,000 websites, watch videos, and play games that have been screened and approved by an editorial team of 200 parents and teachers. Within KidZui’s software, kids also can create their own cartoon-like avatar, a persona known as a “Zui” with customized hair, clothing, and other features.
KidZui’s basic service is free, but parents can sign up for weekly e-mail reports that detail all the websites their kids visit. KidZui’s membership privileges also gives parents veto power over the catalog of Web sites their children visit.
“I started an Internet company when I was 24 in 1994,” says Boro, who tells me he was a founder of the dot-com that eventually became Infogate. “So our perspective wasn’t, ‘How do we limit the bad?’ Our question was, ‘How do you explore the good?’ ”
The early reviews were encouraging, although some were a bit tepid. “KidZui may be worth a try, but don’t expect it to be perfect,” wrote Walter S. Mossberg of The Wall Street Journal. He suggested there are ways for kids to find prurient materials if they know how to look—for example, by searching for news stories about New York Gov. Elliot Spitzer, who resigned in a sex scandal.
More significantly, the company was almost immediately challenged by a wave of online grousing over the high cost. Following a 30-day free trial, KidZui’s initially charged subscribers $9.95 a month, or $99.95 a year. The company soon revised its business model to offer some services for free, and overhauled its paid subscription model last October. Now the big question facing the business is whether enough parents will buy the “freemium” concept, which combines a basic service that’s free with premium features that cost $7.95 a month or $39.95 a year.
“It’s a hard business decision to make,” Boro says. “I regret that we didn’t come out for free on day one, but I’m proud of the fact that we changed course very quickly.”
In summarizing KidZui’s first year, Boro says, “We launched well. We had reasonable growth in 2008. Then we hit the venture reset in the fourth quarter.” The company reduced its burn rate by laying off nine of its 30 employees, including a recently hired marketing team. Since then, KidZui has been getting the word out mostly via news coverage, online reviews, and word-of-mouth endorsements.
“We’ve grown an average of 20 percent month-over month since July of last year,” Boro says. “So we’re proud of the fact that we’re growing without spending money.”
The KidZui chairman and CEO tells me he met his business partners at Infogate, an online news and information company that was formed in the 2000 merger of EntryPoint with the Internet Financial Network. After AOL Time Warner acquired Infogate in 2003–which Boro calls “an honorable, but not necessarily lavish outcome”—the three executives formed San Diego-based CVT Ventures.
While CVT was financed personally by Jack Rivkin, a chief investment officer of Neuberger Berman and former head of CitiGroup’s Technology Venture Group, Boro says it was not a venture firm per se. Rather, Boro says they created CVT as a way to help other entrepreneurs start their own companies, with Vignisson serving as their “fractional CTO” and Broadhead as their “fractional CFO” while Boro served as chairman on the “embryonic boards” of such online startups as VideoEgg and mSnap, a mobile text-messaging advertising network that was acquired earlier this year by Irvine, CA-based SmartReply. (Terms were not disclosed.)
The three CVT partners’ decision to form their own business was sparked by the frustration that Vignisson and his wife Shabana felt when they couldn’t find a safe and easy way for their three children to use the Internet. Boro, Vignisson, and Tom Broadhead founded KidZui in 2006, targeting children from 3 to 13, and funded early development with about $500,000 from CVT. Altogether, Boro says KidZui has raised a total of almost $12 million in venture funding from Emergence Capital Partners, First Round Capital, and Maveron, the venture capital firm led by Starbucks chief executive Howard Schultz and former investment banker Dan Levitan. Boro says Scholastic, the children’s book publisher, also has made an undisclosed investment in the startup.
KidZui has used the capital to improve its software, expand its services through offerings like ZuiTube and develop partnerships with ComCast and Scholastic. A spokeswoman says more deals are in the pipeline.
According to Boro, KidZui is now in less than a half-million U.S. homes, out of a market that he estimates is close to 15 million homes with kids in the target age range. He says the children use KidZui an average of four times a week, visiting an average of 40 sites.
Today the company’s headcount has crept back up to 25. “Obviously, we’re still not profitable,” Boro says, “but we’ve reduced our costs so that profitability is within our sight.”