MAY 22, 2007 • Leveraging a high-profile relationship with MiniClip and a hybrid business model that combines subscriptions and digital item sales, Club Penguin could be a glimpse into the future of the MMOG genre. Developed by New Horizons Interactive, a small developer from Kelowna, British Columbia near Vancouver, the game has taken the kids virtual world market by storm. In September 2006, ComScore Media Metrix said the game has over 2.6 million users, mainly in North America (1.9 million) and Canada (750,000). Club Penguin has accomplished this incredible feat in a little over a year on the market, making it one of the fastest growing MMOGs of all time, and reportedly the subject of significant interest as an acquisition.

Using widely compatible Flash technology, the game aims directly at the 8-14 year-old demographic. The game’s graphics, which are 2D and cute, are intentionally parent-friendly. The game’s avatars are plump little penguins that can dance, wave, and emote. The “point” of the game, insofar as there is one beyond socializing, is to play mini-games like Jet Pack Adventure or Sledding, to earn “coins” which can be used to buy pets and avatar customizations.

Although the game is free to play, there is no advertising on Club Penguin because the company’s founders don’t think the model meshes well with their family-centric ethic. Instead, the company offers “premium memberships” which are essentially subscriptions for $5.95 per month. It remains to be seen how many of current free users will pay to play.

While Club Penguin has a fairly run-of-the-mill model at first glance, inside the game world are shops which sell exotic pet varieties, more detailed avatar customization as well as “furniture” for a player’s igloo. Amazingly, only subscribers/members can actually purchase these items. The normal way of looking at this kind of digital item model would be to have free play that is monetized by selling items. Instead, in this case, the free players cannot buy items, leaving them completely unmonetized. Only subscribers can make item purchases. This inversion makes buying more stuff, and generating more revenue for the company in the process, a privilege!

At first, the model sounds a little crazy: it shrinks your item sales base to your subscription base. The point, however, is that consumers are not just purchasing the in-game items in a vacuum as they might in standalone games. Club Penguin creates the context in which having an exotic pet or a unique avatar look is actually valuable. The membership style plays on kids desire to be a part of the club while giving them the opportunity to display their individualism. By only allowing subscribers the social advantages of item purchase, they could very well be converting a much higher percentage of players into paying users than a similar world like Habbo Hotel. That could more than make up for the small amount of revenue that the free users would contribute in item sales. On the other hand, they are probably leaving a lot of money on the table from the free users by not monetizing them with advertising or items. New Horizons executives, however, don’t seem to mind. As CEO Lane Merrifield said in a late 2006 interview, “We wanted to create something that we’d be comfortable letting our own kids use. We knew why we were doing it, and none of it had to do with money.”

As the enterprise grows from its start-up roots into a larger company, it will be interesting to watch how the company’s decidedly “do no evil” philosophy evolves. For the time being, it could isolate them from the over commercialization which has hurt other popular kids’ sites like NeoPets.