AUG. 31, 2007 • Second Life may be getting enormous mainstream press, but when it comes to virtual worlds the real action is in products targeted towards a younger audience that has been weaned since birth on not only games, but social networking and the instant communication of the mobile phone/IM era. Habbo, produced by Finnish based Sulake, a company funded by $37 million in venture investment, is a good case in point.

Released originally as Habbo Hotel back in 2000, the franchise Habbo is not so much a game, or MMOG, as it is a virtual world and social community, and a verifiable phenomenon among teenagers. So much so that Habbo Hotel has grown from a distinct MMO product into a bona-fide brand, spawning a new property, Habbo Home, in Oct. 2006. The Habbo brand is also moving into mobile games content, as well as licensed merchandise.

As the brand’s prime mover,. Habbo Hotel is built on a simple Shockwave interface, and is targeted at teenagers under the age of 18 (13 is the minimum age). As the name implies the theme is a hotel. There is a main lobby, along with many clubs and restaurants. These areas are free to access, but users pay extra to furnish and decorate their own private guest rooms as well as their own Habbo Home pages. All 78 million Habbo characters created to date are eligible for further customization via Habbo Home where users create their own social networking pages. Users can also pay extra for a Habbo Club membership (about $5 a month).

Upon signing up for a free membership users get a cute customizable cartoon character avatar (Habbo) and can then socialize with other characters and play simple mini-games. In a crowded place like a dance floor chatting is done so that only Habbos near the speaking character can read what is being said. For Habbos on the other side of the room the chat comes up as dots in the speech bubble. There is also the ability to whisper, which means that only the Habbo it is directed to can read what is being said.

Guest rooms in the Hotels are also free, but they come without furnishings. To furnish a room requires Habbo Coins. Users can buy Habbo Coins for $0.20 each via such methods as $10 prepaid retail cards for 50 coins. One reason for Habbo’s international success is because of Sulake’s focus on targeting the payment method to what will work best in the individual market. Sulake claims that there are over 150 payment methods available for Habbo Hotel. In the U.S. CVS drugstores carry these cards. Users can also buy coins using a credit card, mail order, text messaging via cell phone (SMS), or via a landline phone (just by punching in the user name). To make sure that teenagers do not go out of control in spending there are monthly limits on the number of coins that can be purchased via each transaction. For example with a credit card purchase no more than 200 coins ($34) per purchase with a maximum number of three purchases per week per credit card. There is also the option to join the Habbo Club for 25 Habbo Coins a month (about $5). The Habbo Club gives users special room layouts and unique items.

Currently, Habbo Hotel and Habbo Home are Hotel available in over 30 countries including most of Western Europe, North America, as well as Japan, Australia and, New Zealand and claims over 7 million unique monthly users worldwide. By August 2007, 785 million Habbos had been created. Sulake earned revenue of nearly $20 million in 2004 (almost three times 2003 revenue). Total revenue took another leap forward in 2005 to about $37 million. In 2006 Sulake’s revenue totaled $50 million.

Habbo Hotel’s growth has launched a thousand competitors both in the teenage-focused virtual world space and the digital item sales business. One similar product, Club Penguin was acquired by Disney in July 2007, less than two years after it launched. A key difference was that Club Penguin targeted a younger pre-teen audience and did not focus on an advertising model.

Sulake’s staff has increased from 45 at the start of 2004 to over 300 by 2007. The company is rapidly expanding Habbo into mobile and social networking. In 2006 Japan based Movida Group bought a 2% stake in Sulake for $7.6 million. The specific goal of the investment was to bring Habbos to Japanese cell phone users. In April 2007, Sulake acquired Finland social networking site IRC-Galleria. This fits Sulake’s goal to expand Habbo into a leading crossover product brand for games and social networking and communication.