bi-weekly column with timely,
relevant and possibly irreverent
insight into the BC technology
June 29th, 2007
Greenstone Venture Partners
March Of The Different Penguins
“I'll give a little bit
I’ll give a little bit of my life for you.
Now's the time that we need to share…”
– Supertramp, Give A Little Bit
School’s out and the kids have more free time. If the
weather is crummy (a sure bet these days), then perhaps
your little ones are playing indoors on the computer in
virtual worlds, like Habbo Hotel, Webkinz, Neopets and
BC’s own Club Penguin. If you have kids between 7 and
14, no doubt these names are familiar to you. If not,
these names are as foreign as fullheadofhair.com would
be to me.
Trust me, this is big business. Social networking for
teens and adults is huge business and is in the form of
MySpace, LinkedIn and Facebook. Massively Multiplayer
On-line Games (MMOG) are also huge with the Sims,
SecondLife and World of Warcraft attracting millions of
paid users. Club Penguin is a little of both. It is a
mix of MMOG and social networking, but for kids. Anyone
can register and enter the cute world of animated
penguins and wander around to play games or interact.
But only the paid penguins can add clothes and
accessories and trick out their igloo with the latest
Club Penguin is the brainchild of twentysomething Lane
Merrifield and co-founders Lance Priebe and Dave Krysko
up in Kelowna. They started an on-line chat service
about six years ago called Experimental Penguins that
they originally sold as something you could install on
your own site for $400. That evolved into another Flash
chat service called PenguinChat. Through these lean
years up to the launch of the Club Penguin you see now,
they learned a lot about on-line communities and what
works and what doesn’t. The new Club Penguin was
launched in October of 2005 and grew very quickly in
popularity. My daughter was hooked on Webkinz (a
Toronto based web community for kids tied to the Ganz
stuffed animal company) in mid 2006, when she mentioned
to me that a new site was the place to be. So I checked
As a parent, the site rocks. You can keep your kid from
chatting openly to strangers by having them only pick
phrases from a list. If you let them go to Open Chat,
you can rest easy as tons of bad words and objectionable
“luring” phrases are screened for and people can get
banned pretty quickly. So I started piling up $6 a
month for my daughter’s penguin bling. Then I noticed
in the press releases where the company is from and I
was very intrigued. Like many of my colleagues in the
finance business, I was a bit too late to the party.
Lane and his crew did not accept calls from anyone as
they were being inundated with requests to fund or to
help. This was last November!
Om Malik’s blog started quoting traffic numbers for
MMOG’s earlier this year. Most guesstimates have the
Club Penguin site at over 4 million active users! That
puts them 4th in the world. Now not all
active users are paying, but do the math… Many other
blogs have done it and quote $60M in revenue this year
with $30M in profit. Of course the company is not
saying anything about that… in fact they aren’t saying
anything about anything.
In a vacuum of information, rumours start to swirl. In
April, the rumour was that Sony was buying them for
$200M! Then by May,
many blogs were quoting insiders at Sony as saying
the price was $400M or more. Well, just two weeks ago,
it appears that Sony walked away. Other companies are
rumoured to be interested still, including Disney. Like
I said, in a vacuum, rumours rush in to fill the void.
MySpace was bought for $450M last year and Neopets for
$175M the year before. So these sites are valuable, no
Now let’s take a second and think about a $500M exit for
a BC technology company. I can only think of a handful
of BC companies that were bought for more than that:
Crystal Decisions (CDN$1.2B), Abatis (CDN$900M) and ALI
($530M). This is a huge deal… if it happens.
Now here’s something that the blogs are not talking
about that your steadfast reporter has found out: the
company’s values and mission in life. This blew me
Apparently, there is a company charter that forbids any
outside ownership… by anyone. That makes it tough to
invest in or buy, one would think. The charter goes
further to say that there will never, never, never, ever
be advertising on the site. Again, the potential buyers
rumoured to be swirling would never, never, never NOT
consider adding lucrative advertising to the site to
fill my daughter’s head full of Disney or Sony or 3rd
party kid’s merchandise. So that makes it tough to buy.
But here’s the best part: They have a set dividend for
the founders (some low rate) and the majority of all of
the cash generated by the company goes to philanthropy.
And I don’t mean writing cheques to UNICEF. They have
paid staff members looking into direct investment around
the world to needy causes, like schools in Africa etc.
Cool huh? They are so committed to this that the main
stumbling block of the big company acquisition appears
to be around how the profits will be used.
Now many of us are from the school of Bill Gates or
Warren Buffet. Make gobs of money by being a fervent
capitalist. Then spread the money around liberally to
give back to your community and the world. Isn’t that
the way life goes? These guys are saying that they want
to give now and don’t care if that scuttles their
chances of being wealthy. Isn’t that backwards? Welcome
to the new world of philanthropy… call it the march of
the different penguins.
I say “good on ‘em.” Tell those big corporations to go
pound sand until they “get” your way of running this
on-line phenomenon. Meanwhile, dream up the next big
thing and invest in that to make yourself even bigger.
If anything, Club Penguin’s founders have started a
great debate. What would you do if you were them?
All of the “facts” in this story have come from
information found through the blogosphere and indirect
conversations with company insiders, so take it with a
grain of salt. But the company charter stuff is
accurate. Lane won’t call me or e-mail me, like every
other person on the planet. In case he reads this, I am
in Kelowna for the next two weeks, so I’d be happy to go
in and learn more. This is a great story that doesn’t
have an ending written yet.
What Do You Think? Talk Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
positive or constructive. I'll keep the flames to
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