AOL revamps kids' site

Online giant aims to tap into kids' spending power, but some question whether site will sell.

America Online Inc. has revamped the children's area of its online service, and for the first time it will include advertising.

Both the expansion of the site and the increased focus on commercialization reflect accelerating trends in the online world: More kids are connected to the Internet, and companies are looking for ways to tap their $27 billion spending power.

"This is a huge opportunity. The market for kids online at home is growing like wildfire," said Jill Arnold, CEO and founder of ePlay, one of the content partners joining the new AOL area. She cited research from Jupiter Communications that shows "kids that have Internet access are spending more time online than watching TV."

The new AOL (NYSE:AOL) zone, with a refurbished design, offers news, entertainment, gaming tips, interactive clubs and activities, and more.

The service links to a long list of partners on the Web, including ABC Kidzine, Cartoon Network, MaMaMedia and Nickelodeon. Partners Curiocity's FreeZone, ePLAY, MysteryNet, The New York Times Learning Network, TIME for Kids, and The Yuckiest Site on the Internet join AOL with Thursday's launch.

The number of children online, while still small, is growing. AOL cites research from Jupiter Communications that 5 million kids are already online, with at least half of them using AOL, and in three years the number is expected to quadruple to 20 million.

But even though analysts estimate kids spend more than $27 billion a year, and directly influence $117 billion in spending by adults, it won't be so simple for kid-focused online companies to turn the online child population into dollar signs.

Privacy issues
Both of the major revenue streams on the Internet today, advertising and e-commerce, are hampered where it comes to children.

Privacy concerns prevent most advertisers from gathering personal marketing information from kids, and children, lacking credit cards of their own, are less likely to shop online.

AOL's own privacy policy promises the company will not collect personal identifying information -- such as telephone numbers or addresses -- from kids without a parent's consent. The only advertisements visible on the kids' site Thursday were for an anti-drugs Web site.

"Online revenues [for kids' sites] will not meet interviewees' expectations," wrote Forrester Research Inc. analyst Seema Williams in a recent report. "Ad revenues will be limited because direct marketing won't work with kids, and most e-commerce will go to large online retailers."

Forrester predicts that the small revenue base will lead to consolidation in the market for kids' content, until 2003. After that, broadband services and digital wallets will allow more effective advertising and will free kids to shop online, leading to expansion of the market, according to Forrester's Williams.

Delicate balance
In the meantime, kid sites might have to deal with another problem: Finding the delicate balance between keeping children interested and offending parents.

"You have to make sure you won't alarm any parents, and go to the extent of keeping anything that could be construed as inappropriate for children out of the kids' area," said Jim Balderston, an analyst at Zona Research.

"That could make it uninteresting to curious 8- to 12-year-olds, who, if anything, want to learn about non-kid-oriented stuff."


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