Mind Candy is a UK start-up that creates online multiplayer games; the latest of which is virtual world Moshi Monsters, currently a big hit with the kids in my house.

CEO Michael Smith previously co-founded online retailer Firebox.com, then started up Mind Candy in 2003. He has since created successful online game Perplex City, before launching Moshi Monsters this year.  

I talked to him about the site, the growing market for kids’ virtual worlds, and the challenges of creating websites for this age group…

How does Moshi Monsters differ from other children’s virtual worlds like Club Penguin and Webkinz?

There is a lot of venture capital in this space, so it was important that we created a distinctive website to be able to find a gap in the market.

Moshi Monsters is more akin to Neopets than sites like Club Penguin; rather than having an avatar that roams around, kids adopt a little virtual pet to look after.

Our aim was to create the most sophisticated virtual pet we could. Kids can interact with their pets and build an emotional bond with them – the pets’ behavior and responses change according to how they are treated by their owners.

We were inspired by Tamagotchi, but the advantage with doing this online is that you can build more of a social element around the idea, and kids and their pets can connect with each others.

How do you maintain a safe online environment for kids?

This is very important for sites like ours. One of our early hires was Rebecca Newton as head of community. She has years of experience in managing communities online having worked for Habbo Hotel previously.

We ensure that the site is well moderated; all messaging on the site is public and goes through a filter before being published. We filter out swearing, inappropriate phrases and attempts to exchange addresses or telephone numbers.

Communication on the ‘pin-board’ is also moderated by the kids themselves, and our team will intervene if kids report any problems. On the Moshi Monster Forum, every message is pre-moderated before it goes live.

How do you plan to monetise the site?

At the moment, apart from  Mopods, which are mobile phone charms that light up and spin when you receive a call or text, we do not make any money from Moshi Monsters at the moment.

We plan to introduce a Club Penguin-style subscription model in about a month’s time, leaving much of the site free to use, but rewarding subscribers with extra features and content. We plan to charge around the same price as Club Penguin, which is currently £4 per month.

How many users do you have?

We are approaching a million registered users on, and around 60% are actively returning to use the site.

You have so far avoided advertising on the site – will this remain the policy?

We have been approached by plenty of interested brands but we have said no so far, though we may introduce some advertising for non-subscribers in future.

There will be potential concerns for parents as well as ethical issues around marketing to children so we will need to be very careful about how we approach this.

How are you funded?

We have received a total of around $10m, primarily from Index Ventures and Accel Partners.

How have you used this money?

Much of the funding was used to develop and launch our previous project Perplex City, an alternative reality game which generated a few million dollars in revenue.

We then decided to move into kids’ virtual worlds, partly because this is a market which offers greater commercial potential. Most of the spending has gone on building the team behind Moshi Monsters and developing the technology behind the site.

We have a team of 20 working on Moshi Monsters and more than half are working on the technological side, Flash Developers, designers etc.

The great thing about MMOGs and virtual worlds is that, though they are expensive and difficult to build, once they are up and running they are easy to manage and offer high margins. Club Penguin, for instance, was generating $40m in annual revenue before it was bought by Disney last year.

Will you be looking for further funding?

Yes, we are currently in negotiations for Series B funding, and have had approaches from several media companies interested in investing.

Is Moshi Monsters profitable?

It is still pre-revenue, but we will be introducing the subscription model very soon.

How have you marketed Moshi Monsters?

Very little has been spent on paid marketing, we have managed to grow the site mainly  by word of mouth so far. This is much easier for a children’s virtual world, kids are keen to tell their friends at school about new sites they have found, and we have managed to attract a lot of users like this since launching in April this year.

Children’s fads can come and go – is there a chance that sites like yours will go out of favour almost as quickly as they have grown?

The key is to keep them engaged by continually refreshing the site and adding new and interesting features. We are building a strong community around the site so there are plenty of reasons for kids to keep coming back. 

For example, Neopets has been around for a while and has managed to maintain its popularity. Children build up an emotional bond with their pets and many will be reluctant to abandon them.

What are the challenges in creating websites for children?

There is some very important legislation to abide by for kids which is less of an issue when creating sites for adults. Safety and privacy issues are vital, and we have to ensure that the site is well moderated and that parents can feel good about their children spending time on Moshi Monsters. Then there is the challenge of making it sustainable.

It has its advantages though; kids are happier, and often more enthusiastic about spreading the word than adults about products they love. 

Also, having never worked in this space before, the honesty of the feedback we get from kids that use the site is refreshing; they are not afraid to say what they think and suggest new ideas and improvements. 

Is there still room for growth in this space?

Yes, I think we are in the early days at the moment, and the market still has plenty of room to keep growing. Webkinz and Club Penguin are just two of many companies building virtual worlds for kids, and I think there is room for several different websites. It’s not a market where winner takes all.

Have big children’s brands been slow to pick up on this concept?

Many big toy brands have been very slow to develop online and are only now starting to get in on the act.  This leaves plenty of opportunities for nimble startups who have the creativity and the technology to prosper.