Summer 2019 / Issue 95

The kidtech is all right

Dylan Collins, CEO of SuperAwesome, describes how his six-year-old company is hitting a growth spurt by leading the charge on digital privacy for children.

What does a former rap DJ from County Tipperary know about the digital content consumption habits of children? Dylan Collins, CEO of London-based startup SuperAwesome, is developing the infrastructure that enables companies to engage with the fastest-growing group of Internet users: the under-13 set. With offices in New York, Chicago, London, and Los Angeles, the rapidly expanding (and profitable) company says it is the largest “kidtech” company in the world. In the digital marketing arena, user-tracking is the norm and users freely offer information about themselves and their viewing and consumer habits. But the largest social media platforms don’t allow kids to register for their services. And a host of regulations and practices limit the ability of marketers to gather information on the youngest Internet users, and impose penalties on those that violate the rules. SuperAwesome, founded in 2013, has developed tools and services that help the largest kids’ brands — Mattel, Cartoon Network, Hasbro — engage with kids in digital formats safely, anonymously, and in compliance with an expanding array of regulations. In the firm’s Manhattan office, Collins explained to s+b how SuperAwesome, ranked by Financial Times as the number one technology growth company in the U.K. in 2018, intends to travel a path to maturity.

S+B: How does a former rap DJ and nonparent end up in kidtech?
COLLINS:
I started my first company while I was at Trinity College Dublin. Demonware built the tech that allowed gamers on PlayStation and Xbox consoles to play against one another. The technology was used by EA and Activision, and Demonware, which was acquired by Activision in 2007, is now the backbone of the Call of Duty franchise and many others. Next, I founded a social games company, Jolt, which was acquired by GameStop in 2009. Then I began making angel investments in technology and media companies. A couple of my investments had been in the kids space. And I started to see what was happening there.

S+B: And what was happening?
COLLINS:
It was clear there was going to be a huge structural shift in the kids media space from TV to digital. Part of it was a function of Apple’s hardware upgrade cycles. Every time a new iPad came out, parents wanted an excuse to get it, so they handed down the old one to their kids. But what made this [time] unique was the simultaneous emergence of digital privacy laws for children. It started in the U.S. in 2011 with COPPA, the Children’s Online Privacy Protection Act. These laws basically said it isn’t appropriate for companies to be capturing personal data on children. These laws, which have now effectively become a global standard, mandate that any child under the age of 13 must have a completely anonymous experience with a digital service. They can’t be tracked. They can’t be behaviorally targeted. Most of the inherent social contract behind the Internet — here’s some free content in exchange for your personal data — is not permitted in the kids space.

S+B: All the large services say they ban people under the age of 13 from opening accounts or registering. So what was the issue?
COLLINS:
All of these companies have tens of millions of kids using their services and products — even though, for example, YouTube says that it does not have anyone under 13 using the platform. We are literally talking about society’s most vulnerable audience. And in 2013 this same audience was getting the least investment from the biggest and most profitable technology companies in the world. We saw that and thought, “This is insane. Someone’s got to build this solution. We’ve got to build safeguards.” So we started the extremely humbly named SuperAwesome to build a suite of technology [tools] that could be used by content owners and brands operating in the kids digital media ecosystem. Ads, social engagement, authentication — all wrapped in a privacy layer that keeps kids completely untracked and anonymous, and prevents companies from capturing data on them. That was in 2013. Now, virtually every [child-focused] company you’ve heard of uses some or all of our products to enable its digital engagement with kids.

S+B: You speak as if you’ve had the field to yourself.
COLLINS:
It feels like Silicon Valley only really discovered that children existed about 24 months ago. Children under 13 are now the fastest-growing Internet audience in the world. And every day, according to UNICEF, 170,000 kids around the world go online for the first time. But it’s an unusual blind spot. In Silicon Valley, the mania has been data, data, data. We came to the table with a different view.

“It feels like Silicon Valley only really discovered that children existed about 24 months ago.”

This ecosystem is the only digital sector that is defined by government regulation. Europe followed the U.S. with the GDPR [General Data Protection Regulation] and the children’s digital privacy law, GDPR-K (the K is for kids.) You cannot capture any personally identifiable information. No cookies, no trackers, no behavioral targeting. The advertising has to be done contextually. But nobody had invested in the infrastructure for safe digital engagement that would comply with the laws. So we built an extensive kid-safe ad delivery platform, which delivers ads into kids’ content, and services that allow content owners to safely monetize their content with ads that are appropriate, without tracking or data capturing. It does a huge amount of contextual targeting using a lot of machine learning and algorithms on the back end. We’ve expanded into areas like ad filtering. We can pass ads through the software, and it strips out all the trackers and renders that ad privacy-safe for children. The kids digital media niche has quickly morphed into the biggest privacy-based digital media market in the world.

S+B: How big is this market?
COLLINS:
From an ad perspective, the total dollars spent in marketing to kids is about US$4 billion to $5 billion a year just in the U.S. and the U.K. About 80 percent of that is now deployed on TV, and only 20 percent on digital. By contrast, in the adult media space, about 60 percent of the marketing is spent on digital. But digital marketing aimed at kids is growing at about 25 percent per year. In other addressable markets such as Europe, India, and China, there are no precise figures. But I think it’s reasonable to say that the total global market is about $8 billion to $10 billion. And as the market gets more mature, budgets will go beyond advertising, into social, content development, and more sophisticated digital behavior. That’s why we have built out many different tools, for example, safe content management, parent portals, and age gating.

S+B: Age gating?
COLLINS:
Age gating is [putting] technology in place in front of the piece of content. It rolls out anonymous technology if the user is under 13 and a regular adult-tracked version if they are 13 or older. In fact, more and more of our technology is getting baked into the actual content. The Internet was built with the assumption that only adults were going to use it. If you hand your phone to a kid, and she looks up a children’s site, the chances are that app or site is only looking at the personal data that’s on the phone. If it thinks the user is an adult, it will serve the user an ad for gambling. The user paradigm has to change. Age-gating technology can look at the content being served and say, “OK, this is children’s content. Turn off everything else and make sure you do not track.”

S+B: So your customers are primarily advertisers and brands?
COLLINS:
Brands realized that kids have shifted away from television, but they can’t use Google or Facebook to reach them. So that immediately brings brands into contact with the content owners and publishers. When I talk about being an ecosystem-focused business, that means we think about all the players that are involved. A toy company will come to us and say, “Hey, we need to reach a huge number of kids in a digital environment, at scale, and in multiple countries. We have to be completely compliant.” They plug into our platform, which is integrated into hundreds of [child-focused] apps and sites and destinations. We’re able to turn on kid-safe advertising and appropriate content, and at vast scale. At this point, we are one of the biggest revenue drivers for kids’ content producers in the world.

But the ad platform is only the beginning of the journey. These companies have to figure out how to [approach] community and engagement with kids. They can’t point 8-year-olds to Facebook pages or Instagram. So we’ve got a platform that provides social tools that allow them to interact with kids, but in a completely moderated environment.

S+B: What does that look like?
COLLINS:
Imagine the publishing interface of, say, Instagram. Let’s say you’re someone like Disney. Using our safe social product, you can publish content into lots of different destinations. And you can allow kids to comment, or maybe they want to remix or create their own content. Before anything gets published, it comes to our moderation layer and gets reviewed by machine learning and by humans, to make sure it’s appropriate. The same way you would embed a Facebook or a Twitter widget somewhere, you can embed these safe social widgets.

S+B: Many of the largest platforms sell ads against content but eschew responsibility for the propriety of the content. They argue that if they had to actually review the placement of every ad, it wouldn’t be profitable.
COLLINS:
With some of the big platforms, it’s almost like comparing them to a chemical conglomerate, whose profits typically come down over the years because they have to apply more filtering and protection and environmental controls on their output. I think there is a huge change coming. And my view is that children and children’s privacy is the thing that could displace Facebook and Google and their business models. Governments have recognized this, and privacy laws are only increasing. California in 2018 passed the California Consumer Privacy Act, which says people under 16 must affirmatively opt in to allow the sale of personal information.

S+B: So you welcome the regulation?
COLLINS:
Absolutely. The regulation has expanded into Europe, under GDPR-K. It has been adopted by Brazil. It’s going to be adopted by much of the rest of Latin America. There are discussions in Australia. The Chinese government in the last two years has been getting increasingly concerned about the effect of games and screen time on kids. That’s why China has been pushing for the rollout of a sort of verified identity system, so that you can deliberately exclude kids from playing games after a certain time. We are moving toward a global standard for kids’ digital privacy. I think in five years, everyone is going to look back and wonder why there were fights against privacy protections for children in the technology. People are realizing they do not need to track and capture millions of pieces of personal data on a 5-year-old.

S+B: What is the proper role of the human in examining ads and content?
COLLINS:
One of the challenges Silicon Valley has had is that there is a very mono-dimensional view of what an Internet user is. When it comes to kids, you have to change a lot of the rules. A video platform for adults could be built on the assumption that a small percentage error rate is OK. Five percent of the time I show you the wrong thing; that’s probably OK. That obviously doesn’t work for a child at all. The other principle is that most platforms are based on a post-moderation concept. If you see something terrible, you can report it. You can’t do that with children. You have to do pre-moderation. Which means that content, curation, and moderation always have to involve humans.

S+B: So how many humans do you have, and what do they do all day?
COLLINS:
We have about 140 people, about a third in engineering, a third in sales, a third in operations. Our engineers at this point are half engineer, half lawyer, because of the environment that we build in. Every ad goes through a multistage review process, in which a set of human eyes actually looks at it before it goes through our tech and tools. For content moderation, we have AI and machine learning. Anything that gets flagged gets looked at by a set of human eyes. So we have a 24/7 human moderation team. [The business] is very much a combination of scaling, automation, and algorithms, but also humans.

S+B: By definition, it seems as though ads that don’t track or capture consumer data would be less efficient and less impactful. How do you provide value to advertisers?
COLLINS:
The kids media space is very much premium-driven. Within the kids digital space, a lot of the rules get rewritten or adjusted to reflect the fact that (A) kids must have a privacy-driven experience; and (B) they’re kids, so they have a lot of influence, but not as much disposable income. In fact, in many cases, the law doesn’t allow you to say to a child “Hey, go and buy this now!” So companies focus on growing communities. And that’s why you see more and more companies using our social engagement and community tools, to have actual interactions with kids. Kids are more curious; they want to explore. They tend to have, somewhat ironically I guess, a longer time span for discovering things on a device, bearing in mind they don’t actually work.

And even without tracking, we get lots of different signals and data points. We get a lot of anonymous analytics on the actual engagement with the brand units and ad units themselves, so you can see what resonates. We see from some of our social content platforms what kids are talking about on an anonymous basis. We also have an investment in a research company called Kids Insights, based in the U.K., which just expanded into the U.S.

S+B: How many different revenue streams do you have?
COLLINS:
We have three broad categories of product: AwesomeAds, safe social, and cloud. We have transactional revenues, licensing fees, and a SaaS model as well, which is based on usage of some of our products. These are all wrapped around longer-term contracts. Our revenues are pretty recurring. Ultimately, our diversity comes from the verticals we’re in: movie studios, toys, video games, food companies, sports apparel. The good news is that the move to digital and the shift to privacy are all really independent of macroeconomic conditions. So even if we have a recession, it won’t suddenly make kids start watching live TV again, or slow down [development of] privacy law.

S+B: What about on the commerce side? Now there is commerce embedded in many apps. Users are playing games in which they can buy things by pushing a button.
COLLINS:
A lot of the commerce stuff has been pushed out without people thinking too much about the requirements of kids, or of parents to manage their kids’ spending. Is it appropriate in a game that’s going to be played by 8-year-olds to have $99 purchases? No, it probably isn’t. At a product level, we build with two philosophies: one is privacy by design, and the second is responsibility by design. We’re getting into a discussion around what is the appropriate kind of user interface design for kids. We’re trying to make it easier for developers to create more responsible digital experiences for kids. When you think about any free-to-play game, the same model that leads to that in-game purchase, what you designed as appropriate for a 16- or an 18-year-old definitely isn’t appropriate for a 7-year-old. But there are no rules about this. So it falls on us to really try to create a lot of the standards on interface design.

 
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S+B: As you note, this is a relatively small slice of the overall marketing pie. How do you think about building a larger company in the context of this niche?
COLLINS:
The kids space is unique. And what’s going on there goes far beyond advertising. We are building an infrastructure for the next generation of the Internet. The average Internet user is now 12. Ten years ago, the average user was 24. In the digital media business for adults, you can argue that Facebook and Google have won that war. The kids space is the only sector that isn’t controlled by Facebook or Google. And I think the bigger our company has become, the bigger we realize the opportunity and the mission are. Which is why we’re thinking about taking the company public within 18 months. If you look at our mission, being public actually would be incredibly helpful in terms of what we’re doing. We’re growing pretty quickly. We have offices in London, New York, Chicago, and Los Angeles. But we try to grow efficiently. We hit profitability last year; we’ll hit more profitability this year. We’re kind of old-school in that we like hyper-growth and profitability.

S+B: That cuts against what seems to be the conventional wisdom of scaling a tech business — first worry about expansion, then worry about profits.
COLLINS:
I think that’s lazy management. Growth ends up being an excuse for not focusing on your unit economics. I don’t want to say it’s easy; it isn’t. But once you start introducing the concept of gross margin to the entire company, and you explain what it is, the next step is introducing the contribution margins below that. And then all of a sudden you’re having a conversation about EBITDA. It’s difficult to be transparent about financial results in a company, particularly when it’s early on. But as you start growing, you’ve got to find ways of shifting people to that conversation.

S+B: Reading between the lines, it seems you’re suggesting there’s a certain amount of groupthink in the Valley that has led it to ignore kidtech. Could this company have been founded in Palo Alto?
COLLINS:
I think it’s tempting to look at the number of product managers and company founders in the Silicon Valley who don’t have kids. There is probably some correlation there, for sure. And I appreciate the irony of a nonparent making that statement (I do come from a big family). But I think it has more to do with the mania about data on people, which is hardwired into virtually everybody. Go back to Yahoo in the 1990s. It was always: “Here’s free content in exchange for watching an ad.” Right? And over time, as advertising became more sophisticated, that effectively became, “Hey, watch this ad while we collect your data and drop off these trackers behind the scenes.” Those two things mean that it was probably always unlikely that a kidtech company was going to be born in Silicon Valley. Silicon Valley introduced the notion that more data was better, that data was an asset. What we’re saying is that personal data is a liability. People are looking at this on the wrong side of the balance sheet. 

PwC Global Entertainment & Media Outlook 2019–2023: A comprehensive source of advertising and consumer spending data available.

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