Club Penguin's $450m "overnight success"

Club Penguin is rumored to be in talks with Sony for an acquisition in the range of $450m, paidContent says it's more than a rumor (via Raph). These guys pulled in $60m in revenue last year, are still growing fast, and have been chased by just about every tier one VC I've spoken to.

I do want to make one major correction. Everyone from Mashable to the mainstream press is going to quote a 2005 launch date and talk about an "overnight success" if this goes through. Like so many other versions of the overnight success story, there is usually more to it.

Much like I have discussed in the past, the real story is more complicated. The real story is that Club Penguin started as a RocketSnail chat product in 2000 called Experimental Penguins. It was built in Flash 4 and you could host it on your site for $400 (don't you wish you had done that?). Two years later they decided to create a new chat based on all the experience gathered from the first experiments, that was PenguinChat. Two versions and 800k+ visitors later, a new major update of PenguinChat was launched as Club Penguin.

This is not the tale of outsiders making a couple penguins and simply hitting the jackpot. This is about building up expertise in building online communities and game design over a long period of time. It's still not a game for amateurs.

This will surely be a topic of discussion at tomorrow morning's OpenCoffee, see you Boston folks there. Should this go through I might need to change my earlier prediction about 2007 NOT being the year of the online game due to a lack of major exit.

More notes and a traffic comparison after the jump.

Other players in the "tween" casual virtual world market are obviously pretty happy to what just happened to their valuations. Jeremy@Lightspeed did an overview recently: Habbo, Gaia, recently launched Zwinktopia, Neopets ($175m 2005 acquisition), Webkinz, and a couple others I can't really talk about yet. And although aimed at a slightly older audience, don't forget "bigger than wikipedia," Runescape.

This might be contrary to what most folks might say, but I think this is actually a very fair price to pay for Club Penguin. 7.5x multiple is a steal when you think about how the last couple big exits (YouTube anyone?) have been driven by traffic not revenues. Club Penguin has both.

Other random thoughts:

- They were built on a server that costs less than $5,000. It's not about technology, it's about community
- Their growth rate outstrips their closest competitor, Habbo, and I think this is partly because they have much more overt game mechanics
- Is this going to Sony Online (MMOs) or Sony Computer (PS3) or Sony Pictures (Happy Feet)? The future for Club Penguin is very different depending.

Comments

[Dan Spira]

Nice analysis, Nabeel.

This reminds me of an old quote, attributed to Eddie Cantor: "It takes 20 years to make an overnight success."

[Chris Bennett]

Did you see this blog post about the 'Rise of the Children's MMOs'? Pretty interesting numbers, and I wasn't aware that Club Penguin was over 4 million users.

http://playnoevil.com/serendipity/index.php?/archives/1289-Rise-of-the-Childrens-MMOs-Mostly-Played-by-Girls.html

Some of the original data was from a NYTimes article:

http://www.nytimes.com/2007/06/06/technology/06doll.html?_r=4&pagewanted=1&ref=technology&oref=slogin

[popsicel2222]

why did they take expiremental penguins offline and close rocketsnail games?