Despite Neopets' inauspicious beginnings as a virtual pet site created by college students Adam Powell and Donna Williams, it's turned into a youth culture force. About 80 percent of the site's users are under 18, and as of November 2007, there are over 150 million registered accounts. But Neopets isn't just about showing kids a good time. According to Neopets' Senior Vice President and General Manager, Kyra Reppen, children age 6-14 have access to $60 billion of their parents' money, so there is certainly much to gain. Banner ads and sponsorship have been their "primary business model," and business has been very good, to the tune of a $160 million buyout.
But the site wasn't always the juggernaut it's become. In the beginning, Powell and Williams promised to never use banner ads and didn't charge for special features on the site. Instead, they relied on "immersive advertising," a term they trademarked, which meant their ad revenue depended on companies sponsoring minigames and items rather than direct advertising. Other sources included branded destinations within the site's virtual world. Players could sign up for offers or surveys for "Neopoints," the in-game currency, as well. Never once did a player have to stare at a basic ad.
However, in 2004, things changed. Powell and Williams launched a premium subscription service, which granted players several bonuses, along with a sponsored downloadable toolbar. At the same time, they introduced banner ads. (People who paid for the premium subscription didn't have to look at the ads.) The community rebelled at the broken promise, but the designers claimed the ads were necessary to keep the site free and promised to ensure they were appropriate for the user base's consumption.
Since then, the site has grown even more commercial. In 2005, Viacom, owner of MTV Networks (MTVN), purchased Neopets for approximately $160 million. Viacom has been actively making headway into the gaming market over the past several years. Today, they own Xfire, GameTrailers.com, music game developer Harmonix, AddictingGames.com and Shockwave.com, among other related brands. Neopets, along with various Nickelodeon properties, is at the heart of MTVN's Kids and Family Group.
Reppen, who spoke at the Virtual Goods Summit in June, said the company has refocused its model into "four key emotional drivers" since joining MTVN: having fun, fulfilling social needs, self-expression, and control, including customization.
This diversification began in a big way in 2007. The site underwent a complete overhaul; the majority of the pet designs were redrawn, making them customizable from the get-go. In March, the team held a month-long competition, sponsored prominently by a children's movie. It was the first time ads were placed on the loading screen of every minigame involved in the challenge, and the event itself required players to play a sponsored minigame to win. In June, another game challenge, Altador Cup II (based on the World Cup), was held and advertised on Viacom cable channels, leading to a spike in new accounts and site traffic.
Also in June, the NC Mall, the result of a development and marketing partnership between MTVN and Nexon, debuted in beta. The most prominent example of the new diversified business model, the NC Mall is a microtransaction-based item shop. It allows players to purchase "Neocash," a new virtual currency, and then swap that for virtual items. MTVN helped market Nexon's MMOG MapleStory in exchange for their microtransaction framework.