Osmo hits a million educational AR games on iPads

Osmo has been a prolific producer of augmented reality games for iPads and iPhones in its short history. And the company is revealing today that those games have reached a million iPads, which is becoming a primary educational device for young kids.

Osmo started with a clever invention, a mirror that hangs over an iPad camera and points it in front of the iPad. If you throw objects in front of it, the machine vision software will recognize it. This allowed Osmo to create games with physical objects, like Hot Wheels cars or block letters. The result has been a unique set of products that combine digital games and physical toys.

Pramod Sharma, cofounder of Osmo, started the company with Jerome Scholler. As parents, they were worried about how much time kids were spending on screens such as TVs and mobile phones. Their products are aimed at adapting to this modern environment and helping kids learn in a social way with real-world toys. Thousands of schools and educators now use their products. The traction has enabled the company to raise multiple rounds of funding (totaling $38.5 million) and expand to the iPhone.

Now the Palo Alto, California company hopes to make an even bigger splash with partners such as Sesame Street and others. I sat down with Sharma for an exclusive interview. Here’s an edited transcript of our chat.

Pramod Sharma: We’re clearly popular with early adopters, but now we’re going from early adopters to a mass brand. We’re in a transition phase this year and late last year, in terms of the messaging and other things, becoming a mass brand. It’s an interesting time. Four or five years ago, when the iPhone and iPad became very prevalent in children’s lives, there was a big question around what could happen. Now that’s been answered. You can deliver some interesting stuff. Now the main question is, how do you build an amazing business out of it? We’re going from startup to early adopter to building a real business in the long term. That’s what’s happening at Osmo.

We’ve built up school traction and home traction. We’ve proven that we can build very engaging products. If you look at traction from one Christmas to the next, our numbers are very healthy. We know that kids like what we do intuitively. Schools, teachers, kids love it. Now it’s really about how we can scale that.

One of the major shifts, we’re going from first party content to really trying to work with partners. What we learned last year, especially after we launched Hot Wheels, is that there’s so much other content that exists in the market that can be pulled into the Osmo platform. This year one big thing we’re working on is essentially licensing our technology to partners and letting them build products around it. That’s going to be a big part of how we can scale as a company.

First party has proven that we can lots of different things. We can do Hot Wheels. We can do coding. We can do drawing. We can do a large variety of products. Now I think partners will be a big part of our strategy going forward. Partners, mass brand, sustainability, that’s how we’ll build the next generation. My job is also changing from a focus solely on innovation. Now our goal is to innovate, but to also let other people be part of that innovation, as well as making sure that innovation is sustainable in the long run.

GamesBeat: What’s the significance of the million iPads?

Sharma: There are two things. One, we’re able to create demand in the market. We can affect excitement in the market, the word of mouth. This goes to the point where we can have a large installed base. The bar is very high to get someone to spend $100-200 to get a product into their home. But we’re making that transition to where we’re no longer an early adopter product, given the price point. If we couldn’t get to that scale, that means we’re not ready for scaling big yet.

A lot of the traction we’ve received in schools and homes is very organic. Schools are definitely very organic. It proves our product-market fit very clearly. Now, if we go from two salespeople to 10 salespeople, we know we’re not just wasting a lot of money. We’re meeting a demand that actually exists in the market and the company will grow faster.

So far we’ve been very careful not to push too hard on sales and marketing. It’s fragile. Fundamentally, we’re creating a new medium, and people don’t understand it unless they see it. The medium is so different that it’s not obvious what content will be attractive. Those are two problems we want to make sure we solve. Our installed base and engagement, there’s proof we’ve achieved that. Now it’s about going mass.

We have also learned that many things don’t work out as planned. For example, I would say the first coding product , Osmo Coding, very engaging and easy for people to understand, but the second was not as easy for people to understand. Coding plus music wasn’t very obvious for people to understand. Our Osmo Monster turned out to be a very engaging product, and Osmo Pizza Company is one of our best products right now. We’ve seen this intersection of play and learning work.

If you look at all the content we’ve built, playful learning around classic concepts is a sweet spot. Running a shop, as a form of gameplay, is a classic concept. Kids do it on their own these days, pretending to be a shop owner. Working in the concept of learning and playing together works really well. We’ve had some hits and misses. Eventually I think we’ve come to understand the kind of content that works on our platform.

GamesBeat: What were the most successful products so far, then?

Sharma: If I had to rank them, the two that come to mind are Coding Awbie and Pizza Company. Those were very successful for us. Osmo Monster hasn’t been the most financially successful, but it’s been very successful when it comes to engagement. The price point wasn’t optimized for the product, but the engagement angle is very important. It’s been very successful there.

GamesBeat: Does that tell you something about what people want the most, then?

Sharma: The number one thing, is this thing going to engage my child? That’s the first question parents ask, that all of us ask. The second question, is it good for them? Is it healthy learning? And the third one, is it a good value for money? It’s interesting that value for money is the third one. If it’s not good for a child and it isn’t any fun, it doesn’t matter whether it’s expensive or cheap. But if it’s fun and exciting and good for kids, then pricing becomes important.

The way we price our items is going to change over time. We realize that parents are willing to pay a premium for a good quality product, but to scale we need to also offer games that are not as high in price as we’re doing right now. We’re going to be lowering our price points.

GamesBeat: What sort of level are you going to target?

Sharma: Right now, the system, the first thing you buy, is $100, and the add-ons have been $40-60. We want to get to a point where the add-ons are in the $20-40 range. We want to have a lot of content, and some content doesn’t need to be $60. It’ll be more like $20-30. We want to make it a very casual purchase, to get new content on the platform. Right now that bar is pretty high. If you’re buying a $50 product, you think harder about it. Again, we want new price points that are more mass market.

GamesBeat: It looked like the Hot Wheels product was a good partnership. It seemed a lot more in the fun space than the educational space.

Sharma: That’s true. It feels fun. It has a lot of strategy and educational angles, but they’re not very obvious, because of the Hot Wheels brand. We’re embracing that. Fun is a good thing. What we’ve learned is that as long as you have that hands-on attraction, in some sense that slows kids down and makes them think. That’s the learning angle that our audience understands.

I think some work still needs to be done as far as communicating to parents about a broader definition of learning. If you don’t have that broader definition then it’s not that obvious. I would say it’s important for every product to have a learning angle. There should be something about it, some skill identified. That’s our goal.

Even on the partner side—as I said, one thing we’re going to focus on more and more is third parties building content for Osmo. There are many brands and pieces of content that aren’t done by us, but that are very popular and powerful. We think Osmo can augment many of those.

GamesBeat: How open do you want your platform to be that way? Will you be charging licensing fees? Does anybody have the chance to work on top of the Osmo platform?

Sharma: In the beginning we’re going to be careful. We want to be selective, with very few partners, so that we can communicate the power of the platform and how to get everything built. Two years from today, I expect we’ll have a much more open platform. In the next two years our goal is to have a select group of companies building products. We’re working closely with them.

How closely is going to be a function of who’s marketing and distributing the product. With a small company, we might be marketing and distributing the product personally, but bigger companies might handle that themselves. Based on that distribution question, we’ll decide on the right deals. It’s case by case right now. In two years I expect we’ll become more open.

GamesBeat: What about the frequency of releases?

Sharma: Right now that frequency has been two to three titles each year. That will stay the same this year, but starting next year, we want to triple that. We want to have a lot more launches, and we want to alternate with other properties, not just our own. We’re definitely going to increase that frequency.

One thing we’ve learned is that if you’re not careful in designing a system and a platform, you can create a lot of noise. Our goal last year and this year has been to be very clear to parents about what is the platform, what are the entry points, and where to find new content. This year we’ve definitely nailed that down. We can start adding more content without creating confusion.

GamesBeat: Is the Sesame Street product still coming this year?

Sharma: We’re still at work. We haven’t said anything publicly yet. We’re working very closely with two partners right now. I can’t really talk about the details yet. But you’ll see some really interesting products. In Q3 and Q4 we have some really interesting launches.

GamesBeat: The tablet category, how do you feel about that overall? In some ways it’s slowed.

Sharma: We’ve seen from day one that the tablet is a perfect device for a young child. That’s not going anywhere. If you look at the number of kids using tablets, it’s only going up. What’s likely to happen is that phones will be more relevant for mobile use cases, on the go, and tablets will have more interest for families and experiences in the home. Kids play largely at home. That’s not likely to change any time soon.

We also launched Osmo for the iPhone last year. We’re experimenting to see if other devices can become popular. What we do know is, tech is always going to be relevant in kids’ lives. That’s a one-way street as far as we can see. All of us want more interactivity. There will always be a device – phone, tablet, goggles, tables, you name it. We want to be independent of the devices, in some sense.

Fundamentally, our value is in the hands-on experience. The question I always ask is, is the hands-on experience able to go somewhere? We have seen that in kids’ development, hands-on is not going anywhere. It’s so, so important – from the parent angle, of course, but kids love hands-on. Even in the adult category, if you look at board games, card games, that’s growing. Players in their 20s and 30s are spending more time with hands-on activities. That’s still very relevant.

One thing I’ve learned that to me is very profound: it’s not that kids like screens, or that anybody likes screens. We like interactivity. We want things to be interactive. Whether it’s a screen or a mouse or a keyboard or a pen and paper game or Legos, if it’s interactive, it’s fun, and we want that. We want more interaction in our lives. Osmo is taking that interactivity to a new level. That trend is only going in one direction, especially because of the design we have.

GamesBeat: It doesn’t seem like an easy leap for you to expand from tablets to all smartphones. It seems like that might take different products than the ones you’ve had.

Sharma: That’s true. Our focus so far has been on five to 11-year-olds, on playful learning, on the iPad. Let’s prove we can create interesting content and get people excited and engage them. That’s been the mantra so far. We’ve done a good job proving that out. From there, we have many ideas with which we’re going to scale. An obvious way to scale is going from iOS to Android. We can go from playful learning to other categories in children’s lives. We can go from the U.S. to the global market.

We already have plenty of ideas for scaling the company. Once we’ve built that master brand for five to 11-year-olds, we can go to other demographics. We can hit teenagers or adults. We’ve made the device popular, and now we can build experiences that are customized to a different audience. Fundamentally, though, we want to focus on hands-on activities. If it’s not hands-on interaction, it’s not Osmo. But the iPhone experience will be different because of the screen size. The demographic that carries the device is different.

GamesBeat: For things like augmented reality glasses, it seems like that technology is imminent. Are you thinking about how to translate to that?

Sharma: I think it’s going to be an even better experience with glasses for us, a much better experience. Imagine just playing a tangrams game. First of all, I can move around how I want. I don’t need to be next to an iPad. I can play the game standing up. It’s going to be much more mobile than the iPad.

There are other consequences, of course. You can’t share the experience as easily. But I think it’s going to be amazing for us. It’s a bigger screen, and our experience will be much bigger. You aren’t limited by screen size at all. The field of view could be much larger, because I expect most of the glasses will have cameras looking down and in front of you.

That said, I do feel that—I can’t imagine you’ll wake up in the morning and put on the glasses. I don’t see it as a lifestyle. I see it as one of the use cases. There is going to be an audience and demographic that will use glasses to interact. Every family waking up and saying, “Hello Alexa, how’s the weather?” That seems natural. But I can’t imagine they’ll wake up and instantly put on the glasses, all four members in the family.

The idea of devices, of technology that’s not on your body, is here to stay. It’s going to be more important than the technology that you put on your body. But both, to me, are relevant to Osmo. We’re very much open to what we can learn. The real deal, though, is that there are 200 million iPads on the market right now. I’m not betting on anything comparable to that for glasses.

GamesBeat: How many people do you have now?

Sharma: The team is 60 people now. About 65 percent of them are product people.

GamesBeat: What do you see as your next milestone? If it took you this much time to be on a million iPads, what’s next?

Sharma: Our next big milestone—I use the word “mass” a lot. We want to become a household brand now, for that five to 11-year-old demographic. Everyone in the country knows what Osmo is, knows what it stands for. It has content that is used every single day. We want to reach mass content, mass awareness, and mass distribution.

We’re focusing a lot on distribution right now. We’re mostly on Amazon – largely Amazon, Best Buy, and a bit at Target. We want to go from that to much bigger chains like Wal-Mart, Costco, Target, and others. The combination of mass distribution, mass awareness, and content optimized for the masses will make Osmo a mass brand for that demographic. That’s our next milestone. At that point we can start thinking about a new demographic to scale the company, and developing content for that demographic.

The same applies to schools. My goal is to have much deeper penetration into schools – not just one or two in a school, but schools using Osmo on a daily basis in all their classrooms. That’s the level of penetration we want to work toward now. It’s not as exciting as some of what we’ve been doing, but I feel like this is the next natural step.

GamesBeat: As far as the kind of partnerships you’re looking for, it sounds like you don’t want to be acquired by anybody. But what kind of partnerships, short of that, do you actually want?

Sharma: One of the most interesting things we’re thinking about, let’s say you have a property that is everywhere, and our demographic follows it? If you can use Osmo to make that property more engaging and exciting, and we can allow you to integrate the Osmo experience into your product, that can help us grow very quickly. Now everyone who uses your product knows Osmo and you get the advantages of Osmo in your product. If you have a property, if you have a physical product you’re distributing, we can help you make a better experience for your users. That’s the most exciting kind of partnership for us, and the one we’re exploring now.

Over time, I’m sure we’ll have different segments. But two or things things apply right now. We really care about hands-on experiences, because that’s good for kids. That’s critical. We care about digital. We’re a digital brand, and we think digital has so many benefits for building amazing properties. And we care about schools. As long as we can have a hands-on experience that’s digital and schools are part of the solution, we’re making progress in our partnerships.

GamesBeat: It seems like the entry point for most other digital products right now is lower compared to where you guys are. Free-to-play has taken over in games. Figuring out where that point is seems like a challenge.

Sharma: The way I understand it is, ultimately everyone needs to monetize. The question is how to monetize. The monetization expectation of pure digital is quite different from the monetization expectation of pure physical. For example, people don’t mind paying $500 for an iPad, but an app on an iPad, even though you can’t use the iPad without apps, nobody will pay for that, because it’s psychologically different.

Osmo is at an intersection. We believe we can make products at the right price, that are good for consumers, and will help us grow the company. I don’t think those will be free products, because physical things, you can’t just afford to make them free. But they don’t need to be expensive either. Because we’re able to take advantage of the device’s camera, the physical objects in our product are not very complex. Over time, and as we grow, we’ll have experiences that are closer to $10-15. They’ll have very simple physical components. We’re going to invest there.

Our audience doesn’t question why we charge them for our products. They don’t think of us in the same category as pure digital. Pure digital, the expectation is, “I can always find something else that’s free, so why are you charging me?” That’s what drives prices down to zero. It’s the same as how charging for a website is hard. If Priceline decides to start charging me, well, I just go to Expedia, which is free.

In the kids category, it’s a very interesting question. Monetization almost never happens. It’s a very risky game that we’ve seen, pure apps in the kids category. We’re trying to stay away from that. That’s a very lopsided situation. The companies can’t make money, they lose value, and they can’t find a way further.

GamesBeat: What have you learned so far about creating original properties?

Sharma: A ton. One thing is that making great content is a non-trivial amount of work. It just takes a long time. Every medium is good for certain types of content. For example, the content that works really well with a keyboard and mouse is very different from the kind that uses a touch screen. Three years ago, we didn’t know what would be great content for Osmo. Now I think we know what that is. That’s why I gave the example of Monster. This is the pinnacle of great content native to Osmo, where there’s a character on a screen engaging you, and you do something in front of it to interact. It becomes a holistic experience.

I think we’ve learned a lot about the medium now. Building this content is expensive, it’s an art, and it takes time. Three years ago I had a lot of ideas that, looking back now, I know we couldn’t do. It’s just too hard. That’s partly because the medium is so new. If you have a familiar medium like TV or the theater, the format is so well-understood. TV is more than 50 years old. The physical-digital medium is very new and very unique.

What we’re doing isn’t limited, by the way, to five to 11-year-olds. The hands-on experience can be tailored for adults and a lot of other people. We do a lot of different things in our lives – crafting, cooking, fixing things around the house, playing music. Osmo can be used for all kinds of things outside just that one category. As a company we’re starting to think about what it will mean to open up the platform to a much larger demographic. What does the hardware and software and platform look like? If these hands-on experiences are not just for kids, what does that mean? We’re working on that now. It’s very exciting for us and for the future of the company, because there are so many possibilities.

GamesBeat: Kind of like a Diner Dash experience? Cooking on demand?

Sharma: We can’t talk about the experience right now, but I would say that a theme that’s common is making things with your hands. That’s what we do today. Drawing in Monster—kids are already drawing. Now we can add to that. A phrase we use internally a lot is, “I can see what you’re doing. Let me help you.” If you’re doing something like trying to fix your television, someone comes over and says, “I can see what you’re doing. Let me help you.”

That’s the role Osmo, I think, is going to play in the future as a technology. It can see what you’re doing and it can help you. Right now we’re focused on kids. But that idea can go way beyond children.