"Netflix for LEGOs" is an awesome idea. But can it scale?
Today some big news came out from one of the most brilliant "Netflix for X" experiments I've ever seen: Netflix for LEGOs.
The company is called Pley (formerly PleyGo) and it just announced a $6.75 million Series A round led by Allegro Venture Partners. (Fortune reported the news yesterday). Since launching last April, the company says it's sold over 15,000 subscriptions and shipped more than 75,000 sets.
Fortune's Erin Griffith notes that many family-oriented Netflix-style businesses have had a rough go. Toygaroo, "Netflix for toys," has filed for bankruptcy and at least two "Netflix for baby clothes" have also shut down.
So what makes Pley's chances of survival any better?
Um, did you read the headline? Netflix. For. LEGOs.
Okay, maybe my love of LEGOs has clouded my judgement so here's some slightly more reasoned analysis: Most toys are famously faddish, with short-lived trends that are hard to predict (Remember Furbys? Beanie Babies? Zhu Zhu Pets?). This is less true with children's clothes, but even there, trends come and go.
But the world's love affair with LEGOs is deep and grows deeper every year. In 2010, the Danish company posted $2.8 billion in sales. That rose to $3.5 billion in 2011 and kept rising, from $4.04 billion in 2012 to $4.6 billion in 2013. LEGO can also adapt to the fickle tastes of children. If kids become more into super heroes than space cadets, LEGO can simply build and market more Batman sets and back off on the Star Wars line. Add in the wild commercial and critical success of the LEGO Movie, and these colorful building blocks aren't going anywhere soon. The interest isn't limited to families and children either. I know grown adults (most of them with rather sizable marijuana habits) who drop hundreds of dollars a year on LEGOs.
That speaks to another great thing about Pley: It's a good bargain. LEGOs are crazy-expensive. If you want to buy a Star Wars set bigger than your fist you're likely to drop $50 or more. Meanwhile, Pley's most expensive option which gives you access to the largest sets is only $39 a month. (Pley also offers a $15 a month option for small sets and a $25 a month option for medium sets.
And finally, LEGOs are particularly well-suited to the rental model because, while I recall playing with sets a little after I built them as a child, the fun was all in the construction stage.
From the consumer's standpoint there's little not to like about Pley. They claim to sanitize each set before sending it out and weigh each package within a hundredth of a gram to detect missing pieces. Meanwhile, customers are permitted to lose up to 15 pieces without incurring any penalty. My LEGO-enthusiast of a roommate is going to sign up, and if the service fails to deliver on anything it claims, I'll be sure to write about it.
What's less certain is how easily Pley can scale. Even co-founder Ranan Lachmann admits LEGOs are probably the hardest toy to tackle like this, which is maybe why no one else has tried what seems like such an obvious idea. Will the costs of Pley's supposedly state-of-the-art cleaning and weighing system, not to mention the costs of the sets themselves, eat into their margins?
Lachmann tells me he's not too worried about that. "As we grow we benefit from economies of scale and the process becomes more efficient over time. We are developing a proprietary LEGO sorting machine that will reduce our current proceeding time by 25% and improve margins."
Part of why Pley raised a Series A is to expand into other toys. Maybe the revenue from those other subscriptions could also help subsidize the more expensive LEGO business. But all the things that make LEGOs a good fit for this model (their enduring popularity, strong brand, and the relatively short amount of time a child is interested in an individual set) make many other toys less conducive to the approach. Other than Barbies and Hot Wheels, few toys are guaranteed to be popular year-in and year-out. And you try taking a kid's favorite doll away from them.
Lachmann thinks educational toys are another good use case for Pley's distribution model. "Parents have continuously changing needs as more kids enter the family, kids grow out of toys and enter new cognitive levels that need advanced stimulations. Our platform is perfect for families that want to try educational toys. Some of them are short-lived (like LEGO) and some of them are ideal to try before you buy."
The relatively genius concept behind Pley offers an important lesson for startups looking to launch "Company X for Y." Everyday we receive pitches for the "Airbnb of this" or the "Uber of that," most of which are pretty lame. Applying a successful company's model to other products can totally work, but there are a ton of conceptual and logistical challenges these companies have to keep in mind. Not only does the product have to be widely-loved, it has to effortlessly fit the distribution model. In both respects, Pley has nailed it.