Calling All Kids

By Wendy Cole / Chicago

Rachel, my 10-year-old daughter, didn't think twice when asked to be one of 3,000 beta testers for Kajeet, a new mobile-phone service for kids. "Oh, my god, yes!" she said. She made her first call from a local Italian restaurant, blithely disregarding wireless etiquette. "Guess what?" she said to her grandparents. "I have my own cell phone." Their reaction? "Why do you need that?"

Kajeet, the Bethesda, Md., start-up that provided Rachel with her Nokia 6165i, has developed its new service in large part with input from kids like her. "We think kids are smart," said Kajeet's co-founder and CEO Daniel Neal. "Our entire philosophy springs from this one core idea. We want our kids to be agile with technology, and we want to help them respond with confidence to what's happening in their world." But it will have to sell the idea that kids can handle it to the real potential buyers: their skeptical parents (and grandparents).

While the major wireless carriers raked in $100 billion last year, the market for phone service aimed at kids ages 8 to 12 is minuscule, with a wireless-market penetration of only about 25%. That's partly by design. "They want to avoid looking like Joe Camel and preying on children," says Roger Entner, a Boston-based wireless analyst with the Ovum research firm. "So they haven't done much more in this area other than create family plans."

Kajeet and others see a market in driving wireless tech to the SpongeBob set. Hatched in 2003, Kajeet has spent the past few years doing homework on what kids want and how to offer it safely and affordably. Early on, Neal and his two partners, all dads with young kids, decided to keep things simple. There would be no contracts or cancellation fees, just a pay-as-you-go service through the Sprint Nextel network on a handful of phones priced from $40 to $100.

Through Kajeet's "walleting" system, a parent deposits money into an account that allows kids to buy whatever they want from Kajeet--no less than nine SpongeBob ringtones ($2 each), celebrity wallpaper ($1.50), family friendly games like Sudoku ($5), text messaging (5-c- each) and, yes, phone calls (10-c- a minute). If a kid's Kajeet allowance is $20 a month and he blows it all on Beyonce wallpaper, he won't be able to text or phone anyone--except his parents and 911, which are never blocked. "It helps kids learn about budgeting and responsibility without locking families into long-term commitments," Neal says. The proposal has intrigued some adult investors, who have put up $27 million in venture financing. The company expects to sign 175,000 customers in the first year.

Kajeet isn't first to market. Firefly Mobile has signed up about 200,000 preteen customers over the past two years, touting its parental controls and simple design: the five-button Firefly handset lacks even a number pad. Disney launched its mobile service last year, featuring a child-tracking function that works only on the Disney-branded handsets. Kajeet, on the other hand, thinks kids can handle a grownup phone.

At a suburban Baltimore research facility recently, a group of beta testers seemed to agree. "It makes me feel independent, and my friends can find me anytime," said Derrick, 12. Nick, 11, gleefully set his phone's calendar to remind him of his birthday until he turns 89. Not surprisingly, they were less thrilled with a feature that allows parents, using a website, to limit kids' calling hours or who can call them.

Kajeet's success may well have little to do with phone calls. What the company is really selling is a multimedia networking platform in an edgy package. In other words, a toy. A few weeks into my daughter's beta testing, she roamed the house barking into her handset, "Code Red Alert. Code Red Alert." The phone wasn't even switched on. "I'm just playing," she said. "None of my friends have cell phones, so I don't actually have anyone to call." If Kajeet's homework pays off, that won't be the case for much longer.