Lego Growth Opportunities

Although Legoland was a lot of fun, I don’t expect it to be highly profitable to The Lego Group. As an amusement park, there is little in the rides to distinguish Legoland. The Lego models on display are, of course, amazing, but many are in a state of disrepair, and really belong in a museum environment instead of an outdoor amusement park. Finally, the company has done little to drive sales of bricks through Legoland. We found almost no sets in Legoland that we couldn’t get at the local Target, and whatever was unique (costumes, stuffed toys) had little to do with construction toys.

The best concept I saw was: at certain rides, an area is reserved for children to play freely with bricks while parents wait in line. This is a huge convenience feature, because lines for popular rides can get very long, and children can get very impatient without distraction. What they really should do is offer to sell the bricks that the children use in their models, on the spot. No child wants to spend an hour on a model and then have it be deconstructed for strangers to re-use.

However, The Lego Group is entering into two areas that I would expect to promise great growth opportunities.

The first is Bionicle. Lego struggled for many years trying to build a franchise around its core construction toys, starting with the Town, Space, Castle, and Expert Systems. They were late to try movie tie-ins, and these were never a hit as far as I could tell. Finally, The Lego Group appear to have taken cues from the Japanese with Bionicle, which are morphing robots you can collect, construct, and combine. The Bionicle brand is almost entirely distinct from Lego, which is probably appropriate considering the latter’s association with simple construction blocks. However, every boy between the ages of four and nine seems obsessed with possessing them. There are three Bionicle movies out, which is sure to drive the Bionicle frenzy further.

Another brilliant concept is the latest collaboration between atoms and bits, the Lego Digital Designer. It lets you design virtual models using the full range of bricks and then upload and share the models. Most importantly, the company will sell you the exact set of bricks to build your model.

This will be difficult for a mature company to pull off, I think, because its value proposition is so radically different from that of the traditional business. However, it allows The Lego Group to focus on its core competency of high-quality construction toys. Indeed, Lego Digital Designer is a supply chain manager’s dream, allowing the factory’s resources to be optimized based on nearly perfect knowledge of demand.

LDD is all about personalizing and sharing the joy of the construction toy. I believe it has the potential to be as pervasive a phenomenon as blogging or iPod+iTunes, and The Lego Group stands to make a huge amount of money. The company must continue to improve the modeling software, and deliver a high-quality service.

(Side note: The Lego Group faced some competition from the high end from Fischertechnik, whose construction kits I first saw in the Mechanical Engineering department of a local university.)

Tags: Business, Technical

Updated at: 2 October 2005 7:10 PM