LeapFrog 2011 Annual Report Download - page 14

LeapFrog products that will further develop their children’s skills. The Learning Path is a key
component of our strategy to build direct relationships with parents, keeping them engaged with us
as their children grow.
We believe that the Learning Path adds value to all of our connected products and expands our
relationships with existing customers by allowing us to provide personalized product
recommendations and other relevant information. Many of our products, including the LeapPad,
Leapster Explorer, Leapster 2, Tag and Tag Junior multimedia learning platforms, and My Pal Scout,
My Pal Violet and My Own Leaptop are designed to connect to the Learning Path.
•App Center: During 2011, we launched our App Center, through which customers may directly
purchase downloadable digital content with a personal credit card, or with App Center cards sold at
retailers or our online store. Our App Center content includes over 100 games, eBooks, flashcards
and activities that feature LeapFrog owned characters such as Mr. Pencil and Pet Pals, as well as
popular licensed characters and content such as Cars 2 and Scooby Doo. In addition, we began
distributing third party video content through the App Center near the end of 2011, including
popular titles such as Dora the Explorer, SpongeBob Squarepants and Thomas the Tank Engine. Our
App Center provides content for topics such as creativity through art, music and imaginative play,
school basics through mathematics, reading and writing, geography through world, country and
culture, life skills, and sciences, among others. App Center content is exclusively compatible with
LeapFrog multimedia learning platforms.
For information on sales of product lines that constituted 10% or more of total net sales by segment,
see Note 20 — ‘‘Segment Reporting’’ in our Consolidated Financial Statements included in this Annual
Report on Form 10-K.
For more information about the risks associated with our new products, see Part I, Item 1A. — Risk
Factors — ‘‘Our business depends on our ability to correctly predict highly changeable consumer preferences
and toy trends’’ and ‘‘Our growing strategic focus on online products and services may not succeed, and may
limit the adoption of our products in some international markets’’ in this Annual Report on Form 10-K. All
references to risk factors throughout this Annual Report on Form 10-K are to risk factors contained herein.
Competition
Our multimedia platform products compete in the electronic learning aids category of the toy industry;
however, our product strategy means that we increasingly compete in a broader arena with a variety of
electronic products including tablet computers, eBook readers and mobile devices. Our multimedia platforms,
such as our LeapPad learning tablet and Leapster Explorer platform, compete against handheld gaming
platforms from Sony and Nintendo and against mobile devices such as Apple’s iPhone, iTouch and iPad and
Android-based phones and tablets. Our learning toys compete specifically in the preschool toy category of the
toy industry in the U.S. and selected international markets, in which competition is significant.
We believe the principal areas of competition in our industry are learning content, performance, features,
quality, brand recognition and price. We believe our learning toys, multimedia learning platforms, and the
related content, online capabilities, and other content compete favorably on these bases. Our products are
sometimes viewed by consumers as premium goods that are more expensive than our competitors’ products.
We believe the LeapFrog brand is recognized for comparably higher quality educational products, enabling us
to compare favorably with many of our current competitors despite premium pricing. In addition, we believe
our learning toy product category is an important competitive differentiator because it introduces parents to the
LeapFrog brand and provides an entry point to the Learning Path, and our associated strategy to build direct
relationships with customers.
We face the challenge of competitors introducing similar products or functionality soon after we introduce our
new products or product lines, and these competitors may be able to offer their products at lower prices using
cheaper manufacturing processes or materials, more limited functionality, or reduced safety features. In
addition, many of our direct, indirect and potential competitors have significantly longer operating histories,
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