Santa brought my kids Webkinz for Christmas.
It was on the top of their Christmas list. (DDR was the next in line). I thought Webkinz was just a cheap stuffed animal but boy was I wrong.
It's basically Second Life for young kids. My 5 and 7 year old are completely hooked.
With each stuffed animal comes a unique code that kids use to register on Webkinz World's site. In Webkinz World "members" create a profile, take care of their virtual pet, play games (single player or with other kids) and communicate with other owners. There is virtual money called Kinzcash which is used for shopping (pet clothes, room decorations, pet toys, etc), buying food or services at the clinic. Sophia is amassing a ton of Kinzcash. Ellie is spending it as fast as she gets it.
Last night Sophia played some kid in checkers and they were IMing each other with canned messages like "hurry up" and "get ready to rock" (they don't allow customized messages). It's very easy to use and built with Flash. My kids got it right away.
The virtual world expires after a year as an incentive to buy another Webkinz stuffed animal. I think they are missing a big opportunity with the current business model.
But they nailed the user experience and the target market.