Frog glory spawned by jailbird

Top-selling toy leaves junk bond king hopping all the way to the bank
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The Independent Online

If you wanted to trust someone with the education of your children, Larry Ellison and Michael Millken might not be the first names that spring to mind. But the aggressive founder of Oracle, as famous for his yachts and jets as his business exploits, and the former junk bond king, who was jailed in the early 1990s for stock manipulation, have emerged as the backers of the fastest-growing educational toy business in the world.

Leapfrog Enterprises, based in San Francisco, now claims to be the third largest toy maker in the US (after Hasbro and Mattel) and is overtaking such stalwarts of the worldwide industry as Lego and Bandai. But it is significantly different from any of them as it was founded to make educational tools and its main product, the LeapPad, is used for everything from teaching toddlers to talk to educating Afghan women on health issues. The Nasdaq-listed Leapfrog expected to have global sales of more than $650m (£390m) this year and has already sold over a million LeapPads in the UK.

But only seven years ago LeapFrog didn't exist. It was born when two different businesses came together. The first was a company founded by Mike Wood, LeapFrog's chief executive, an educationalist who invented something called the Phonics Desk, a touch-tone pad designed to help teach children to talk.

The other was Knowledge Universe, a business funded by Mr Ellison and Mr Millken that would invest in educational tools. The two entre-preneurs were concerned about falling standards in US schools and wanted to do something about it. They hired Tom Kalinske - a toy industry veteran who had worked for Mattel, Matchbox Enterprises and Sega - to run the company.

Mr Kalinske had been approached by Mr Wood a couple of years earlier, when he was at Sega. He found Mr Wood's business suffering the typical cash-flow difficulties of a start-up and Knowledge Universe invested in it, taking an 82 per cent stake.

The duo decided they wanted to take the Phonics Desk and make it more portable and perform a wider range of tasks. So they turned to a couple of software developers who had come up with a device called the Explore Globe, a $500 executive toy that would provide masses of geographical information at the touch of a pointer.

"I asked them whether they could make something like a book that you could just touch and it would speak to you," recalls Mr Kalinske. "They said, 'Oh, that's easy.' "

Thus the LeapPad was born. Initially designed for kids in the four-to-eight age range, it is like a small laptop computer into which different "books" can be installed. These take the form of computer disks, accompanied by physical books, and cover anything from teaching speaking and reading to maths, science, geography, even music. There are now more than 100 titles available.

In the US, the LeapPad has been the number one selling toy three years running, winning a series of awards from the toy industry. LeapFrog launched in the UK in 2000, and has expanded into France, Canada and Mexico. Future expansion plans take in Germany, Latin America, Aus-tralia and South Africa, as well as Asia where a partnership with the Oxford University Press is adapting the LeapPad for teaching English as a foreign language.

A designer version for older kids has been developed, along with a more robust version for toddlers. But two more unusual applications are now catching the eye. In an experiment in Orlando, Florida, specially developed LeapPads were used to assess the reading, writing and maths abilities of five-year-olds starting school. These results were recorded on disk and fed into a teacher's computer so lessons could be tailored for each child to fit in with where they stood - remedial work for some, advanced for others. Mr Kalinske is hoping to sell this system to schools worldwide.

However, the most unusual application came at the US Department of Health, which wanted to educate women in Afghanistan about issues such as hygiene and childbirth to make up for the lack of education under the Taliban. LeapFrog developed a version in all the three main languages spoken in the country.

LeapFrog's phenomenal growth took a step backwards last month when it warned that it might not hit sales targets this Christmas and its shares fell a quarter. But the company is still worth more than $2bn, which may please Mr Ellison and Mr Millken as much as its contribution to children's education.

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