The idea that a child’s toy listens to a family 24/7 is disturbing. While smart toys can be useful educational tools for children, they also pose privacy risks that toy makers and privacy experts are still learning to balance.

Smart toys made with artificial intelligence, such as machine learning capabilities, can collect different forms of data from children. Whether an AI-enabled toy personalizes lessons based on how quickly your child learns shapes, or a doll learns your kid’s favorite ice cream flavor, toy experts expect it to be. that more of these toys are introduced in the coming years, even though high selling prices have so far limited consumer interest.

“As an AI toy begins to teach the child, it means that the toy in the next 15 years will be smarter than the parent and will gather all this data that could one day hurt the child,” said, singer-songwriter. and Chairman of the World Economic Forum’s Smart Toy Awards Selection Committee, speaking recently at CNBC’s Evolve World Summit.

Forms of smart play

Concerns about AI toys vary depending on the type of toy and the data collection capabilities it has.

In general, smart toys learn from children and provide an adaptive and responsive play experience. However, there are two major categories of smart toys that fit into this framework. First of all, intelligent companions, who learn from the child and interact with him during activities. Second, programmable toys designed with machine learning that move and perform tasks to teach children educational skills.

An example of the latter is ROYBI Robot, which creates personalized lessons to teach children educational subjects like science, languages ​​and math. It has a camera and microphone to detect children’s facial and emotional reactions, but all information collected is monitored through the account of a parent or guardian.

While ROYBI Robot is a smart toy that handles data collection ethically and responsibly, according to Seth Bergeson, a researcher in artificial intelligence and machine learning at the World Economic Forum, there are other smart toys that have put the privacy of data at risk. personal data and data.

Warning toy stories

Between 2014 and 2017, a toy company named Genesis Toys sold My friend Cayla marketed as an interactive doll that could listen and respond to children. The problem: It recorded her conversations with the children, as well as conversations with parents, siblings and anyone else around the doll, Bergeson said, and was able to share the data with third-party companies.

“This is a really embarrassing example and a caveat for a toy,” Bergeson said. “There were several FTC [Federal Trade Commission] US complaints The German nation just banned the toy completely and called it a covert spy device, and ordered families to destroy the toy if they had it at home.

Another example, better known in the United States for its privacy game: Hello Barbie from Mattel.

Similar to My Friend Cayla, Hello Barbie was designed to talk with children, gather information about them, and create a profile of the child in order to develop better conversations in the future. For example, if a child told Hello Barbie about their favorite ice cream flavor or the sports they play, Barbie created a child character.

“Child protection laws have serious consequences,” said Stephanie Wissink, senior research analyst and general manager of consumer practice at Jefferies. “When you start to create a technological profile for a child, you cross a line of confidentiality.”

Mattel’s Hello Barbie was released in 2015 even though concerns preceded the launch, but it encountered a social media campaign called “#HellnoBarbie” to demonstrate consumer opposition to the doll. Hello Barbie is no longer manufactured but can be found used on eBay.

Mattel did not respond to a request for comment from CNBC.

Children and privacy laws

There are rules in the United States to protect a child’s privacy regarding Internet data.

According to the Federal Trade Commission, the Children’s Online Privacy Protection Act (COPPA) protects children 13 and under and their personal information on the Internet from seizure without express parental approval.

“The purpose of COPPA is to control systems, to limit and restrict the attempt to collect data on children,” said Alan Butler, executive director of the Electronic Privacy Information Center (EPIC), a research center of public interest focused on privacy issues.

EPIC, along with other parties, filed a complaint with the FTC in 2016 regarding Genesis Toys and its My Friend Cayla dolls as well as another product, iQue intelligent robots. EPIC said these toys collect, use and disclose recordings of children’s voices without parental consent, in direct violation of COPPA, according to the complaint report filed.

Artificial intelligence is extremely important to society, whether we like it or not. It will become more and more important to play.

Richard Gottlieb, CEO of Global Toy Experts

A year after the report, these toys were still available on Amazon but were withdrawn from other retailers like Walmart, Target and Toys “R” Us. None of these toys are now sold at any US retailer, at the except for used toy markets like eBay. According to Ailo Ravna, senior policy adviser at the Norwegian Consumers Council, it is not clear if Genesis Toys is operational today. Ravna said the My Friend Cayla dolls and iQue robots do not appear to be sold in Europe, and the company’s website has not been updated for years.

“For any new device entering the market, if it is not COPPA compliant, it is breaking the law,” Butler said. “There are a lot of toys on the market and you have to make sure they are all COPPA compliant.”

Toys don’t have to be screened before they’re on the market, and it can become more difficult when the toys are made outside of the United States, according to Butler, who added that while the FTC is enough aggressively to enforce COPPA, there must be a better system in place to regulate toys and identify problems before they are available for sale.

High prices and variable demand

Price may prove to be a bigger barrier to consumer adoption of smart toys than privacy concerns, at this time.

The majority of toys sold to consumers are priced as low as $ 10 to $ 15, according to Wissink, and the integration of artificial intelligence can increase the cost of toys by as much as $ 60 to $ 75, which is too expensive. for many parents. Until smart toys become more affordable, the prevalence of these toys will remain relatively low, she said.

Market demand for smart toys has been weak.

Between May 2020 and May 2021, the programmable smart toy market, in particular, accounted for 0.1% of the entire toy industry, according to Juli Lennett, US toy industry advisor at NPD Group, and sales were about half of the period a year earlier. .

There were spikes in sales when a specific toy hit, such as in 2018, when Anki, a robotics and artificial intelligence start-up, sold a popular toy named Cozmo, similar to ROYBI Robot, designed to use programmable features to enhance learning.

According to NPD, Anki had $ 24 million in annual revenue from Cozmo, but Lenett said the company went bankrupt in 2019, potentially due to high manufacturing costs.

Cozmo was acquired by Digital Dream Labs, where it is in the process of being re-released in the coming months, as an AI-powered smart companion, according to Matthew Eversole, chief marketing officer of Digital Dream Labs.

“Customer demand for these devices is still high today,” Eversole said.

Lennett is more cautious about demand.

“Every once in a while you will see something happen in the market and cause some crazy trends, and a toy can last in the market for two or three years on average and then go away,” she said.

The future of AI in the children’s world

“Parents tend to like the simple things. If this is something that doesn’t really increase the play value of the toy and adds cost, then it won’t be successful, ”said Gerrick Johnson, Equity Research Analyst, BMO Capital Markets after the toy companies like Mattel, Hasbro, which sold an R2-D2 smart droid and then ditched it, and Funko, which currently doesn’t sell any smart toys.

But the success of AI toys, like other technological advancements, may be inevitable in the years to come.

“I think none of us have any doubts that the world these children will live in will be a world enhanced by artificial intelligence,” said Richard Gottlieb, CEO of Global Toy Experts, an industry consultancy firm. of the toy. .

Gottlieb said the introduction of AI toys is similar to when kids first discovered books. Books are now vital forms of literacy and education, but parents were initially concerned about access to uncensored information.

“Artificial intelligence is extremely important to society whether we like it or not,” Gottlieb said. “It’s going to become more and more important to play.”