The biggest enemy of AI toys is the "no-questions-asked return policy within seven days".

Text | Wang Fangyu

Editor | Su Jianxun

AI toy startups are emerging one after another. However, according to the market feedback we've received, the sales situation is not very optimistic.

"For the currently available AI plush toys, the return rate on e - commerce platforms is around 30% - 40%." Several people related to the AI toy industry told Intelligence Emergence that most of these toy products are priced at around 300 - 400 yuan. Meanwhile, product sales rely heavily on platform advertising, and the ROI (Return on Investment) is not high.

Currently, only a very small number of AI toy manufacturers have placed their products in offline stores. The vast majority of consumers can only purchase AI toys through online channels. Among them, a considerable number of consumers choose to return the products after experiencing the novelty.

From the consumers' feedback, problems such as a strong AI flavor in conversations, response delays, complex product interactions, and difficulties in connecting to the Internet are quite prominent. There is still a gap between these toys and the "emotional, characterful, and memory - having playmates" in our imagination.

A senior hardware investor told Intelligence Emergence that it is actually quite difficult to find PMF (Product - Market Fit) in the AI toy startup field, and this has been underestimated by many players.

"Currently, most AI toy startups are still in a loss - making state and rely on financing to maintain operations. The seven - day no - reason return policy on e - commerce platforms may be a disaster for some projects, especially for companies that rushed into the market without clear plans." The investor warned.

With a return rate as high as 40%, it's not easy to make good AI toys

The mainstream AI toys on the market currently have a very simple structure. The main components are a plush toy and a voice - dialogue box. For example, BubblePal launched by Yueran Innovation, iPal AI launched by Yijiayiban, and AI Pleasant Goat launched by Aofei Entertainment.

These voice boxes usually integrate a microphone, a speaker, a networking module, and a main control chip. They interact with people by connecting to the large - language model in the cloud. Some of the boxes are inside the plush toys, while others are placed separately outside, but the final structures are highly similar.

Solution providers represented by Tuya Smart, Espressif Systems, and Fibocom have provided fool - proof solutions, greatly reducing the development threshold. Brands can quickly complete the development and launch of product prototypes.

AI Pleasant Goat launched by Aofei Entertainment                  Image source: Official Weibo of Wandinfinite

Due to the simple structure and production, AI toys have become one of the first AI hardware products to be launched, and it has also become an extremely crowded business.

However, the ideal is full, but the reality is skinny. The 40% return rate of AI toys has poured cold water on many players.

"The seven - day no - reason return policy on e - commerce platforms is actually an amplifier. It encourages consumers to try new product categories or high - priced products, which is beneficial for the promotion of new products. But at the same time, it causes greater harm to manufacturers with sub - standard product experiences." The above - mentioned investor commented to Intelligence Emergence.

Judging from the mainstream AI toys on the market currently, they have generally received some negative feedback from consumers and have many problems to be improved.

For example, most AI toys currently only support the 2.4G WLAN network due to cost considerations, which has led many consumers to complain that the AI toys cannot connect to their home 5G WiFi networks.

Some AI toys are designed to be awakened for dialogue by pressing a button, which greatly tests children's "fine motor skills". Some young children cannot operate them independently.

AI dialogue is the most core function and selling point of AI toys. However, currently, there are problems such as response delays, a strong AI flavor, and low recognition rates due to environmental noise interference in the dialogue of some AI toys. Some users have reported that children have little patience to listen to what the AI toys have to say, not to mention higher - level requirements such as imparting knowledge and providing emotional value.

A toy industry practitioner summarized the requirements for the AI dialogue ability of toys into four aspects: "hear clearly, understand, respond quickly, and consume less power". However, in actual investigations, he found that there are not many AI toy brands that can meet the above four conditions.

Sun Zhaozhi, the founder of Luobo Intelligence, said in a recent interview that he has seen a large number of startups quickly assemble a product and start selling it. He predicts that by this time next year, 90% of AI companion hardware products will go out of business.

Since the first batch of players launched their products, the development of AI toys has been going on for more than a year, but there has not been a particularly successful case in the market so far.

Sun Zhaozhi believes that the AI large - model has been "smart" enough to support AI toy products since the release of ChatGPT 4 (in March 2023). The underlying technology has not been mature for a long time. Coupled with the fact that hardware itself requires a certain development cycle, truly good AI toy products may only appear this year.

The high return rate of AI toys is also directly related to the selling price. The above - mentioned practitioner said that the cost of AI toy products priced at 300 - 400 yuan is generally within 100 yuan, with a relatively high gross profit margin. Therefore, consumers' expectations are also higher.

On the contrary, the return rate of white - label products priced below 100 yuan is relatively lower. "The current experience of many AI plush toys may not support a selling price of 300 - 400 yuan."

Beyond AI voice interaction, looking for new selling points

Due to problems such as the mediocre experience of the products on sale and the high return rate, there are also many bearish voices in the primary market for the AI toy track.

Several hardware investors told Intelligence Emergence that they all feel that the general direction of this track is correct, but the optimal product form has not been found.

In the product definition stage, there is also a key problem that is difficult to solve in the short term - the voice LLM interaction ability of the current AI large - language models does not match the needs of children very well. This is also a major concern for investors when investing in AI toy projects.

"With the current capabilities of large models, it is difficult for AI toy products to attract children to have continuous conversations with AI. Since children's expressions generally have certain grammar problems, their communication with AI large models is inconsistent, and children are likely to lose interest." An investor explained.

The same situation has also occurred in the AI companion software track. According to the monitoring data of Questmobile, the monthly active users and usage time of most AI companion software products, including Xingye and Zhumengdao, have generally entered a downward trend by the end of 2024.

In addition, simple AI voice dialogue has relatively limited appeal to children. The above - mentioned investor pointed out: "Children like diverse interaction methods. A considerable number of children are actually not willing to interact by speaking. They prefer to look at the screen or do other things with their hands."

It is worth mentioning that the ultimate goal of most AI toy startups is not limited to selling hardware products, but to create personalized AI agents. This requires users to continuously interact with AI to feed back and promote the evolution of the model's capabilities.

If the user retention rate is poor and the activity is low, the ultimate goal of creating AI agents will be difficult to achieve, which will affect the future imagination space of AI toy projects.

More and more players have realized the deficiencies of AI toys on the market and are constantly adjusting the product form.

An AI toy manufacturer told Intelligence Emergence that their next - generation new toys will no longer have the voice box placed externally. Instead, it will be placed inside the toy. At the same time, it can achieve direct remote interaction with low power consumption. They also plan to deploy a dedicated server to replace the original way of calling APIs to speed up the response of AI dialogue.

Fuzozo launched by Luobo Intelligence Image source: Official WeChat account of Luobo Intelligence

Entrepreneurs who entered the market later are trying new functions, forms, and positioning, and have launched differentiated AI toy products.

For example, Fuzozo, the first product launched by Luobo Intelligence, is an AI toy in the shape of a ball of fur. It has multi - modal interaction and character evolution capabilities. It is also a plush pendant with social and display attributes.

Ropet of Mengyou Intelligence has directly abandoned the AI dialogue function and only retains animal - like sounds. At the same time, it has added various sensors such as cameras, tactile sensors, and temperature sensors, and can make more diverse feedback forms after perceiving user behavior.

These new and differentiated selling points include but are not limited to multi - modal interaction capabilities, exclusive IPs, and cultivation - style gameplay. Generally, they do not deliberately pursue technological breakthroughs but follow the logic of consumer goods, emphasizing the brand's understanding of design and products.

The consumer groups targeted by the new AI toys are no longer limited to children. The target customers of Fuzozo are teenagers and adult users, while the target users of Ropet are women aged 25 - 40.

The above - mentioned hardware investor said: "Emotional value is an important imagination space for AI toys. After adding features such as multi - modal capabilities and cultivation - style functions, the stickiness and activity of the products will increase to some extent, but having new elements alone cannot impress consumers. The key is to effectively integrate technology and find the combination point with consumers' needs."

Will the second batch of AI toys be affected by the "seven - day no - reason return" policy? Currently, the second batch of new products is being launched one after another. After the actual delivery, it is believed that consumers will soon give an answer.