Summary:

Part of an occasional series on startups that are focusing on privacy.

For any internet company, crafting privacy rules can be tricky, in p…

Hilary DeCesare

Part of an occasional series on startups that are focusing on privacy.

For any internet company, crafting privacy rules can be tricky, in part because while there are lots of best practices there aren’t any wide-ranging federal laws about online privacy. But any companies that think they have it tough should consider the challenges facing Everloop, a social network aimed at kids under the age of 13. Everloop has plenty of rules guiding what it can and can’t do — and it turns out that doesn’t necessarily make life any easier.

Social networking is arguably the most popular activity online, period. It’s also slowly changing our expectations around privacy, as it becomes a popular environment for sharing-and sometimes over-sharing.

Everloop aspires to do just about everything that the industry’s dominant player, Facebook, does, but with one big difference: you can’t avoid using the site’s intensive privacy controls. When it comes to building a profitable business, Everloop also has certain handicaps Facebook doesn’t have to deal with. Facebook hands over user data-it’s never quite clear how much-to advertisers, which makes the site very attractive to those marketers. But sites like Everloop, which handle kids’ data, are barred by law from handing over those heaps of data to third parties.

With Facebook founder Mark Zuckerberg recently saying that he’d like to make Facebook available to kids under 13, the debate about the role of social networking in the lives of children is more active than ever. And while the Federal Trade Commission has said that it would need additional legislation to become the nation’s online privacy cop, when it comes to kids, the FTC believes it has all the authority it needs to bust bad guys-consider last month’s settlement with Playdom.

The main law that governs how kids’ information is treated is the Childrens’ Online Privacy Protection Act, or COPPA. There are a variety of requirements, but the main thing Everloop has to do is get parental consent before collecting information from kids under 13. The consent is verified by having the parents provide a credit-card number.

For Everloop, the central challenge is how to create a compelling experience for kids while at same time ensuring that parents have veto power every step of the way, whether that’s approving their kids’ choice of friends or being able to read a text-message that they’re sending. paidContent spoke to Everloop co-founder Hilary DeCesare about the headaches and opportunities that come with running a social-networking site for the 8- to 13-year-old crowd.

The Main Idea: Everloop is trying to make a business out of one big group that isn’t being served by Facebook at all: those under 13. (The legal hurdles that come with trying to serve that crowd online are likely the reason why sites like Facebook and *MySpace* haven’t gone for it to date.) Kids of that age know that their older siblings and friends are on the service, and desperately want to be on themselves, says Everloop CEO Hilary DeCesare.

In some ways, Everloop provides social-networking services not that different than what Facebook and others offer to teenagers and adults: groups to gather and discuss different things (Everloop calls them “loops”), and online games to play. But Everloop is a much more controlled environment. Some of the things that set it apart from general-purpose social-networking site include:

»  Limits on “friending.” Parents have to sign their kids into Everloop; and then they have to make selections about what types of friends their children are allowed to have on Everloop. Not only are the privacy settings not hidden away in the fine print-there’s no avoiding dealing with the privacy settings, because they are presented at registration. Kids naturally want as many online “friends” as they can possibly have, and it can get competitive; but Everloop’s system only allows kids to be friends with people they know in some capacity in the offline world. Everloop regularly sends kids messages about internet safety-simple reminders like the fact that once something is posted online, it can stay there forever. (A reminder that surely some adults need as well.)

»  Controlled communication. Every message sent on Everloop is monitored, by software that looks out for a variety of things. First of all, the site wants to avoid the type of over-sharing that kids naturally engage in, where they might give out personal information like an address. It also looks out for things like curse words, which get a pass on a general social-networking site like Facebook. Everloop’s back-end system stops those kinds of communications before they get posted, and also alerts the site’s employees to keep an eye on young users who keep testing those boundaries.

»  Parental monitoring. Parents can opt their kid in or out of email and chat, and control their friend requests and email options.

With so much monitoring technology, Everloop runs the risk of seeming like a chaperoned party-something that wouldn’t seem very “cool” to the social network’s tween membership. But parents don’t actually appear as the kids’ friends, so they’re not “on” the service in a direct way, as they often are with Facebook. Since kids create their own loops, they feel a sense of empowerment and independence, says DeCesare. “Kids really don’t want to have their parents as friends, they don’t want grandma and grandpa. It changes the dynamic of the post, and who your friend base is.” (One of the most popular “loops” on Everloop is called Facebook versus Everloop, where kids discuss the relative merits of the two services.)

How She Got The Idea For The Company: “I have three kids, and they were all kind of coming together in this ‘tween’ generation,” says Cesare. “They were online, playing games… I felt like I was on top of it and felt like, I know how to be a great parent in this digital age. But all of a sudden you really have to just stand over them, watching them. They wanted to go on sites that I didn’t think were appropriate for them. MySpace (NSDQ: NWS) was very big at that time, and Facebook was starting to make a name.”

Originally DeCesare and her co-founders created a social-networking website just for girls, but later decided to a create a site that would be geared towards both boys and girls. They launched Everloop on Feb. 15, and the company received a $3.1 million round of seed funding earlier this month. Everloop doesn’t disclose its user numbers, but according to Compete,com, it still has a tiny audience — about 23,000 unique visitors in April, up from about 7,000 in December. Before starting Everloop, DeCesare co-founded White Space Ink, a management-consulting firm specializing in tech startups. Prior to that she worked at Oracle for 10 years.

The Competition: There are other sites geared towards the same age group, including Imbee, GiantHello, and whatswhat.me. Everloop hopes to carve out a unique place for itself by offering comprehensive social networking and social games on top of robust parental monitoring tools. Other sites geared towards kids include Togetherville and Club Penguin, but those are geared towards younger kids.

Of course, Facebook itself could enter this market one day, where it would immediately be seen as the 800-pound gorilla. But that development is probably still far off. The site has enough privacy controversies to deal with without having young kids on the site.

What’s Next: Everloop just launched what it is touting as the first COPPA-compliant SMS service; it will let kids on Everloop update their profiles by text message, while employing the same technology as the rest of Everloop, blocking profanity or other inappropriate content.

How Everloop Makes Money: Everloop is free to use, although creating an account requires a $1 charge to the parent’s credit card as a method of verifying parental consent. There’s a system of internal currency called “Evercredits,” which can be earned through accomplishing different tasks, or purchased. The currency can be used to buy virtual goods like stickers and “goobs,” a kind of virtual prank that kids can pull on their friends.

Another area DeCesare sees as a possible revenue generator is the loops (online discussion groups) that are sponsored by brands-like a book or video game company that wants to get more involved with a discussion among its young fans. They have one such deal so far, in which a book-related loop is done in a partnership with educational publisher Simon & Schuster (NYSE: CBS). Right now, there are major legal obstacles for brands that want to interact with tweens online, because they’re barred from collecting any information from children unless they comply with COPPA and get parental consent.

“We’re socializing kids to brands they really like, but not encouraging them to be commercialized,” says DeCesare.

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