Osmo has been a prolific producer of augmented reality games for iPads and iPhones in its short history. And the company is revealing today that those games have reached a million iPads, which is becoming a primary educational device for young kids.

Osmo started with a clever invention, a mirror that hangs over an iPad camera and points it in front of the iPad. If you throw objects in front of it, the machine vision software will recognize it. This allowed Osmo to create games with physical objects, like Hot Wheels cars or block letters. The result has been a unique set of products that combine digital games and physical toys.

Pramod Sharma, cofounder of Osmo, started the company with Jerome Scholler. As parents, they were worried about how much time kids were spending on screens such as TVs and mobile phones. Their products are aimed at adapting to this modern environment and helping kids learn in a social way with real-world toys. Thousands of schools and educators now use their products. The traction has enabled the company to raise multiple rounds of funding (totaling $38.5 million) and expand to the iPhone.

Now the Palo Alto, California company hopes to make an even bigger splash with partners such as Sesame Street and others. I sat down with Sharma for an exclusive interview. Here’s an edited transcript of our chat.

Above: Pramod Sharma is cofounder and CEO of Osmo.

Image Credit: Dean Takahashi

Pramod Sharma: We’re clearly popular with early adopters, but now we’re going from early adopters to a mass brand. We’re in a transition phase this year and late last year, in terms of the messaging and other things, becoming a mass brand. It’s an interesting time. Four or five years ago, when the iPhone and iPad became very prevalent in children’s lives, there was a big question around what could happen. Now that’s been answered. You can deliver some interesting stuff. Now the main question is, how do you build an amazing business out of it? We’re going from startup to early adopter to building a real business in the long term. That’s what’s happening at Osmo.

We’ve built up school traction and home traction. We’ve proven that we can build very engaging products. If you look at traction from one Christmas to the next, our numbers are very healthy. We know that kids like what we do intuitively. Schools, teachers, kids love it. Now it’s really about how we can scale that.

One of the major shifts, we’re going from first party content to really trying to work with partners. What we learned last year, especially after we launched Hot Wheels, is that there’s so much other content that exists in the market that can be pulled into the Osmo platform. This year one big thing we’re working on is essentially licensing our technology to partners and letting them build products around it. That’s going to be a big part of how we can scale as a company.

First party has proven that we can lots of different things. We can do Hot Wheels. We can do coding. We can do drawing. We can do a large variety of products. Now I think partners will be a big part of our strategy going forward. Partners, mass brand, sustainability, that’s how we’ll build the next generation. My job is also changing from a focus solely on innovation. Now our goal is to innovate, but to also let other people be part of that innovation, as well as making sure that innovation is sustainable in the long run.

GamesBeat: What’s the significance of the million iPads?

Sharma: There are two things. One, we’re able to create demand in the market. We can affect excitement in the market, the word of mouth. This goes to the point where we can have a large installed base. The bar is very high to get someone to spend $100-200 to get a product into their home. But we’re making that transition to where we’re no longer an early adopter product, given the price point. If we couldn’t get to that scale, that means we’re not ready for scaling big yet.

A lot of the traction we’ve received in schools and homes is very organic. Schools are definitely very organic. It proves our product-market fit very clearly. Now, if we go from two salespeople to 10 salespeople, we know we’re not just wasting a lot of money. We’re meeting a demand that actually exists in the market and the company will grow faster.

So far we’ve been very careful not to push too hard on sales and marketing. It’s fragile. Fundamentally, we’re creating a new medium, and people don’t understand it unless they see it. The medium is so different that it’s not obvious what content will be attractive. Those are two problems we want to make sure we solve. Our installed base and engagement, there’s proof we’ve achieved that. Now it’s about going mass.

We have also learned that many things don’t work out as planned. For example, I would say the first coding product , Osmo Coding, very engaging and easy for people to understand, but the second was not as easy for people to understand. Coding plus music wasn’t very obvious for people to understand. Our Osmo Monster turned out to be a very engaging product, and Osmo Pizza Company is one of our best products right now. We’ve seen this intersection of play and learning work.

If you look at all the content we’ve built, playful learning around classic concepts is a sweet spot. Running a shop, as a form of gameplay, is a classic concept. Kids do it on their own these days, pretending to be a shop owner. Working in the concept of learning and playing together works really well. We’ve had some hits and misses. Eventually I think we’ve come to understand the kind of content that works on our platform.

Above: Osmo Coding is one of the most popular Osmo games.

Image Credit: Osmo

GamesBeat: What were the most successful products so far, then?

Sharma: If I had to rank them, the two that come to mind are Coding Awbie and Pizza Company. Those were very successful for us. Osmo Monster hasn’t been the most financially successful, but it’s been very successful when it comes to engagement. The price point wasn’t optimized for the product, but the engagement angle is very important. It’s been very successful there.

GamesBeat: Does that tell you something about what people want the most, then?

Sharma: The number one thing, is this thing going to engage my child? That’s the first question parents ask, that all of us ask. The second question, is it good for them? Is it healthy learning? And the third one, is it a good value for money? It’s interesting that value for money is the third one. If it’s not good for a child and it isn’t any fun, it doesn’t matter whether it’s expensive or cheap. But if it’s fun and exciting and good for kids, then pricing becomes important.

The way we price our items is going to change over time. We realize that parents are willing to pay a premium for a good quality product, but to scale we need to also offer games that are not as high in price as we’re doing right now. We’re going to be lowering our price points.

GamesBeat: What sort of level are you going to target?

Sharma: Right now, the system, the first thing you buy, is $100, and the add-ons have been $40-60. We want to get to a point where the add-ons are in the $20-40 range. We want to have a lot of content, and some content doesn’t need to be $60. It’ll be more like $20-30. We want to make it a very casual purchase, to get new content on the platform. Right now that bar is pretty high. If you’re buying a $50 product, you think harder about it. Again, we want new price points that are more mass market.

GamesBeat: It looked like the Hot Wheels product was a good partnership. It seemed a lot more in the fun space than the educational space.

Sharma: That’s true. It feels fun. It has a lot of strategy and educational angles, but they’re not very obvious, because of the Hot Wheels brand. We’re embracing that. Fun is a good thing. What we’ve learned is that as long as you have that hands-on attraction, in some sense that slows kids down and makes them think. That’s the learning angle that our audience understands.

I think some work still needs to be done as far as communicating to parents about a broader definition of learning. If you don’t have that broader definition then it’s not that obvious. I would say it’s important for every product to have a learning angle. There should be something about it, some skill identified. That’s our goal.

Even on the partner side—as I said, one thing we’re going to focus on more and more is third parties building content for Osmo. There are many brands and pieces of content that aren’t done by us, but that are very popular and powerful. We think Osmo can augment many of those.

GamesBeat: How open do you want your platform to be that way? Will you be charging licensing fees? Does anybody have the chance to work on top of the Osmo platform?

Sharma: In the beginning we’re going to be careful. We want to be selective, with very few partners, so that we can communicate the power of the platform and how to get everything built. Two years from today, I expect we’ll have a much more open platform. In the next two years our goal is to have a select group of companies building products. We’re working closely with them.

How closely is going to be a function of who’s marketing and distributing the product. With a small company, we might be marketing and distributing the product personally, but bigger companies might handle that themselves. Based on that distribution question, we’ll decide on the right deals. It’s case by case right now. In two years I expect we’ll become more open.

Above: Osmo Monster lets kids create their own characters.

Image Credit: Osmo

GamesBeat: What about the frequency of releases?

Sharma: Right now that frequency has been two to three titles each year. That will stay the same this year, but starting next year, we want to triple that. We want to have a lot more launches, and we want to alternate with other properties, not just our own. We’re definitely going to increase that frequency.

One thing we’ve learned is that if you’re not careful in designing a system and a platform, you can create a lot of noise. Our goal last year and this year has been to be very clear to parents about what is the platform, what are the entry points, and where to find new content. This year we’ve definitely nailed that down. We can start adding more content without creating confusion.

GamesBeat: Is the Sesame Street product still coming this year?

Sharma: We’re still at work. We haven’t said anything publicly yet. We’re working very closely with two partners right now. I can’t really talk about the details yet. But you’ll see some really interesting products. In Q3 and Q4 we have some really interesting launches.

GamesBeat: The tablet category, how do you feel about that overall? In some ways it’s slowed.

Sharma: We’ve seen from day one that the tablet is a perfect device for a young child. That’s not going anywhere. If you look at the number of kids using tablets, it’s only going up. What’s likely to happen is that phones will be more relevant for mobile use cases, on the go, and tablets will have more interest for families and experiences in the home. Kids play largely at home. That’s not likely to change any time soon.

We also launched Osmo for the iPhone last year. We’re experimenting to see if other devices can become popular. What we do know is, tech is always going to be relevant in kids’ lives. That’s a one-way street as far as we can see. All of us want more interactivity. There will always be a device – phone, tablet, goggles, tables, you name it. We want to be independent of the devices, in some sense.

Fundamentally, our value is in the hands-on experience. The question I always ask is, is the hands-on experience able to go somewhere? We have seen that in kids’ development, hands-on is not going anywhere. It’s so, so important – from the parent angle, of course, but kids love hands-on. Even in the adult category, if you look at board games, card games, that’s growing. Players in their 20s and 30s are spending more time with hands-on activities. That’s still very relevant.

One thing I’ve learned that to me is very profound: it’s not that kids like screens, or that anybody likes screens. We like interactivity. We want things to be interactive. Whether it’s a screen or a mouse or a keyboard or a pen and paper game or Legos, if it’s interactive, it’s fun, and we want that. We want more interaction in our lives. Osmo is taking that interactivity to a new level. That trend is only going in one direction, especially because of the design we have.