In the rapidly evolving landscape of consumer goods, few sectors are undergoing transformation as profound as the toy industry. Once defined by static figurines and mechanical playsets, the market is now being reshaped by two powerful forces: artificial intelligence (AI) and augmented reality (AR). These technologies are revolutionizing not only how children play, but also how toys are designed, manufactured, marketed, and distributed.
For B2B stakeholders—from manufacturers and suppliers to distributors and retailers—understanding the implications of AI and AR is no longer optional. It’s essential.
From Passive Play to Intelligent Interaction
Traditional toys were static, limited to the imagination of the child. Today, AI-powered toys are capable of learning, adapting, and responding to a child’s behavior in real time.
Take ROYBI Robot, for example—an educational AI toy offering over 500 interactive lessons in 70 categories and multiple languages. It uses voice recognition and machine learning to tailor content to a child’s developmental stage. Similarly, Miko Mini engages children in dynamic conversations that build critical thinking and emotional intelligence.
According to Future Market Insights, the global smart/AI toy market is projected to grow from USD 2.2 billion in 2024 to USD 8.4 billion by 2034, at a CAGR of 14.2%. This surge is driven by demand for personalized learning tools and interactive play experiences.
AR: Bridging Physical and Digital Worlds
While AI toys focus on intelligence and adaptability, AR toys bring digital content into the physical world. Using smartphones or tablets, children can interact with virtual characters and environments layered over real-world objects.
LEGO’s Hidden Side series allows children to build physical models and then use an app to unlock ghost-hunting adventures in AR. Merge Cube lets kids hold a foam cube and explore anatomy, astronomy, and geology through immersive simulations.
AR toys are particularly effective in enhancing STEM education. According to TechAnnouncer, 70% of children reported higher engagement when using AR toys compared to traditional ones.
Design and Manufacturing: A Digital Renaissance
AI and AR are not just changing the end product—they’re revolutionizing the design and manufacturing process itself.
Toy giant Mattel partnered with OpenAI to integrate generative AI into its design workflows. This collaboration enables Mattel’s teams to brainstorm toy concepts, generate virtual prototypes, and personalize play experiences faster than ever. According to Fortune, Mattel’s goal is to “augment human creativity, not replace it,” using AI to simulate ideation and streamline development timelines.
Platforms like Unity and Vuforia SDK are empowering mid-sized firms to create AR-enabled toys without massive R&D budgets.
Retail and Marketing: The New Frontier
AI and AR are transforming how toys are marketed and sold. Retailers are using AR kiosks to let customers preview toys in action before purchase. LEGO, Disney, and Hasbro have adopted AR-based marketing strategies to boost engagement.
Meanwhile, AI is being used to analyze consumer behavior and optimize inventory. Smart analytics platforms can predict which toys will trend based on social media chatter, search data, and historical sales. This allows distributors to make data-driven decisions and reduce overstock risks.
Safety, Ethics, and Regulation
With innovation comes responsibility. AI toys collect data—sometimes sensitive data—from children. This raises concerns about privacy, consent, and algorithmic bias.
Regulators in the EU and U.S. are drafting new guidelines for AI-powered children’s products. Features like emotion recognition, content filters, and algorithmic transparency are becoming standard.
Manufacturers must also consider the psychological impact of immersive play. The “rabbit hole effect,” where children become overly attached to virtual companions, is a growing concern among child psychologists.
Market Outlook: A $77 Billion Opportunity
According to Market.us, the global smart toy market is expected to reach USD 77.8 billion by 2033, up from USD 15.5 billion in 2023, with a CAGR of 17.5%. This includes AI, AR, and IoT-enabled toys across categories such as educational robots, interactive games, and smart plush companions.
North America currently leads the market, but China’s smart toy sector is growing at a CAGR of 14.7%, driven by government support for AI innovation. Australia is another emerging hotspot, with a projected CAGR of 17.7%.
B2B Implications: What You Need to Know
For business leaders in the toy industry, the rise of AI and AR presents both opportunities and challenges:
- Product Development: Invest in AI and AR capabilities to stay competitive.
- Supply Chain: Prepare for shorter design cycles and more frequent product updates.
- Retail Strategy: Incorporate AR demos and AI-driven analytics into your sales model.
- Compliance: Stay ahead of evolving regulations around data privacy and child safety.
- Partnerships: Collaborate with tech firms to access cutting-edge tools and platforms.
Conclusion: The Future Is Playable
AI and AR are not just buzzwords—they’re the building blocks of the next generation of toys. For B2B stakeholders, embracing these technologies means more than staying relevant. It means shaping the future of play.
As children grow up in a world where digital and physical realities coexist, the toy industry must evolve accordingly. Those who adapt will thrive. Those who don’t may find themselves left behind in a sandbox of obsolescence.
