Second Life Lessons

Real-world businesses face the costs and learn the benefits of setting up shop in the online universe

by Reena Jana and Aili McConnon

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Launching a digital version of a car within an online universe where most residents fly or teleport from place to place can be a challenge, even for an innovative company such as Toyota (TM). The Japanese carmaker initially planned to give away virtual versions of its hip, boxy Scions within the 3D universe of Second Life, the growing Web-based world with more than 1 million "residents," who collectively spend $7 million a month on virtual land, products, and services (see BusinessWeek.com, 5/1/06, "My Virtual Life").

But Toyota's marketing execs soon realized their tactic of freebie autos could easily alienate indigenous Second Life car vendors and consumers. Toyota didn't want to seem out of place among more flamboyant automobiles that have wings or other engineering details that, well, just wouldn't fly in the real world.

So to respect the Second Life economy and cast the company as hip, Toyota will sell digital, customizable doppelgängers of its entry-level Scions for $2, the going rate for entry-level cars designed and sold by Second Life residents, starting in early November. For a relatively small investment—the Scion campaign was designed by San Francisco-based firm Millions of Us, which typically charges in the low six figures for Second Life projects—Toyota will be able to position itself online as a pop culture-savvy brand.

There's My Audience

It's a move that its competitors are soon to match: General Motors (GM) and Nissan (NSANY) will also hawk pixellated customizable cars. All three hope to create an aftermarket for the modified vehicles and use virtual customer feedback for real product development.

Opening a virtual office, selling and market-testing digital replicas of products, and asking employees to create 3D online personas or "avatars" are quickly becoming action items at companies seeking to brand themselves as hip, or simply wanting to reach Second Life users, nearly half of whom are female and whose median age is 32.

This has made the online world a hot advertising outlet for brands ranging from Warner Bros. (TWX) to Adidas (ADDYY) to Microsoft (MSFT). While advertising's traditional media seem to be losing eyeballs, the population of Second Life is growing at 35% per month and its economy at 15% per month. Or in terms of annual growth rates, the population is growing at 978% and the economy at 270% to date for 2006.

Big Virtual Business

And revenues at the companies helping advertisers set up shop in Second Life are growing proportionally. The most popular four—Washington-based Electric Sheep Co., New York's Aimee Weber Studio, Sausalito (Calif.)-based Millions of Us, and London's Rivers Run Red—are quickly establishing the standard costs and services. They're also illustrating the market potential for companies that specialize in 3D graphics and programmers of scripted, interactive gadgets.

All four companies have grown exponentially over the past year. The largest and oldest, Rivers Run Red, has been designing for Second Life since the world launched in 2003 and has worked with clients such as Adidas, Reebok, and Audi. Today, the company has 17 real-world clients with products or a presence within Second Life, and charges between $5,000 and $1 million per campaign.