Some 165,000 people roam the online virtual world Second Life through their "avatars," or onscreen graphic characters. But it's a good bet most of them don't realize that in their midst is an avatar controlled by the chief executive of Amazon.com. (AMZN
). Now, as part of a new $11 million funding of Second Life's creator, San Francisco-based Linden Lab, Amazon founder and CEO Jeffrey P. Bezos is also an investor in this growing online phenomenon.
On Mar. 28, the 7-year-old company scored capital from its current investors -- Benchmark Capital, Catamount Ventures, the Omidyar Network, and software legend Mitch Kapor -- and new backers Globespan Capital Partners, as well as Bezos. That's on top of an $8 million round of financing in October, 2004. Bezos isn't talking about why he invested, but Linden Lab CEO Philip Rosedale notes, "He just thinks it's a cool thing."
POPULATION EXPLOSION. It's easy to see why Second Life has captured the attention of Bezos and other investors. Second Life is a three-dimensional digital world in which players can do just about anything: Create an avatar that acts as an online alter-ego, fly around landscapes dotted with dance clubs and gardens, and socialize via text messaging with friends' avatars. The population inside Second Life has grown eightfold from a year ago, when just 20,000 "residents," as they're known, called it a second home.
Second Life is one of many Massively Multiplayer Online Role-Playing Games (MMORPGs), such as No. 1-selling World of Warcraft from Vivendi's (V
) Blizzard Entertainment unit, which has more than 6 million players, each paying $15 a month. But unlike World of Warcraft, where players go on quests and slay monsters, participants in Second Life create their own reality. They use software, available through detailed menus, to create everything from avatar clothes to buildings to games that are played inside the virtual world.
So what's the financial appeal to investors? For one, they want to find some way to ride the boom in online games, but without the Hollywood-size cost -- upwards of $30 million -- of developing a game using all in-house talent. "It's the complete decentralization of the creative process," Jonathan Seelig, managing director at Globespan, says of Second Life. "That was one of the most compelling things."
RECURRING REVENUE. Seelig and others are also fascinated by the emergence of a fledgling economy inside Second Life, in which residents sell virtual clothing, mansions, and land to each other. Once residents "own" virtual land, they have reason to stick around -- in some cases paying hundreds or even thousands of real dollars a month in "land maintenance" fees. Such users are golden for game and Web companies, which like the recurring revenue they generate.
Still other investors, such as Omidyar Network, the investing group run by eBay (EBAY
) founder and Chairman Pierre Omidyar, see a socially redeeming angle. At the recent PC Forum conference in San Diego, Omidyar said Second Life fits with his group's mission to give people the tools to foster individual self-empowerment. "What really fascinated me was that it was fully created by people inside" Second Life, he says, especially communities such as people with Asperger's Syndrome, a mild form of autism. "Where people spend time, there's value created," he adds. "Inevitably, it will lead to interesting things."
Linden Lab CEO Rosedale plans to use the money to come up with even more interesting things. In coming weeks, for instance, Linden Lab will incorporate the Mozilla Web browser more fully into Second Life, so there will be a seamless connection between the virtual world and the World Wide Web. Rosedale also hopes to invest in new features such as better virtual vehicles for avatars to ride and more fluid interaction between avatars.
Linden Lab also expects to use the money to expand internationally. Already, some 25% of Second Life residents hail from overseas, from Australia and Japan to England and Germany. Expanding further will require local-language versions of the software, as well as local offices or partners.
ALMOST PROFITABLE. Even with plans to hire at least 30 more people to its existing staff of 70, Rosedale says the company is close to profitability. "Hopefully we'll never need to raise private money again," he says. Although he won't reveal the current valuation of the company, he says this round values the company four times greater than in late 2004.
Linden isn't alone in the universe of virtual worlds. A startup called Multiverse Network Inc. in Mountain View, Calif., has created software that will allow other companies to build their own virtual worlds. "Our idea is to let people create all these independent worlds," says Multiverse Executive Producer Corey Bridges. Online worlds, he adds, "can't be defined by one company." Maybe not, but Linden Lab now has more resources to push its own vision of the virtual future.