Digital Suburbia

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In Kaneva, people choose an existing design for their virtual apartment and human avatars. In Second Life, residents can buy islands and create wacky avatars with, say, a rabbit's head and exaggerated anatomy who only wears tutus and gets around in a boat with wings.

A Stable Backdrop for Branding

"In Second Life, you're encouraged to explore an alternative universe," says Klaus. "We're trying to keep within human boundaries, and get you into that world where 'first life' isn't separate from 'second life.'"

In Klaus' virtual world, dragons, aliens, and castles are not allowed. The idea is to create a Norman Rockwell setting that is seen as stable and safe by big-brand companies that want to promote their products without worrying that the medium may be too uncontrollable or chaotic.

How will Kaneva make money? Klaus says brand sponsorship of digital products is one potential source of revenue. The company may charge users who want to upgrade the free apartments, furniture, and avatar clothes that Kaneva offers.

And then there's a licensing opportunity. Currently, Kaneva gives away its software to companies that want to build customized virtual worlds. To date there have been 40,000 downloads of the software. Klaus won't disclose what companies are using it.

It's no surprise that Klaus would want Kaneva to offer a secure environment. After all, he founded Internet Security Systems in 1994, while a student at Georgia Tech. IBM (IBM) bought the computer security company for $1.3 billion last year, providing Klaus, the largest shareholder, with plenty of seed capital for Kaneva. (Klaus donated $15 million to his alma mater.)

A lifelong gamer, Klaus says playing Pac-Man as a kid inspired him to study computer science. Now he's applying his knowledge of online security to his first game creation. For example, users will be able to block unwanted avatars from their virtual apartment.

Another safety measure is built into the underlying infrastructure of the world. When a user signs on, his or her apartment appears onscreen. When the user sign off, the apartment disappears, so others can't wander through or hack into it. This feature also puts less strain on the server—a dilemma that causes Second Life sporadically to freeze.

Virtual Worlds for Every Taste

Of course, not all virtual-world fans want restrictions. Edward Castronova, a telecommunications professor at Indiana University and author of Synthetic Worlds: The Business and Culture of Online Games believes such a sterile environment can dampen the fun and creativity of virtual worlds. Castronova, who regularly visits these online parallel universes, opted for Multiverse over Kaneva because it provides the software tools for users to create their own 3D digital environments.

Castronova is creating a Shakespearean world called Arden, where users can wander around in 17th century regalia and learn about Shakespeare and medieval history. "There is a lot of latent human desire to build little things for people to visit, like kids playing with cardboard boxes," Castronova says. "Think of the 1920s film world, when only a big movie company could make a film. Now anyone can make a home video or Web video. The same thing will happen increasingly with virtual worlds."

Nor is Kaneva the first to company offer an alternative to Second Life that merges social networking with a 3D online universe. There's Cyworld, which originated in Korea but now has an American version—although its graphics are more cartoonish than Kaneva or Second Life.

And Linden Lab, the company behind Second Life, is constantly launching new applications to keep fans loyal to the virtual world—and attract more residents. For example, Linden Lab recently introduced a sound feature that allows residents' voices to be heard within the virtual world, with the intriguing detail of fading out at a distance or growing louder as an avatar moves closer.

Kaneva is a work in progress. Although the 3D avatars look eerily similar to those in Second Life, some of the animation isn't quite as sophisticated.

For example, avatars can't sit in a chair in the current beta version—although most users add chairs and sofas within their free virtual apartments. But Klaus says Kaneva should be finished with an animation system upgrade by early May.

Expect more stores like Amanda Rains's online gallery to pop up, too. Right now, Kaneva manages all the stores on its site. Klaus plans to let more users start their own retail outlets.

But don't expect Klaus to let people build whatever they feel like. "We will have boundaries on that," he says. "We're like a zoning board."

Jana is the Innovation Dept. editor for BusinessWeek. McConnon is a staff editor for BusinessWeek in New York.