Technology

Second Life: Reality Intrudes on Virtual Reality


While you were worrying about keeping your home, you may have missed the popping of the virtual-reality real estate bubble. In Second Life—Linden Lab's immersive, 3D game that allows players to trade real dollars for virtual dollars—a nice stretch of mainland coastal property that would have fetched around $65 in 2007 today goes for $16.

That's partly because the financial crisis crimped spending for the 1.38 million users, known as residents, who have logged into Second Life in the past 60 days. "The real real estate crisis had a direct effect on the real estate" in virtual worlds, says Guntram Graef, a business partner at Anshe Chung Studios, which sells "land" in Second Life. It's also because the pell-mell growth of Second Life has slowed dramatically since four years ago, when BusinessWeek put Anshe Chung—the avatar for Ailin Graef, Guntram's wife— on its cover.

The article suggested that Second Life and other virtual worlds might be "more intuitive portals into the vast resources of the entire Internet than today's World Wide Web." Companies from IBM (IBM) to Wal-Mart (WMT) to Wells Fargo (WFC) experimented with virtuals worlds for employee training, customer service, and marketing. Pierre Omidyar, eBay's (EBAY) founder and chairman, was a Linden Lab backer via his investing group, Omidyar Network. He was quoted as saying: "This generation that grew up on video games is blurring the lines between games and real life."

As it turned out, that generation would soon be spending far more time updating Facebook pages than outfitting avatars. Growth has slowed at Second Life. More than 10,000 IBM employees still attend meetings in Second Life, but some companies have dropped out or given up on wooing consumers through virtual worlds. On June 24, Linden Lab Chief Executive Officer Mark Kingdon stepped down and was replaced by Founder Philip Rosedale, who acknowledges that the company needs to simplify its product to spark new growth.

We decided to contact four of the entrepreneurs profiled in that 2006 BusinessWeek cover story to see how life—both virtual and real—has changed for them.

The Land Baroness

Anshe Chung became the first avatar millionaire (in real dollars), at least according to a November 2006 press release from the woman who created her, Ailin Graef. BusinessWeek at the time described Chung as "the Rockefeller of Second Life." Back then she made about 80 percent of her money through buying and selling land. In the wake of the real estate crises—real and virtual—the company changed direction. Today, Anshe Chung Studios makes as much money as ever from Second Life. In addition to developing virtual land, however, it sells tools for businesses to use in creating their own 3D products. He cites, for example, a basic army tank that game players can supplement with "textures" that turn it purple or leopard-print. It also converts money for gamers operating in different virtual worlds.

The Graefs have expanded their business into other virtual worlds, such as Frenzoo, Twinity, and Entropia Universe. In 2006, Second Life accounted for 80 percent of the company's business—now down to 50 percent. Still, the company has grown from 5 employees to 100, says Guntram. (Ailin Graef declined a telephone interview.) The company has expanded to Hong Kong and is hiring 3D animation artists, programmers, and e-commerce experts. One consequence: Ailin is so busy running the company that she spends less time on Second Life today, says Guntram, 37, who adds that she still likes to buy virtual shoes, clothes, and gifts for her Avatar friends.

The Marketer

Justin Bovington, 42, helped companies attract real customers to the virtual world in 2006. Bovington, CEO of London-based brand consultant Rivers Run Red, brought companies' brands into the virtual world of Second Life. For example, he helped Calvin Klein launch a virtual promotion of a new perfume release, Coca-Cola (KO) make a commercial featuring Avril Lavigne, and Reebok sell virtual sneakers. Then companies figured out that not enough customers were flocking to virtual worlds to warrant such big efforts. Today, Bovington says, "it's a complete flip-around." Companies that are active in Second Life are largely talking with their own employees, he says. "Corporations are still in the virtual world. They just meet behind closed doors."

The buzz around Second Life has quieted to the point that Bovington downplays his association with the brand, citing a number of problems. In the early days, for instance, companies complained that they couldn't control the environment: An avatar could walk naked into your store or a sex-toy outlet might move in next to a boat shop, he says. (Linden Lab now segregates adult content.) In addition, companies had difficulty learning the demographics of their customers, making it hard to track return on investment, Bovington says. The resulting backlash led him to set up a website to create some space between Second Life's brand and the virtual office collaborations that Rivers Run Red creates. Intel (INTC) held an online virtual conference on Bovington's platform early last year, in which 150 employees and business partners mingled and text-chatted with each other at a virtual Intel center, saving the company $265,000, according to Linden Lab. Bovington still uses Second Life: Almost 80% of his business is done there, although he suspects that some users don't realize they're using that virtual platform.

Bovington hosts three or four corporate events a week in Second Life. Having closed his company's San Francisco office because he no longer saw need for a physical location, he now uses his own product to meet with employees. One thing that hasn't changed much in four years: Bovington's avatar portrays a silver-haired, artistic type—albeit, he admits, "a bit thinner" than its real-life creator.

The Builder

Back in 2006, Sibley Verbeck created games and virtual worlds for entertainment companies inside Second Life. One event melded a real-world party at a Washington café with a virtual party in Second Life. Companies, however, found that it was difficult to drag their customers into Second Life. When the hype subsided in 2007, Verbeck followed them out of Second Life.

Today Verbeck's company, New York-based Electric Sheep, creates virtual worlds and games for entertainment companies such as MTV (VIA), HBO (TWX), and CBS (CBS), using Adobe's (ADBE) Flash software. For example, the company connected fans of Showtime's The L Word with a virtual world on the show's website. Most of the actresses from The L Word dropped in. Avatars performed yoga, watched episodes, and even put on a virtual gay pride parade. Fans chatted online about the show, watched videos about the cast, and clicked on links to go to Showtime's e-commerce platform.

Back in 2006, during Electric Sheep's peak, Second Life accounted for 50 percent of Verbeck's business; now it's 5 percent or less. From 70 employees, Electric Sheep's staff is now down to 20. Still, Verbeck, 34, says his company has been profitable since 2009. Second Life remains vibrant, he says, but with many web applications now in the computing "cloud," he says users don't like having to download the software needed to enter Second Life.

The Merchant

Tim Allen, 35, set up a kind of virtual-world eBay. Residents created content such as cutoff jean shorts and Hawaiian shirts and sold them through Allen's SLBoutique to other residents who wanted to dress up their avatars and artificial "islands." Lingerie and studded collars were big items. Allen made 4 percent on each sale. By early 2006 his hobby became too time-consuming: Allen would have to quit his day job as technology chief at Crompco, an underground-gas-tank testing company in Plymouth Meeting, Pa., or sell the business. Allen sold SLBoutique to Verbeck for an undisclosed sum later that year.

After four years, Second Life still has some work to do, Allen says. Newcomer avatars enter a welcome area, but it's not clear what they ought to do and not easy for their owners to locate others with similar interests. In March, Linden Lab released upgraded software, the Second Life Viewer 2. Many users—including Allen—were disappointed with its search capability. "They need a lot more Google (GOOG) in their search," he says.

Allen, too, has changed since Second Life first made a splash. Last month he became IT Director of Web Technologies for Wharton Research Data Services at the University of Pennsylvania. The purple corn rows he wore in college are gone. Allen's avatar, FlipperPA Peregrine, kept the 'do but now wears a tuxedo. Says Allen: "I still let him have purple hair but now he's a little more professional."

Robinson is an intern at Bloomberg Businessweek.

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