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Second Profits

Posted by SIM on February 5, 2007

In Second Life, Profits Aren’t a Game, But a Science
by Bryan Gardiner – ExtremeTech
Thu Feb 1, 2007

It may be a virtual world, but that doesn’t mean real business can’t flourish within its simulated borders. At least that’s the conclusion IBM and other tech and retail giants have come to regarding Linden Labs’ Second Life.

But as more and more companies move to make inroads into such metaverses —and as the hype surrounding the untapped market potential and all the new forms of social interaction, collaboration, and expression they offer builds—many seem to be forgetting a relatively simple fact: a thriving business community in a virtual world is still a long way from happening.

In fact, most talk of business in Second Life is conveniently devoid of the more prickly issues surrounding online and virtual commerce—issues like security, privacy, digital rights, and conduct guidelines.

That’s where IBM comes in.

Aside from maybe German broker Ailin Graef (a.k.a. the “Rockefeller of Second Life”)—who claims she has made more than 275 million Lindens (the equivalent of $1,000,000 US) by dealing in Second Life brokerage, development, and arbitrage of virtual land, items, and currencies—just how likely is it that other people will want to buy up massive amounts of virtual real estate when, technically, there are no limitations imposed on such land or space? And do people really want or need a virtual 3D interface when shopping for, say, a new refrigerator?

Perhaps more importantly, are there (or will there ever be) enough people inhabiting these virtual spaces to make selling—or even advertising—such goods and services potentially lucrative?

For some, the debate stops here. Criticisms of Second Life begin with the question, “Who needs a second life?” They then move on to challenge the simple assumption that this is one of the fastest growing communities on the Internet, a thriving virtual landscape whose meteoric rise is unparalleled. Again, this is simply untrue—especially if one wants to compare its populations to something like World of Warcraft, which just surpassed 8 million subscribers worldwide. As PC Magazine’s Cade Metz reported earlier this month Linden Labs has even been fudging its visitor numbers to give a decidedly false impression that the Second Life community more robust than it actually is, with an estimated audience closer to 336,000, according to Metz as opposed to the roughly 700,000 to 850,000 “residents” Linden Labs typically quotes to journalists.

Then there is the economy: Linden Labs says that an estimated $1.2 million in user-to-user transactions takes place every day in Second Life, still small potatoes when you consider the amount of people actually inhabiting the virtual space. Cashing in your Linden dollars and becoming rich seems very First Life: a few do it, but most of us go on with the daily grind.

But the zeal that IBM and others have displayed thus far toward Second Life more often than not makes it seem like these people are the rule rather than the exception. So why are companies like IBM becoming so heavily involved?

But why now…and why Second Life? To hear Doug McDavid of IBM’s Academy of Technology and Dave Kamalsy of the company’s Almaden Research Center tell it, there are two interrelated forces behind the Big Blue’s warm and hearty embrace of the virtual: economic, and social.

McDavid spoke at the inaugural meeting of the newly-formed Virtual Worlds Special Interest Group (SIG), which will conduct a total of six meetings last week, ostensibly to tackle precisely the kinds of questions IBM is itself involved with.

Befitting any discussion of virtual worlds, the physical event in Palo Alto was simultaneously streamed to the SDForum’s (the not-for-profit sponsor of the Virtual Worlds SIG) Innovation Island, located within Second Life. As it happens, the night was mainly devoted to IBM’s dual role as both cheerleader and growing presence within Second Life.

“This may be different from what you’d expected of IBM,” McDavid told the live and virtual audience last week, referring of his company’s growing interest in Second Life. “And hopefully it is.”

As a self-described Second Life evangelist (and former skeptic), McDavid, who took time out from the presentation to show off his newly acquired virtual home and artwork, said that metaverses aren’t simply “tech and games.” Continued…

IBM and “Service Sciences”

In the course of its virtual spelunking, IBM says it discovered that a whole new level of “engageability” was at work in virtual worlds. “There’s some human psychological aspect that’s involved there,” explained McDavid, who said he found the emotional aspect of group interaction was strongly invoked in such virtual spaces. “This really isn’t a game,” McDavid said. “It has been a playful environment, but it’s starting to become real—starting to become a real business.”

“We are in a unique historical moment,” he added later on, “…the deployment phase of virtualization technology. In the Long Wave School of economics, emerging technology comes along and changes the paradigm.”

“This technology [virtualization] is now being incorporated into the fabric of society,” McDavid said, which is in turn transforming our capitalist culture from one that used to be mainly focused on the individual to one that now is more concerned with the collective and the dissemination of knowledge.

“It is the swing of the pendulum away from the extreme individual…to giving greater attention to collective well-being,” as McDavid put it.

Over the past several months, the company has continued to gobble up virtual real estate (i.e. islands) in Second Life, and is even toying with the idea of building an entire technology platform—a web sphere, if you will—for virtual worlds so that businesses can hold meetings, presentations, focus groups, product demos, and run virtual stores, all within a “standards-based 3D Internet.”

This past summer, IBM unveiled its Forbidden City—a cultural heritage initiative that represents the history of China’s Forbidden City to a global audience—as well as a new digital community the company calls “3D Jam.” Here, IBMers can talk (or “jam”) with partners, co-workers, or even family members about—what else?—virtual worlds.

In the subsequent months, the company has introduced its Global Connections island, another place for employees to interact, this time with IBM alumni. And it hasn’t stopped there. More and more IBM affiliated islands have steadily sprung up since this past fall, the most recent one becoming a virtual test store for Circuit City.

Company-wide, IBM now owns a total of 12 islands in Second Life and has more than 1,600 of its employees—across continents, divisions, and lines of business—all participating in the virtual world. This month alone, the company debuted a new virtual Sears store and launched Lotus Connections, new software that will let its employees set up virtual worlds of their own where they can meet other IBM employees and exchange ideas.

So in a world that’s all about social interactions and people “owning” what they create, IBM is also banking on the fact that it will also become a world about service systems, about serving the needs of this vast community. And because the company played a large role in establishing computer science, it is also now looking to jump in on what’s its calling “services science.”

“The largest labor force migration in human history is underway, driven by global communications, business and technology growth, urbanization and low cost labor,” McDavid noted, and IBM wants to be at the forefront, providing both the opportunity and the infrastructure (including, ways of communicating) to manage this massive new labor force.

Put more simply, Big Blue wants to be cool again…or cool for the first time, depending on whom you talk to. And the company knows that to be cool, it will need to hire people who are savvy with virtual worlds as well as promote such experiences and expertise within its own company.

“This ability to project an image and a coolness factor is part of it,” McDavid admitted. “People are thinking about a virtual 3D Internet as a good way to sell things, or as a 3D world as the front end to the 2D Internet experience. We want to promote that.” Continued…

Moving past the Wild West But for all the talk of Second Life’s potential as a vast and untapped business resource, it was clear from the SIG’s first meeting that there is long way to go before any form of organized or large-scale commerce—other than maybe virtual prostitution and gambling—thrives in a meaningful way.

As McDavid noted, the whole thing is still “sort of a Wild West,” dominated by sex clubs and casinos. “It’s a virtual world where you can present yourself as a dragon, as any sex you want, with any clothing or lack of clothing,” McDavid said. “What is the business perspective on that?”

The answer, of course, is not a very good one when you’re talking about security and stability. In a world where someone can choose a grey cloud as an avatar, where men can be women and women can be dragons, how do you know and verify (and trust) those who are trying to get you to purchase something with real money?

Even the plain old Internet is still fighting to give online shoppers piece of mind when it comes making purchases. It takes only a brief look at the increasing rise in phishing attacks and the constantly evolving Extended Validation SSL certificate requirement to recognize this.

In Second Life, there’s already been a money-laundering scandal, where real money was laundered through Linden and passed through other avatars. And that’s just the tip of the iceberg. To do real business, some standard or guarantee of security and privacy will have to be made explicit for any sort of large business community to thrive. That’s not even close to happening.

So while the night was supposed to paint Second Life as an “unstoppable phenomenon,” and show how IBM is leveraging all of its possibilities, the most poignant feeling one walked away with was the overwhelming sense of just how much work is still ahead of Big Blue and Linden Labs if they truly want to change Second Life into a bustling virtual economy.

To be fair, when they weren’t hyping IBM’s role as Second Life champion and missionary, McDavid and Kamalsky did admit that most of the transactions now taking place within Second Life are relatively small, and that there is still a lot “interesting” work to be done regarding business and virtual worlds.

That interesting work includes: service level agreements, uniqueness warranties, implied business endorsement of various behaviors, appropriate presentation of businesses, digital rights, conceptualization of real and virtual money, and the list goes on.

Kamalsky even addressed a skeptical attendee who asked why Second Life was any different from the other virtual worlds, which have been popping up on the Internet for years now but have never taken off.

“Back then, everyone focused on the immersion of these worlds,” Kamalsky said. “Today, you have a client that’s free to download. You have editing capabilities, scripting, crowd sources. The barrier to entry is so much more lower than before and now the creativity is being unleashing. That’s why you’re seeing this [Second Life] take off.”

Taking off maybe in terms of media coverage, but it remains to be seen whether the virtual world can withstand real-world forces. Second Life has certainly attracted some very high profile attention not only from IBM, but from other companies as well. Nissan, Pontiac, Dell, Sears, Circuit City, Accenture, HP, Cisco, American Express, John Deere, Oracle, and others all now have a presence in the world. Heck, even Sweden has deemed it important enough for the establishment an official in-world embassy.

And to be sure, all this attention isn’t necessarily undeserved. Virtual worlds do represent a new frontier for the exchange of both ideas and services. But exchanging money, as least on large-scale, is a different matter altogether.

If commerce is to eventually thrive, then what virtual worlds need more than anything else are a concrete set of solutions that make them attractive, safe, and stable for businesses. Clearly the attraction part of the equation is already there. Now companies like IBM need to shift from talking what’s possible to talking about what’s plausible. Hopefully, that’s what this SIG and its future meetings will spark.

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