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Virtual World Business And Development Information

Virtual Worlds Increasingly Attracting Users, Businesses

Posted by SIM on March 13, 2007

By Dave Hendrick
March 13, 2007

Do virtual online worlds such as Second Life represent the next great Internet phenomenon?

Already, Second Life, in which user-created characters, or “avatars,” inhabit a virtual world and pass the time by shopping, dating and exploring the ever-changing landscape, shares many of the same attributes as some of its “next big thing” predecessors such as MySpace and Facebook, including millions of avid users.

And much like its Web 2.0 brethren, Second Life has also drawn strong interest from conventional businesses, with outfits such as Warner Music Group Corp.’s Warner Bros. Records, CNET Networks Inc. and Reebok, among others, all setting up virtual outposts in the animated world.

According to Yankee Group analyst Jennifer Simpson, the program’s popularity stems in part from its marriage of the dominant Web 2.0 themes.

“It’s kind of the confluence of two trends, that being social networking, because there is a community aspect to all of this, but also content generation,” Simpson told SNL Financial March 12. “More and more we are seeing in the Web 2.0 ‘world’ user-generated content, and certainly Second Life is a place where there is tons of content being created.”

In addition to creating characters, users and businesses can buy virtual real estate, build virtual structures and run virtual stores.

Nearly 4.6 million users had registered for the program through the first week in March — a notable sum, but still a fraction of those spending time at the most popular Web 2.0 sites.

“I still think the sites in terms of MySpace and YouTube are going to have a lot of hold on the current user base that they have,” Simpson said. “For both of those sites, MySpace in particular, the draw is really the community and there’s a lot of community that will continue to draw people in.”

And while media companies as diverse as CBS Corp. and Yahoo! Inc. are scouring for the next hot Web property, Simpson noted that unlike previous popular sites that had large user bases but an unclear path toward profitability, Second Life already makes money.

“As long as you are making a lot of money and as long as you have your business model figured out, you’re not going to want to sell too early or for too little,” Simpson said. “Whereas MySpace didn’t really have a great revenue model figured out and YouTube didn’t have a great revenue model figured out … I think that Second Life exists completely differently. The [return on investment] is pretty obvious.”

In addition to charging a monthly membership fee for premium membership, the site sells virtual “regions” for nearly $1700 each and charges a land use fee that can reach as high as $195 per month.

Stephen Prentice, an analyst at Gartner Research, noted that while Second Life tends to receive the most attention out of the current crop of virtual worlds, it remains just one of many such platforms, noting the similarities of sites such as Entropia Universe, EverQuest and the “virtual microcosms” designed to replicate specific television programs such as MTV Network’s “The Hills” or “Laguna Beach.”

“There is a range of these sorts of sites that have been targeted at specific niche communities,” Prentice told SNL March 13. “MTV has been very successful in linking them as a sort of virtual extension of a hit TV show.”

In addition to spinning off popular programs, Viacom Inc.’s MTV has been at the forefront of trying to integrate real-world advertisers into their virtual worlds as well, announcing plans in January to integrate advertisers such as AT&T Inc.’s Cingular into Virtual Laguna Beach, where virtual Cingular representatives tout the latest phones and accessories.

Unlike Second Life, such microcosms tend to be much more limited environments, Prentice said, likening them to “three-dimensional chat rooms.”

While businesses are increasingly setting up shop in such virtual outposts — and indeed the Weather Channel, for instance, on March 12 opened a virtual headquarters in Second Life where it hopes to both debut new programming and attract new advertising dollars — Prentice said businesses will likely find the transition into the Internet’s latest incarnation a rough one.

“Enterprise will find it extremely difficult in the near-term future — and by that I mean the next two to three years, which is pretty much several lifetimes in this virtual world sort of environment — to find commercially viable business models,” Prentice said. “It is not clear to me at all that it is proven that brand loyalty in a virtual environment spills over [to] brand loyalty in the real world.”

Prentice said still missing from the equation are compelling business models based on selling products that can then be consumed within the virtual world. While such a concept may be foreign to many, if not most, there are millions for whom such virtual immersion makes perfect sense.

Said Prentice, “I think the three-dimension virtual environment is a logical extension of the two-dimensional social networking sites today, particularly for a generation who has grown up on a Playstation or Nintendo or Xbox.”

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