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Virtual Feds Crack Down On SL Gambling

Posted by SIM on April 4, 2007

Virtual Feds Visit Second Life Casinos
Reuters
4 April 2007

NEW YORK (Reuters) — FBI investigators have visited Second Life’s Internet casinos at the invitation of the virtual world’s creator Linden Lab, but the U.S. government has not decided on the legality of virtual gambling.

“We have invited the FBI several times to take a look around in Second Life and raise any concerns they would like, and we know of at least one instance that federal agents did look around in a virtual casino,” said Ginsu Yoon, until recently Linden Lab’s general counsel and currently vice president for business affairs.

Second Life is a popular online virtual world with millions of registered users and its own economy and currency, known as the Linden dollar, which can be exchanged for U.S. dollars.

Yoon said the company was seeking guidance on virtual gaming activity in Second Life but had not yet received clear rules from U.S. authorities.

The FBI and the U.S. Attorney’s Office for Northern California declined comment.

Hundreds of casinos offering poker, slot machines and blackjack can easily be found in Second Life. While it is difficult to estimate the total size of the gambling economy in Second Life, the three largest poker casinos are earning profits of a modest $1,500 each per month, according to casino owners and people familiar with the industry.

The surge in Second Life gambling coincides with a crackdown in the real world by the U.S. government, which has arrested executives from offshore gambling Web sites.

Most lawyers agree that placing bets with Linden dollars likely violates U.S. anti-gambling statutes, which cover circumstances in which “something of value” is wagered. But the degree of Linden Lab’s responsibility, and the likelihood of a any crackdown, is uncertain.

“That’s the risk; we have a set of unknowns and we don’t know how they’re going to play out,” said Brent Britton, an attorney specializing in emergent technology at the law firm Squire, Sanders & Dempsey in Tampa, Florida.

Britton said Linden Lab could potentially face criminal charges under the 1970 Illegal Gambling Business Act or the Unlawful Internet Gambling Enforcement Act. The latter law, passed last year, takes aim at credit card companies and other electronic funds transfers that enable Internet gambling.

“What they did was go after the processors, and made it a crime to process payments that relate to online gambling sites. Linden could potentially be held as the same sort of processor,” said Sean Kane, a lawyer at New York’s Drakeford & Kane who has studied the legal issues of virtual worlds.

“If you’re buying money on the Lindex (a virtual currency exchange) and utilizing it for gambling purposes, Linden could have a much higher level of responsibility,” he added. “If they would be found in violation, that’s difficult to say, but I can see a much stronger case being made.”

Linden Lab’s rules prohibit illegal activity.

“It’s not always clear to us whether a 3-D simulation of a casino is the same thing as a casino, legally speaking, and it’s not clear to the law enforcement authorities we have asked,” Yoon said.

Even if the law were clear, he said the company would have no way to monitor or prevent gambling in Second Life.

Source

Posted in Government Regulations, SL News | 1 Comment »

FBI Checks Out Gambling In ‘Second Life’

Posted by SIM on April 3, 2007

By Reuters
Tuesday April 03, 2007

FBI investigators have visited Second Life’s Internet casinos at the invitation of the virtual world’s creator Linden Lab, but the U.S. government has not decided on the legality of virtual gambling.
“We have invited the FBI several times to take a look around in Second Life and raise any concerns they would like, and we know of at least one instance that federal agents did look around in a virtual casino,” said Ginsu Yoon, until recently Linden Lab’s general counsel and currently vice president for business affairs.

Second Life is a popular online virtual world with millions of registered users and its own economy and currency, known as the Linden dollar, which can be exchanged for U.S. dollars.

Yoon said the company was seeking guidance on virtual gaming activity in Second Life but had not yet received clear rules from U.S. authorities.

The FBI and the U.S. Attorney’s Office for Northern California declined to comment.

Hundreds of casinos offering poker, slot machines and blackjack can easily be found in Second Life. While it is difficult to estimate the total size of the gambling economy in Second Life, the three largest poker casinos are earning profits of a modest $1,500 each per month, according to casino owners and people familiar with the industry.

The surge in Second Life gambling coincides with a crackdown in the real world by the U.S. government, which has arrested executives from offshore gambling Web sites.

Most lawyers agree that placing bets with Linden dollars likely violates U.S. antigambling statutes, which cover circumstances in which “something of value” is wagered. But the degree of Linden Lab’s responsibility, and the likelihood of a crackdown, is uncertain.

“That’s the risk; we have a set of unknowns, and we don’t know how they’re going to play out,” said Brent Britton, an attorney specializing in emergent technology at the law firm Squire Sanders & Dempsey in Tampa, Fla.

Britton said Linden Lab could face criminal charges under the 1970 Illegal Gambling Business Act or the Unlawful Internet Gambling Enforcement Act. The latter law, passed last year, takes aim at credit card companies and other electronic funds transfers that enable Internet gambling.

“What they did was go after the processors, and made it a crime to process payments that relate to online gambling sites. Linden could potentially be held as the same sort of processor,” said Sean Kane, a lawyer at New York’s Drakeford & Kane who has studied the legal issues of virtual worlds.

“If you’re buying money on the Lindex (a virtual currency exchange) and utilizing it for gambling purposes, Linden could have a much higher level of responsibility,” he added. “If they would be found in violation, that’s difficult to say, but I can see a much stronger case being made.”

Linden Lab’s rules prohibit illegal activity.

“It’s not always clear to us whether a 3D simulation of a casino is the same thing as a casino, legally speaking, and it’s not clear to the law enforcement authorities we have asked,” Yoon said.

Even if the law were clear, he said the company would have no way to monitor or prevent gambling in Second Life.

Source

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Federal Govt Soon To Inhabit Second Life

Posted by SIM on March 19, 2007

DHS Ponders Foray Into Second Life
By Trudy Walsh
03/19/07

The Homeland Security Department is considering setting up an outpost in Second Life, the virtual Sims-like world that has attracted 3 million registered users since 2003.

The landscape of this digital universe, founded by Linden Research Inc. of San Francisco, is rapidly changing. When it was first launched, Second Life was a motley shire where trolls, hobbits and elves—and other less savory grid dwellers—frolicked. Now it is becoming a legitimate corporate meeting place for corporations, universities and, increasingly, government agencies. Federal agencies that have set up islands on Second Life include the Centers for Disease Control and Prevention, the National Oceanic and Atmospheric Administration and Congress [GCN.com, Quickfind 745].

DHS is just at the point of having informal discussions with one company about setting up a virtual island for its Safecom program, said Tony Frater, DHS’ deputy director of the Office for Interoperability and Compatibility. “But we haven’t taken the plunge,” he said.

Safecom is an integration and engineering project whose goal is to connect wireless first-response systems across federal, state and local agencies. “At Safecom, we’re focused on research, testing and evaluation, and standards to support communications equipment for the first-responder and the public safety community,” Frater said.

As such, Safecom involves a lot of collaboration with commercial engineers, experts in academia and others, he said. Some of these experts live and work in places such as Prague and Singapore. To bring all these people together in one place for conferences would be a logistical nightmare and cost hundreds of thousands of dollars, Frater said.

But if DHS were to enable these far-flung researchers and experts to log on to Second Life at http://www.lindenlab.com and convene by means of avatars and instant messaging, it would be almost like holding a real-world conference. Best of all, Second Life is free except for some nominal, optional fees.

Not only does Second Life cost practically zilch, but nobody gets hurt. Avatar firemen drive virtual trucks that sound virtual sirens. Virtual chemical spills are hoovered up quickly with a virtual hose. Virtual tornadoes devastate virtual counties that can be restored in seconds with a quick “undo.”

Most public-safety agencies don’t have the resources to conduct “tabletop exercises,” which typically are simulations of first-responder events such as a pandemic or a biochemical attack, Frater said. One of these exercises usually requires public-safety workers to spend an entire weekend working at the event. And a tabletop exercise can cost hundreds of thousands of dollars.

In Second Life, however, “we could build training exercises around chemical spills, hurricanes or tornadoes,” Frater said. “It’s fairly realistic. We could mock up things that happen in real life.” Public safety agencies could upload their standard operating procedures and get 30 or so avatars to conduct a simulation exercise.

One of the most attractive features of Second Life is its social networking environment, which lets people share information with great immediacy, Frater said. “First responders—more than a lot of other professions—look to their colleagues for experiences and successes.”

Frater described the Safecom program as “practitioner-driven. We get ideas from the first-responder community to find out what’s working well and what’s not working well.”

But some have raised eyebrows at Second Life’s seedy side, teeming with casinos and unclothed beaches. The site also has its share of vandals, such as the “griefers” who recently defaced the Second Life site of presidential candidate John Edwards.

Is DHS comfortable being a part of this world?

“Just like the Internet, Second Life has both appropriate and inappropriate sections,” Frater said. “DHS will take appropriate steps to protect its information. We also talked about setting up meeting spaces that can be conducted in private,” which require invitations. “I think a lot of seminars would be in a closed setting,” he said.

Although only a handful of government agencies have staked out claims in Second Life, Frater thinks a government users group for the virtual world would be a big help in sharing best practices.

“So many of the investments in Second Life are reusable,” he said. “I think that’s an e-gov principle we should all be putting to use.”

Source

Posted in SL News, SL Politics | 1 Comment »

Second Life Presents Real Life Security Risk

Posted by SIM on March 14, 2007

Sophos claims productivity and corporate data at risk as it blocks virtual game
byMatt Chapman
14 March 2007

Online virtual community Second Life affects worker productivity and can cause real life IT security risks, a security vendor claimed today.

Sophos said the growing use of Web 2.0 is redefining how users interact with the internet and creating new avenues for cyber-criminals seeking the easiest point of entry to the network.

“With more than four million registered users worldwide, many of whom regularly visit Second Life on their business PCs, Sophos is warning of the negative impact on staff productivity as well as the increased IT security risks posed by allowing employees to access this virtual world at work,” a statement from Sophos said.

The immense media buzz about the virtual world has already made Second Life a target for hackers trying to gain access to sensitive data to commit identity theft and for financial gain, the security company claimed.

Sophos pointed to an attack last September, which saw hackers steal a Second Life database containing passwords and login information for about 650,000 players.

“If users cannot be trusted to act responsibly on corporate computers, then system administrators will need to enforce policies through technology,” said Carole Theriault, senior security consultant at Sophos.

“IT departments are concerned that workers may be so keen to log on to Second Life and other virtual worlds that there will not only be a productivity hit but also a potential security issue.”

Sophos said that from 22 March, the application control feature in its antivirus software will allow businesses to block Second Life on company networks.

The company said its recent web poll of more than 450 system administrators showed that 90.4 per cent wanted the ability to block the unauthorised use of games at work, with 62 per cent saying this was essential.

Source

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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.”

Source

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Second Life Marketing

Posted by SIM on March 12, 2007

Second-Guessing Second Life: Is this Virtual Playground Worth Your Marketing Dollars?
by Kenneth Musante
March 12, 2007

The massively multiplayer world Second Life, a creation of 3D software developer Linden Labs, represents a bold new trend in online marketing. Auto manufacturer Toyota set up a virtual city in Second Life so users could test drive an electronic version of the Scion xB compact hatchback. Clothing manufacturer American Apparel opened a virtual store in Second Life that sold virtual versions of American Apparel clothes and used the environment to get feedback on a newly developed style of jeans. Many other companies have followed suit. But is Second Life really a good place to spend your marketing dollars?

Second Life jives heavily with the Web 2.0 mentality. It’s community-based and gives users control of just about everything. In fact, almost everything in Second Life, except for the land itself, is created by users with the scripting and 3D modeling tools provided by Linden Labs. Users buy and sell these in-game creations, powering a growing in-game economy made entirely of virtual “Linden Dollars.” The fluidity of the environment makes Second Life both an attractive and an uncertain platform for marketing.

For a Second Life marketing campaign to be a success, it has to generate word-of-mouth spillover into the Internet at-large. The audience that can be reached directly by a Second Life campaign is actually very small. That entails about 20,000 to 100,000 people over a period of a few months, estimates Reuben Steiger, the founder of Millions of Us, a company that builds campaigns in virtual 3D worlds like Second Life. However, those few who experience the campaign usually spend anywhere from one to five hours interacting with it. “That’s a level of engagement that’s off the charts,” Steiger notes, considering that most online advertisers measure engagement in seconds.

In order to participate in a campaign on Second Life, users have to actively seek them out. The virtual land area in Second Life is about five times the size of Manhattan and growing. Finding a virtual construction requires knowledge of that location’s coordinates through other means, usually a blog post. Those who actively seek out a campaign are already interested in the brand. That, coupled with the high level of interactivity, can create brand evangelists, influential voices online who blog about things they’ve experienced and can amplify the reach of a campaign. “We’ve seen exposure and reach in the blogosphere anywhere from 10-30 million impressions, and we see similar numbers in main stream media coverage,” says Steiger.

In one campaign, Millions of Us worked with Butler, Stein, Shern & Partners to generate spillover by creating virtual screenings in Second Life of a series of funny videos called Hammer and Coop promoting the MINI Cooper S. The series stars Starsky and Hutch-esque crime fighters named Hammer and his buddy Coop, a KITT-styled talking MINI Cooper. Users are encouraged to share different elements of the campaign through other forms of social media. In one instance, they were encouraged to take photos of themselves and upload them to Flickr, Yahoo’s photo-sharing service. The creator of the most popular photo in turn will win a prize.

Still, there is no surefire guarantee that a campaign will resonate with the blogosphere or garner mainstream attention. Millions of Us has had both successes and failures. Steiger believes the key is to make campaigns that are as open-ended as possible to allow for maximum user interaction.

Marketing within Second Life itself also has technical hurdles to overcome. For example, Second Life’s search system makes it difficult for users to find obscure items and locations like the Hammer and Coop screenings. Linden Labs’ user interface is also complicated and confusing to new users, which can prevent them from exploring further into the world.

There is also no way to measure a direct correlation between a marketing campaign in Second Life and sales. Any exposure is currently used for brand recognition and testing. For example, when it created the virtual store, American Apparel also used the virtual space to test people’s reaction to a new style of jeans before they were released in stores.

“Businesses are still going to check it out even if it’s just in their R&D budget,” says Clay Shirky, a faculty member at NYU’s Interactive Telecommunications Program, and a critic of Second Life’s business model. Shirky believes that the number of actual users within Second Life is much too small to have a real commercial impact.

Aside from extra publicity, Linden Labs actually has little to gain from marketers in Second Life. Linden’s income comes from the sale of virtual land, user subscription fees, and Linden Dollars (Second Life currency)-to-US Dollars transaction fees. All advertising and marketing transactions are handled by third-parties like Millions of Us.

Linden Labs’ director of marketing, Catherine Smith, contends that Second Life is a platform that anyone can build on, marketers included. But she was unable to say how much virtual land was purchased by companies and organizations rather than individual users.

“I think a great indication of what’s happening in Second Life would be to look at the velocity of the economy,” says Smith. The economic information is posted regularly on the Second Life home page and details the growing in-game economy, based on the virtual currency of “Linden Dollars.” She encourages anyone thinking about marketing in Second Life to first get involved in the community and get a feel for the culture and then to look at the economic statistics and talk to Second Life software developers to find out what works business-wise and what doesn’t.

So the lesson learned here is to launch a campaign in Second Life, you need the patience to understand the community, the willingness to let users take control of your brand, and the resources to burn if it doesn’t work as-advertised.

Source

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A Scarlet Letter For Second Life

Posted by SIM on March 9, 2007

Residents of Second Life will be able share their opinions of people in the form of a five-star rating, which is designed to establish which individuals are commerce-worthy
By Thomas Claburn
March 9, 2007

Second Life scammers and griefers, beware. RatePoint has your number and it’s somewhere between one and five.

On Monday, RatePoint plans to announce that it’s extending its free social rating service — used to rate and discuss Web sites, products, and services online — to Linden Lab’s virtual world, Second Life.

Just as RatePoint members share their ratings for books and videos, residents of Second Life will be able share their opinions of people, in the form of a one-start to five-star rating, provided the appropriate extension is installed.

The goal is to establish which individuals are commerce-worthy, as eBay attempts to do with its buyer and seller ratings.

“Second Life has a primitive ratings system already, where you can give someone a thumbs up if you like them,” says Chris Bailey, co-founder and CEO of RatePoint. “You pay for that service. What we’re doing is adding several things. This is more of an automated, natural flow of things, where as people approach you, their ratings will simply appear in your private view. And that information will be presented to you in a more personalized way.”

For example, RatePoint members can add comments so that reviews can be discussed with the community.

In addition to tracking personal ratings, RatePoint calculates an aggregate rating based on a user’s “ditto group,” an algorithmically determined group of peers who have rated things similarly. “We take your rating, compare it to everyone else in our system and everything they’ve ever rated before, and then try to see who’s the closest to you,” says Bailey. “If you rate Web sites today on RatePoint.com, you can see your ditto group actively growing as you rate things.”

These aggregate ratings are used for objects and people you haven’t rated yet. In cases where no ditto group rating is available, RatePoint will supply Second Life residents with an average rating based on everyone’s vote, rather than just the votes of like-minded peers.

Bailey maintains that gaming the system won’t be easy because the ditto group score will protect against individuals that attempt to burnish an ill-deserved reputation or tarnish a stellar one. “The gaming problem isn’t taken away completely, but it’s reduced substantially,” he says.

At the moment, RatePoint’s Web-oriented ratings and its Second Life ratings systems are separate, but Bailey says the two will be merged in the next few weeks.

Source

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Gamer Rewards

Posted by SIM on March 6, 2007

Say What? Soon, We’ll See ‘Frequent Gamer Rewards’
CNET News
March 6, 2007

On Tuesday, a theater in the Regal Cinemas multiplex in New York City’s Union Square filled up with advertisers, brand marketers, new-media types, and interested bystanders for the PSFK Conference, a series of lectures and panels organized by New York- and London-based trendspotting blog network PSFK. One of the speakers was David Rosenberg, director of emerging media for Manhattan advertising firm JWT, who was speaking on the subject of the cultural shift caused by video games and online role-playing virtual worlds.

Rosenberg stressed that he believes we are seeing a whole new set of economies with online games like World of Warcraft and Second Life–despite the fact that auction giant eBay recently placed a ban on virtual goods.

He posed a rhetorical question to the audience: “How long is it going to be before credit card companies start giving out frequent gamer rewards instead of frequent flyer rewards?”

It’s an interesting thought. I wonder how many Warcraft players would jack up their American Express spending if it meant they could earn themselves some cool new enchanted swords?

Source

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Virtual Utopia Takes An Evil Turn To Terrorism

Posted by SIM on March 5, 2007

By ALANA SEMUELS
Monday, 03/05/07

Players in the online game Second Life can watch a Nissan Sentra commercial or even receive a virtual version of a Sentra to use while they play the game. Some longtime players object to corporations paying to appear in the game.

Like any pioneer, Marshal Cahill arrived in a new world eager to sample its diversions. Over time, though, he saw an elite few grabbing more than their share.

They bought all the plum real estate. They awarded building contracts to friends. They stifled free speech.

Cahill saw a bleak future but felt powerless to stop them. So he detonated an atomic bomb outside an American Apparel outlet. Then another outside a Reebok store.

As political officer for the Second Life Liberation Army, Cahill is passionately committed to righting what he considers the wrongs of a world that exists only on the computer servers of Linden Lab in San Francisco.

Linden is the company behind Second Life, a virtual world in which Internet users act out parallel fantasy lives. They date. They build houses. They work. Some players support themselves in real life by selling goods or services in the game.

Some see the space as a utopia free of real-world constraints, where they can build their vision of a perfect realm from scratch. It’s a place where denizens can reinvent themselves as a supermodel or a rodent, own an island, or fly . . . with no plane necessary.

In the past year, the number of people who had visited Second Life skyrocketed from 100,000 to 2 million. But the Web site is facing the problem that many would-be utopias have faced before it. When building the ideal world, it’s impossible to change while remaining perfect in everyone’s eyes.

Cahill and his compatriots say they don’t necessarily mind the new residents, but they want more influence in deciding the future of the virtual world. Most important, they want Linden Lab to allow voting on issues affecting their in-world experience.

“The population of the world should have a say in the running of the world,” Cahill said during an in-world interview. Cahill is this participant’s online name, incidentally. He declined to reveal his real-world name for fear of banishment from Second Life.

The army has staged a number of protests in Second Life to publicize its position. Three gun-toting members shot customers outside American Apparel and Reebok stores last year; bullet wounds in Second Life are not fatal but merely disrupt a user’s experience.

Then they stepped up the campaign, exploding nukes, which manifested themselves in swirling fireballs that thrust users at the scene into motionless limbo.

Cahill said the group targeted in-world corporate locations to draw real-world attention to its cause.

But the malcontents and pranksters — and there are many, even outside Cahill’s organization — make for a dangerous environment. Land sharks try to drive users off certain properties, and mafias have been known to harass users. Giant male genitals have crashed events, bouncing around and distracting participants. A recent posting in the Second Life Herald called the space “the freaking wild wild west.”

For some users, these events illuminate how much Second Life has changed. Some early users in particular point to corporations as the culprits. They began to build their presence in Second Life as the population grew.

“The utopian age has passed,” said Peter Ludlow, professor of linguistics and philosophy at the University of Michigan and editor of Crypto Anarchy, Cyberstates and Pirate Utopias. Ludlow, whose Second Life persona, or avatar, is named Urizenus Sklar, compares Second Life’s current status to the ending of the Lord of the Rings trilogy, in which the Shire, previously untouched by the outside world, is destroyed.

Ludlow is the author of a venomous Internet post complaining that companies lack creativity in a world that many participants entered for the sole purpose of living creatively. Chain stores such as American Apparel are being dropped into “this fantasy world with unicorns and flying elephants,” he said. “It’s an eyesore.”

Meanwhile, Linden Lab is caught in a bind. To survive, it needs the revenue that comes with more users and corporations buying “land” on the “grid,” as Second Life’s online space is called. But it wants the creativity of its original users to flourish.

Linden Lab sees the importance of companies using Second Life to interact with customers, Director of Marketing Catherine Smith said in a statement. “This will require balancing the concerns of early adopters and other niche demographics.”

That’s not how Manhattanite Catherine Fitzpatrick, a Russian translator, sees it. Fitzpatrick, who in the game is a man named Prokofy Neva, worries that corporations will force small businesses in Second Life to close.

Fitzpatrick, 50, joined Second Life to explore her creative side and meet like-minded people and eventually got involved in selling real estate. She built a nice home for herself with an ocean view, which she said was ruined when someone moved in next door and built a giant refrigerator that blocked her light.

The disruptions avatars are experiencing are like those faced by residents of the Soviet Union as it industrialized quickly, Fitzpatrick said.

“One day, the elves were banging on their drums and making elf tunics,” she said. “And the next thing you know, Nissan comes in and starts giving away free cars.”

It’s not just the corporations that are drawing the ire of original players. Some long-term residents say the functioning of Second Life has been eroded by the increase in users. Those who choose not to pay the $9.95 fee for upgraded membership come in for special criticism, accused of clogging the system without contributing anything.

But letting in new users might be key to Second Life’s survival. Every GM, American Apparel and IBM that sets up shop in Second Life contributes much-needed real dollars to a company that Chief Financial Officer John Zdanowski said only recently became profitable.

“It’s impossible for Second Life to continue to exist without rapidly growing the user base and involving real-world companies in their economy,” said Sibley Verbeck, chief executive of Washington-based Electric Sheep Co., which helps corporations set up shop in Second Life. Verbeck, whose avatar is named Sibley Hathor, said corporate capital enhanced the user experience by providing Linden Lab with the means to improve the virtual world.

To be sure, many Second Life players are happy to adapt to the changes and see where they take the virtual world. Longtime Second Life user Ilya Vedrashko, for instance, is skeptical when he hears friends talk about the good old days. He thinks the changes are just part of a natural progression as Second Life grows out of being a small, close-knit community and into a metropolis.

Source

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Second Life’s Looming Tax Threat

Posted by SIM on March 5, 2007

Come April 15 profits earned online must be reported to the IRS. But what about ‘money’ that’s virtual?
By Grace Wong,
March 5 2007: 10:02 AM EST

NEW YORK (CNNMoney.com) — In case you haven’t noticed, Second Life is booming, and its economy has boomed too – putting the virtual reality world in the crosshairs of tax authorities, experts say.

Entrepreneurs have flocked to Second Life – a computer-based 3-D virtual world where users create their own, well, second lives – in pursuit of making real money. So-called residents can buy and sell goods for Linden dollars, an in-world currency that can be converted into real U.S. dollars. (See how real money works in Second Life).

At least one user claims the virtual world has minted her a millionaire – and economic activity is humming along. Users of the virtual world injected about $1.6 million into Second Life in the last 24 hours alone, according to Linden Lab, the creator of Second Life.

Under current tax law, it’s clear that earnings in real U.S. dollars generated within virtual realities are reportable to the IRS. If a Second Life real estate mogul cashes out of her in-world property portfolio, she’s liable to pay income tax on any profit that’s been exchanged into real greenbacks – just as an eBay (Charts) seller is responsible for reporting income generated from an online sale.

Tax law is murky, however, when it comes to dealings that occur solely within Second Life or other computer-simulated environments. For instance, is a transaction that occurs only in Linden dollars and doesn’t involve any real-world, dollar exchange taxable?

Questions like that have the tax community buzzing about the issue, said Paul Caron, a professor at the University of Cincinnati who edits the TaxProf Blog.

The issue has also attracted the interest of the Joint Economic Committee of Congress, which said last fall that it was studying issues related to the economies of virtual realities like Second Life and World of Warcraft, an online role-playing game.

Results of the study – due to be released before the end of the month – suggest that “as long as virtual activity stays within the virtual economy, it shouldn’t be taxable,” said Christopher Frenze, executive director of the JEC, which conducts policy research on economic issues facing Congress

But there is a valid argument that even profits that come from, and stay in, the virtual world are taxable, according to Bryan Camp, a professor at Texas Tech University School of Law. “As soon as you start looking at what’s going on in these worlds, they look a lot like real economic transactions,” he said.

Even if profit isn’t realized in real dollars, there’s still an exchange of items of economic value. In the real world, if someone trades goods or services without the exchange of real money – also known as bartering – that’s a taxable event, Camp noted.

Given all the attention paid to the topic, the IRS eventually will have to respond to the situation, said Caron. “I think it’s on the IRS’s radar screen in a way it was not six months ago,” he said.

When asked about the agency’s position on collecting taxes from virtual economies like Second Life, an IRS spokesman offered the following comment via e-mail: “Any time someone wins a tangible prize or award, the value is reportable as taxable income. An accumulation of ‘points’ would not result in tax consequences, but redeeming or selling them for money, goods, or services would.”

Edward Castronova, a professor at Indiana University who heads the Synthetic Worlds Initiative, a research center focused on online communities like Second Life and World of Warcraft, doesn’t see taxes on virtual-only transactions coming anytime soon.

But “in the next three or four years, we’ll likely see it. In the next 10 years, there’s no question about it,” he said. “If you look at these transactions, they’re huge.”

For its part, Second Life operator Linden Lab isn’t concerned about looming tax regulations on virtual economies, at least not yet.

“Given the reassuring statements from the JEC, it’s pretty clear this is a moot point,” a spokesman for San Francisco-based Linden said. “Linden is focused on what it does best – scaling technology and building Second Life’s platform.”

Stay tuned.

No, Second Life is not overhyped

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