How Viable Is Virtual Commerce?

I kept jumping into the car and attempting the loop. Each time, the result was the same: I had to hop out and retrieve the auto as it hung upside down in midair. The lesson of the day? Getting up enough velocity on the upslope is key—you need that momentum to propel the vehicle through the 180-degree vertical bend.

Welcome to my Second Life. Thanks to the Havok physics software engine within this online 3-D virtual world, I learned—and lived—to try it again another day.

Most people think of virtual worlds, such as Linden Lab's Second Life, as games. However, these online spaces have grown well beyond the realm of fun and escapism to where they're now resting on the edge of "Web 3-D." In fact, their possible implications with respect to brand recognition and sales are grabbing the attention of real-world businesses—like Nissan—every day.

Just as the World Wide Web of the 1990s quickly spawned whole new industries and transformed business applications, commerce, and information flow, the virtual world of Second Life offers a microcosm of vast potential for business, commerce, marketing, and learning in this decade.

Open since 2003, Second Life is one of about 30 virtual social worlds in which multiple "players" interact with one another through digital personas called avatars. Unlike traditional games, which are played within a constructed space to achieve a win, virtual social worlds are open-ended simulations in which the attraction is largely socializing, collaborating, and creating. These immersive elements are a critical distinction within the $350 billion massively multiplayer online game (MMOG) genre. They're the reason behind Second Life's current growth of more than 20% residents per month.

Not coincidentally, these social elements are also the keys to tapping into the unprecedented technological and sociological shifts that are impacting the interplay between real-world business and consumers. Immersive virtual-world applications, born in the consumer world, are beginning to creep into collaborative corporate environments, as Web 2.0 technologies already have.

John Gage, Sun Microsystems' chief researcher, describes the phenomenon this way: "Second Life is a community built entirely on participation. While this is still an experiment for us, we're jumping into Second Life with both feet because we see the online world's unlimited potential for collaboration on everything from social issues to Java-technology development."

Sun and Nissan are just two of the several dozen companies exploring commercial possibilities and trying to engage virtual consumers. Starwood Hotels was an early arrival, prototyping a new real-world hotel on the site; and technology companies like IBM and Sun are quietly eyeing Second Life and other virtual worlds as the building block for next-generation operating systems. Retailers such as American Apparel are mixing and matching virtual and real-world sales, too. (For more on Starwood's plans, see related article, Starwood Pleases Avatars First)

While Second Life's building tools and online accessibility hold its power, it's the burgeoning population growth and in-world spending—meaning virtual currency—of more than $550,000 per day that has business, media, and marketers seeing this as new gold-rush territory.

The "residents" of Second Life, for example, have shared and privately "owned" space within the simulation. Using an internal scripting language and 3-D authoring tools, they build homes, nightclubs, and gathering places, as well as businesses to house and sell objects or skills that other avatar residents want. They hold classes, movie nights, and concerts. Residents pay one another via the Linden dollar, which has a real-world value—set by market pricing and tracked and traded on the LindeX—to the aggregate money supply of $1.2 billion.

While harried real-world business executives may still consider Second Life a subculture, the flow of information outside their doors has been completely transformed by simple authoring tools and social networks. Web-based tools such as blogs, wikis, and photo- and video-sharing sites have turned consumers into information producers. Online social networks organically form around these media, as well as within dedicated 2-D virtual gathering places like Bebo, Cyworld, and MySpace. User-created content and experiences, along with the ability to personalize online environments, make social networks vibrant and attractive. It's only a matter of time before global corporations adapt to these trends.

Immersive virtual worlds like Second Life are moving that potential from the flat, 2-D social networks of today's Web onto a platform where content is experiential, 360-degree, and almost completely generated by the inhabitants.

Each of the 30 or so virtual spaces is quite unique, but it's the combination of characteristics they share that's attracting developers, investors, and businesses. Overlay these characteristics onto customer service, product development, training, or marketing functions and the definition of what's "real" immediately expands to include the following:

• Spatial content. The interface is visual, auditory, and spatial, allowing for three-dimensional, immersive content through which the user navigates and interacts.
• Interactivity. Users interact with one another and with objects in real time. They have tools to create custom content to add to the existing environment, alter content, and develop scripts to animate content.
• Persistence. The creations within the world and the avatars survive beyond logoff. They endure with continuity so they can be built upon and changed over time.
• Community. There are formal and informal social structures that encourage community activities. Users create groups, clubs, neighborhoods, and teams, or simply gather informally.
• Daniel Gilbert, a psychology professor at Harvard University and author of Stumbling on Happiness (Knopf, 2006), tells us that our brain's prefrontal lobe has a unique capacity to let us experience things mentally before we try them out in the real world. The properties of 3-D virtual environments tap into this capability, creating the ultimate theater of the mind. They open up the opportunity to create applications that amplify the benefits of training, learning, entertainment, and prototyping while driving down the associated costs of such projects.
• For example, the Centers for Disease Control funded a project using Second Life for disaster-preparedness training. It let responders practice the logistics of moving people and equipment in real time. The exercise ultimately translated to decreased response times in the real world.
  
  IBM is investing $10 million this year in its Second Life presence to explore a potential 3-D Internet and virtual business. This commitment sounds hauntingly similar to the launch of its E-business strategies of the dot-com era.
• Hundreds of IBMers are experimenting with virtual-world applications through Second Life. Besides designing in-world conference centers for IBM teams and customers, as well as replicas of two of the company's real-world research centers, Big Blue is working with Beijing's Palace Museum to bring the Forbidden City into its virtual space. IBM is also working with other virtual worlds, such as BigWorld Technology, Multiverse, and open-source platform Uni-verse.org.
• Meanwhile, the gaming industry has been successfully attracting advertisers with virtual twists on a traditional media model. MTV leveraged the virtual world of There.com to create an immersive version of its Laguna Beach reality-television show. Virtual Laguna Beach offers 3-D experiences that reflect the location and happenings within the TV program, as well as immersive integration for the show's advertisers, including PepsiCo. MTV promises more shows to follow. And in what was perhaps another foreshadowing of the future of television, Dutch production company Endemol recently presented a monthlong Second Life version of its own reality show, Big Brother.
• In mid-2006, when American Apparel switched on the lights of its virtual store in Second Life, bright new possibilities spilled into the real world. American Apparel's initial intent was to build a virtual store and experiment with offering virtual clothing to avatars. Almost immediately came pressure from consumers and commentators to integrate the virtual store with real-world purchases. American Apparel responded by offering real-clothing discounts to virtual-clothing purchasers.
• Most of American Apparel's virtual clothing sells for less than $1—that is, about 270 Linden dollars. Web director Raz Schionning, who spearheads the project, reports sales of about 4,000 virtual items. But American Apparel can't measure ROI until it gains a better understanding of the virtual store's possibilities and limitations.
• Even so, economic opportunities clearly exist. Anshe Chung, Second Life's virtual-land baroness, recently announced that her holdings have made her a real-life millionaire.
• Second Life residents and IBM researchers Tabatha Hegel and Hugo Dalgleish developed a Life2Life project that bridges Amazon's Web services with Second Life. Retail kiosks started popping up in various in-world locations to allow avatars to search and purchase real-world Amazon products. Amazon's current strategy is to provide the tools to let the virtual-world residents create the in-world applications.
• Like open-source communities, social worlds that enable user-created content are reaping the benefits of new content at little additional cost, and both users and companies are benefiting from user investment in the space. Business applications and new content categories abound:
• Fast and cheap prototyping. 3-D collaborative modeling tools allow rapid building and manipulation to avoid costly real-world design mistakes. Crescendo Design, a residential designing company located in Cleveland, Wis., prototypes homes in Second Life so clients can visualize the space and "occupy" it via avatars, then suggest design alterations in a way not possible through 2-D drawings.
• Training and learning. More than 75 universities and learning organizations are exploring learning and library services in 3-D spaces.
• Global collaboration. Real-time text-chat translation, voice integration, and object and identity persistence make global collaboration possible in real time.
• Marketing and advocacy. The economies and high-engagement quotient attract marketers and social-advocacy groups. For example, the United Nations Millennium Campaign commissioned a poverty-awareness project in Second Life.
• Media. Publishers such as Penguin and news outlets CNet and Reuters are actively exploring content and value propositions for virtual audiences.
• Technology development. New hardware, software, browsers, and protocols will be needed to support immersive spatial environments. Rich media and 3-D search solutions will become increasingly important as virtual worlds expand their Web presence.
• Philip Rosedale, CEO of Linden Lab and creator of Second Life, says music was the spark that set his virtual social world on fire. With a simple stream of music coming into the walled garden of his "game grid" from the Web, the social scene exploded. People built pubs, hung out, and celebrated virtual weddings. Entertainment media jumped in, mixing with avatar fans in themed simulations.
• Rosedale tapped the exploding social-network phenomenon and ensured the growth of his virtual world by providing users with 3-D authoring tools and deeding them the intellectual-property rights to what they create in-world. But the addition of XML-import capabilities, represented by that simple stream of music, practically guaranteed that Second Life would eventually go the way of the Web. As RSS feeds, streaming video, and even some limited Web-page displays work their way through the garden wall, that boundary is on the verge of being knocked down. The creativity of users has them collaborating and pushing virtual-world applications toward full-blown Web interoperability.
• The race is seemingly on to capture the technological and market opportunities of these immersive 3-D platforms and turn them into the 3-D Web. Open standards are key to driving progress in that direction. Far deeper virtual-world integration with existing open-Web standards and Web-based content is vital.
• Interoperability among virtual worlds and social networks where people gather, create, and communicate is perhaps the bigger challenge. Not until there's interoperability between today's 2-D social spaces and 3-D worlds—where identities are portable, content is searchable, and boundaries are permeable—will we truly create the 3-D Web.
• Meanwhile, the rapid adoption by users of mainstream social networks like blogs and wikis—coupled with the cost savings, high productivity, and operational benefits they offer—is pushing enterprises to modernize their view of these Web technologies from that of adolescent MySpace pages to full-blown business solutions.
• Even as enterprises struggle to cope with the shift in user influence brought on by 2-D networked crowds, the networked crowds are collaboratively leapfrogging past them into a first draft of the 3-D Web where work and recreation are driven by collaborative, immersive, enabling technologies. Tracking with Moore's Law, the number of virtual worlds is doubling every two years.
• Proprietary, walled infrastructures are quickly giving way to Web-based, collaborative applications. IT executives must consider the integration of social-network models into enterprise solutions and start taking on the somewhat frightening task of exploring the virtually enabled enterprise.
• A good place to start is donning an avatar persona and touring a world where the physical is increasingly being represented in the virtual, and the virtual is informing the physical world.
• Synthetic worlds are turning more than just a virtual Sentra upside down.
• Linda Zimmer is president and CEO of MarCom:Interactive, a new-media strategy and consulting firm.
• Is virtual reality impacting your company's physical world? Let us know here.
• See Related Articles:
• Web 2.0 Meets The Enterprise, May 2006
• IT Gets Creative At DreamWorks, April 2006
  
  When Starwood Hotels opens its newest hotels next year, residents of Second Life will know them well. The hotel giant prototyped its upcoming aloft hotel in Second Life last October. While the trendy, urban-themed hotel with loftlike rooms and high-tech features won't open in cities from Massachusetts to Colorado until 2008, the virtual build allowed the design team to make adjustments before any bricks were laid. During virtual construction, designers positioned the real-world blueprint on the virtual lobby floor for design reference while building out the space. The hotel designers used the idea as a subtle touch for the real-world lobby floor.
• Since part of the initiative was to market the new aloft hotel and create a buzz, Starwood started a companion Weblog, VirtualAloft, to chronicle the in-world build. It even added a time-lapse video of the virtual building.
• When Starwood opened the virtual hotel, it sought feedback on the design. One resident mentioned that there were no bathroom doors in the virtual space. Virtual aloft designers quipped that they purposely didn't put them in because avatars don't spend much time in bathrooms. But they quickly added the doors anyway, as virtual spaces often must meet real-world expectations so the people behind the avatars feel comfortable.