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Much has been written in the last four months about the economic impact of Second Life in publications like the New York Times and CNN. To some degree, the initial shock of hearing people pay $200 in real U.S. dollars for a virtual home (albeit one that doesn’t really exist) has worn off. However, the real world impact of Second Life so far has been limited to advertising and economics. Socially and culturally, though, Second Life has not had as much of an effect. No real-world friendships have been lost because of a heated dispute between avatars.

As The Wall Street Journal revealed in its August 10 issue, this is all about to change.

(Source: The Wall Street Journal Online)

The Journal article “Is This Man Cheating on His Wife” focuses on a 53 year-old man, Ric Hoogestraat, who created his own male avatar named Dutch Hoorenbeek. He soon meets another female avatar and established a close Second Life friendship … then relationship, and subsequently a marriage with avatar Tenaj Jackalope, who is controlled in real life by Janet Spielman. As Hoogestraat spent more and more time in Second Life and his avatar spent more and more time with Jackalope, he spent less time with his real life wife, Sue Hoogestraat.

As one might imagine, the real life wife became jealous, and Sue Hoogestraat’s children are quoted as saying that the real life marriage is “beyond repair.” According to family law experts and marital counselors, though, the Hoogestraats’ deteriorating marriage is not an isolated case. The article cites that an increasing number of marriages are crumbling because of “virtual infidelity.” This begs the question, if virtual marriages are causing real life marriage trouble, are the virtual marriages all that virtual?

So far, many of the reports about Second Life and other worlds have focused on the economic, marketing, and social opportunities of these worlds. Not much has been written about the potentially negative consequences of these worlds. The possibility of a world that doesn’t even exist to cause a marriage rift seems incredible. Then again, many other fast growing forms of technology have come with their own set of undesirable side effects. As great a tool as the internet is, a slew of problems have come with it as a result of the enormous inappropriate and sometimes dangerous content that is available to anyone. However, the obvious benefits far outweigh any possible negatives.

It will be interesting to see how much the culture of virtual worlds affect the real world. It presents amazing possibilities for social interaction; never has it been easier to interact side by side with someone who is on the other side of the country, much less the other side of the world. Companies can now hold real business meetings in virtual conference rooms.

Given that some analysts say that this current growth is only the beginning of the boom, we can expect even greater potential for more virtual world, and in turn real world, opportunities. However, one question that may be asked down the road is “Do virtual world opportunities enhance or take away from the real world?”

If you ask Sue Hoogerstraat, the answer is probably the latter. If the marriage does end up in divorce, her husband may have effectively traded his real world wife for a virtual one. “The other life is so wonderful; it’s better than real life. Nobody gets fat, nobody gets gray. The other person that’s left can’t compete with that,” said Sue Hoogerstraat.

Sue brings up an interesting point. Many analysts have said that the main reason people choose to get into virtual worlds is because it is an escape. As a result, more and more people are spending 12 to 14 hours in virtual worlds. When people spend the majority of their day in these worlds, it can be easily argued that they are investing more time and energy in their virtual life than they are in the real life. Whether it’s because people are dissatisfied with their real lives or because worlds like Second Life provide a new alternative to reality.

I think that as the popularity of virtual worlds increase, so will the side effects; with virtual marriages and friendships coming at the expense of real world ones. It is likely that in the present and future that for most users, these worlds will become a powerful medium of social interaction that opens up all kinds of doors and opportunities. As the Hoogestraats remind us, for more than a few, virtual worlds have the potential to present a variety of real life problems. Even so, it’s hard to argue that the positives don’t outweigh the negatives.

Three months ago, I had no idea what a virtual world was, much less what Second Life was. Now after logging in and creating an avatar for now too many worlds than it seems I can even count, I am convinced that I have learned more about business and virtual worlds in this internship than I learned in an entire semester of high school biology. It’s been quite a change.

On the one hand, the concept still seems strange. Why spend real dollars on items inside a world that doesn’t even exist? It seems very backward. One other surprising aspect is how fact these worlds have grown. Two years ago, many of these worlds hardly even existed. Now, many worlds have more than a million users.

Second Life, arguably the biggest out of all the worlds, has a population of over 8 million. While many of Second Life’s users have more than one avatar – the number of unique users in Second Life is closer to 2 to 3 million, rather than 8 – anyway you cut it Second Life’s user base growth is incredible. Perhaps even more incredible is the fact that more than 50 companies have launched projects in-world as advertising ventures, even though there is still relatively little research that has been done on the advertising potential of these worlds.

This in itself is interesting to me. Why would companies like Coca-Cola and Nike, which can (and does) advertise in any medium that it so chooses, decide to invest in a world that’s still a relatively unknown entity? It at first seems like a gamble. I think one reason is because five to ten years from now companies don’t want to look back and realize they missed the boat on something big. As a result, lots of companies have gambled and established presences in-world. This has in turn helped these worlds grow, which may very well make it a worthwhile investment for the dozens of companies that have gotten in.

I’ll be very interested to see how virtual worlds progress in the coming years. Some still predict that worlds like Second Life are simply a passing fad and that soon the supply of these numerous worlds will outweigh the demand. Others say these virtual worlds will become what the Internet was in the 1990’s, and we may see people worried more about their virtual worlds than their real ones. (Who needs expensive beach front property when the market in Second Life is far cheaper?)

Realistically, I think the future lies somewhere in the middle. I don’t think we’re going to see virtual worlds become as big as the internet, but neither will they simply fade away and be forgotten in the next six months. Virtual worlds will play a significant role in social culture, but not as extreme a role as some analysts have predicted. It may be that a few of these smaller worlds fold or merge with larger worlds, but I think overall we will see different worlds that target different types of audiences.

In the more near future, I think these worlds will only continue to grow, and more businesses will look to launch projects in-world. Virtually any analyst will tell you that these worlds are far from peaking. It makes sense for media companies to continue to research these worlds, because the demand for advertising will continue to grow, just as the number of users in these worlds. Perhaps the only question is just how much these worlds will grow.

In the last eight months, Second Life has grown like wildfire. Even since May, the world’s total number of avatars has grown from around 6 million to more than 8 million. This growth has made Second Life far and away the largest virtual social interaction world. And with so many brands in-world it looks like Second Life is running away with the competition. Hold up. For users interested in social interaction in virtual worlds, there may be life outside of Second Life.

As of June, more than 50 corporations use and have established a presence in Second Life. Just as some businesses have gotten in, though, some are jumping out. Wells Fargo recently left, and Starwood Hotels has plans to leave as well. Part of the reason is that as the world has gotten so big and there is such stiff competition for brand recognition, some companies are having trouble sustaining avatars’ attention. This could be good news for worlds like There.com, Kaneva and even China’s HipiHi.

Both Kaneva and HipiHi are still in their beta testing stages. However, There.com has emerged as a very possible alternative to Second Life, showing a significant amount of promise.

One interesting aspect of There, which currently has around one million users, is that they are targeting a slightly younger target audience. Many worlds – such as Second Life, HipiHi, and Kaneva – are shooting for the 18-to-34 demographic. More than two-thirds of There’s users are between 13 and 26. There also places higher restrictions on user-generated content. For instance, all objects created in-world must pass a review to ensure all content is appropriate (There is bound by PG-13 style content). Also, all clothing designed for avatars must follow “minimum coverage requirements.”

Despite a slightly younger target audience, There IS similar to Second Life because it is a true social networking world, not a game (like RuneScape or Entropia Universe where users are focused on tasks and objectives). There considers itself a true social networking destination, pitching the world as a place where users can “hang out and make new friends.” Some of the There’s activities include card games, a race track where users can challenge each other, paintball and trivia contests – all of which encourage social interaction. Despite having only a fraction of the users of Second Life, There is able to offer a world with more extensive social interaction opportunities.

In order to separate themselves from Second Life, There must find a niche as a better environment for close-knit social interactions. Users will be drawn to There if they will have a better social experience. However, There still has to focus on luring big brands to establish a presence in-world:

1. The more brands There is able to lure in, the more revenue the site will generate.
2. Users are more likely to stay if popular brands are present. Some analysts say it’s the numerous brands in world that have made it effective.

Ideally, There will find a balance as a world that places a premium on social interaction and one that is a home to big brands.

Marketing in There

The deal that There struck with MTV was consequential in the world’s continued growth. MTV originally started in Second Life, but has since jumped ship to create online environments that better complement its TV series. MTV hired There to create the sponsored worlds the Virtual Laguna Beach, and, more recently, a virtual version of The Hills. In these worlds users can hang out with the real-world cast of the popular MTV shows. “MTV networks is the first to recognize the potential for using social virtual worlds to enhance the viewer experience and build a stronger bond with the audience,” said Michael Wilson, CEO of Makena Technologies, the creators of There.

Earlier last month, There yet again made headlines by partnering with Capitol Music Group. The partnership between There and Capitol Music Group works almost exactly like the partnership between BMG and Second Life. As part of that deal, BMG brought in artists like Ben Folds and Talib Kweli to perform on Media Island in Second Life, a complex that BMG opened. Through this project, Folds was able to promote his new album with two live performances.

The Capitol project will bring in stars like the Beastie Boys, Korn, Yellow Card, and rapper MIMS to perform in The Tower, a new nightclub that Capitol recently purchased from There. As an added perk for both users and performers, during each virtual show fans can purchase both virtual and real world band gear, ranging anywhere from a virtual t-shirt to an actual CD.

Capitol is very optimistic about the possibilities of the partnership. “We know that consumers are spending a lot of time in virtual worlds and There.com offers a completely new way to promote music, both emerging talent and recognized artists, allowing artists to really connect with their fan bases,” said Syd Schwartz, senior vice president of digital strategy for Capitol. “Virtual worlds also give us a new revenue channel to promote our artists and sell virtual and real branded merchandise to customers.”

Perhaps netting these projects represents a real advantage for There. Looking back at HipiHi and Kaneva – they each show strong potential for different reasons:

• Kaneva is one of the first worlds to blend aspects of a 2-D social networking site, such as MySpace or Facebook, with aspects of a virtual world.
• HipiHi is geared towards a booming Chinese population and has been dubbed the “Chinese Second Life.”

However, because both are still in the testing stage, these worlds are relatively unknown – pushing There far ahead of Second Life challengers. I believe it’s only a matter of time before we see more brands launching in There. And with the rest of the competition looking up at Second Life, it is unlikely that they will catch up any time soon. However, with smaller worlds continuing to grow, it is likely that brands will see that Second Life is not the only world in town.

Virtual worlds, like Second Life and Entropia, are well… virtual. Avatars created in these worlds often have little or no relevance to their real life users. However, with the fairly recent creation of Kaneva, the line between the virtual world and the real world may begin to look rather blurry.

Kaneva, which is still in its beta version, was developed by Chris Klaus, who created Internet Security Systems (ISS) and later sold it for $1.3 billion. Since selling ISS, Klaus has directed his attention full-time to designing Kaneva and giving a very different feel than virtually any other world out there right now.

What sets Kaneva apart is that it combines the elements of a 3-D virtual world, a la Second Life, with a 2-D personal profile website, a la MySpace. When users first sign up, they can create their own 2-D profile page on Kaneva and add friends, send messages, and share photos and videos in much the same way that users on MySpace can. After signing up and creating their own profile, users can enter Kaneva’s 3-D virtual world and create their own avatar, just like users can in Second Life.

While many aspects of Second Life are obviously tailored only to the virtual world (many Second Life avatars have wings and sometimes look more like animals than humans), Klaus’s goal is for Kaneva to be a virtual world that mirrors the real world. Through its 2-D profile website, many users create avatars that are similar to the real-world personalities.

Another unique aspect of Kaneva is that it provides its users with a free virtual apartment once they create an account and enter Kaneva’s 3-D world. Users can then upload pictures and graphics from their Kaneva profile and place them as framed pictures in their new apartment. Users can change the style of the flooring and walls in the apartment. In addition, they can shop in-world and place their own furniture in their newly decorated apartment. Finally, if users choose to buy a TV in-world, they can then upload videos that they have put up in their real 2-D profile site, and then watch the video on their virtual TV in Kaneva’s 3-D world. Through all of these features, Kaneva has seamlessly bridged the distinction between aspects of the real-world and aspects of the virtual world.

Klaus also said that Kaneva’s goal is to reach a different user demographic than many other virtual worlds. “Unlike most companies in the gaming space, we are not pushing the latest and greatest graphics. Our world is about connecting with people in a very casual way,” said Klaus in an interview that he gave in February to Digital Arts Online.

Because Kaneva is still in its beta testing version, no companies have signed on and agreed to promote their brands in-world. However, Klaus believes that because so much of the Kaneva experience is rooted in the real-world, it’s an ideal opportunity for companies like Coca Cola and IBM to advertise. One of Klaus’s main business objectives is to design Kaneva such that it has many different purposes and is able to be redesigned so that other virtual worlds can be built on it. Klaus’s long-term vision is to have companies like Coca Cola use Kaneva’s world, and later on possibly create their own worlds for purposes of e-commerce. Klaus feels like this type of e-commerce could lend itself to companies using the virtual world for all different types of experiences, from virtual town hall meetings to virtual conference rooms.

Kaneva has published on their website that the has a world population of over 290,000 (remember, they are still in early stages of development). Comparatively, that’s about 4 percent of Second Life’s population of over 7.1 million. All of Klaus’s current ideas and plans are projections. No companies have officially signed on to advertise in Kaneva.

Regardless, Kaneva has perhaps changed the virtual world landscape. The line between the real world and the virtual world is a little less clear-cut. It is possible that in the future users may see other virtual worlds that combine aspects of the real world and virtual world in much the same way that Kaneva has. It may still be to early to tell, but one thing is certain, in terms of marketing it has a great deal of potential and upside.