The virtual world of Second Life is taking a media beating. What was recently touted as the next great frontier for advertisers and tech-savvy companies is now experiencing a backlash of negative feedback. For every successful company in Second Life, there seems to be countless others abandoning the virtual world in favor of other, more controllable worlds. Wells Fargo, for example, moved its project Stagecoach Island out of Second Life and into Activeworlds after only a year. Other companies, such as Disney and MTVN, have found more success creating their own virtual worlds where they can better control their branding efforts rather than buying a piece of brand presence in Second Life.
That doesn't mean there's no success to be found in Second Life and other virtual worlds. Thousands of virtual small businesses are being set up to provide in-world and real world services for virtual users, and it's estimated that more than $200 million of actual money is exchanged in virtual worlds each month, according to the Intuit Future of Small Business Report: Technology Trends and Small Business.
So what's a small business to believe? Is there opportunity to be found in the virtual world, or is it more trouble than it's worth? Here's a breakdown of what's currently happening in Second Life and other virtual worlds and what it means for entrepreneurs.
Why It's Failing
There aren't enough users. Second Life may have more than 8 million residents, but only 11 percent have logged in during the past month. Companies expecting to find millions of potential customers are discovering they're just not there. "It's a small environment," says Edward Castronova, an expert in the economies of large-scale online games and associate professor and director of graduate studies in the department of telecommunications at Indiana University. "If you look at their current users, they have 30,000 to 40,000 people using the system at any one time. How much is anybody really going to make from a town the size of Greenfield, Indiana?"
Even if the numbers are there, they don't guarantee an ideal demographic. "World of Warcraft may have 10 million users, but those are hard-core gamers--over half of which are in China and Korea," says Steve King, lead author of the Intuit report. "It's hard for me to say, if I was a small business, if I would spend my marketing dollars on that [demographic]."
It's not attracting the mainstream. Despite all the hype generated within the tech community, virtual reality isn't appealing to the average person. "I think we're a ways away [from it becoming mainstream], primarily because for a lot of people, we're busy enough in the real world; it's hard to find time for the virtual world," says King.
Businesses haven't found a way to successfully translate the physical world into the virtual world. Aside from branding opportunities, virtual worlds aren't the ideal place--yet--for small businesses to sell real-world products or services. "Most people go to Second Life specifically not to be in the physical world, so their context is not physical-world shopping," says King.
Businesses haven't figured out how to successfully market in the virtual world. A recent survey by Komjuniti, a Hamburg, Germany research firm, found that 72 percent of Second Life users were disappointed with the activities of the companies in Second Life. They expressed a desire for more customer care and the ability to interact with the companies to make the branding experience "theirs." Too many of the companies are treating their virtual reality presence as an advertising campaign and not engaging their target audiences.
What's Working Now
Despite its disappointments, Second Life still offers some promising business opportunities. Some small businesses are doing relatively well, including what King calls the "picks and shovels" businesses--those that help people build a Second Life presence. These include marketing agencies and design firms that help people operate in Second Life, businesses that help build and sell game pieces, and those that provide in-world services.
Some companies are getting creative with Second Life, including several that have found surprising ways to make use of Nintendo Wii. Creative agency ID Media, for example, offers a more interactive Second Life experience by allowing users to navigate the virtual world with a Wii controller--while on a treadmill. WorldWired helps companies and universities build realistic training simulators within Second Life that allow them to practice everything from performing surgery to applying pesticides to operating a nuclear power plant.
Corporate training and other big business applications are also becoming popular. Hewlett-Packard and Microsoft are just some of the companies holding job fairs within Second Life. And virtual meetings and conferences are becoming more common. IBM, for example, holds meetings in Second Life that consist of avatars watching someone give a PowerPoint presentation. Besides the novelty appeal, it's a relatively inexpensive way to hold meetings and allow people to interact when they're spread across the country.
King says small businesses can also benefit from these applications. "Taking advantage of these virtual capabilities will improve how you potentially interact with your employees, your suppliers and your customers."
Most experts agree that while there's not much business opportunity now, the virtual world and its useful business applications will grow by leaps and bounds within the next five to 10 years.
Google Earth and Microsoft's TerraServer products are rapidly creating 3-D models and images of major cities that will allow consumers to seamlessly move between the virtual and physical world. Virtual shopping trips will allow consumers to see a store's location and check its inventory before stepping into the store. The Intuit report also predicts a rapid growth of location-based information services within the next five years that will allow customers to more easily find local sources for goods and services, helping local businesses better target their marketing efforts.
"It's the classic hype cycle: The tech industry and the people who follow it have a tendency to over-hype something, go away from it and criticize it, and then later on it proves to be more successful than we thought," says King, adding that Second Life and other virtual worlds won't reach their potential for another seven years. "Second Life and other virtual realities will continue to emerge as successful platforms for some people, but as a short-term business opportunity, no."
Castronova agrees. "My line on Second Life for a long time is it's an interesting small experiment, but it's not a likely major source for profits and revenues for companies."
At least not yet.