Flying under the proverbial radar for the last four years, the web-based virtual world chatroom IMVU has released new jaw-breaking data: Since April 2004, it has amassed 20 million registered accounts, with 600,000 of those active monthly users. By comparison, Second Life took five years to acquire about 550,000 active users.
The company, well known to web surfers because of its ubiquitous ads, is now earning $1 million a month in revenue, 90 percent of that from the sale of virtual currency and 10 percent from banner ads embedded in its interface, CEO Cary Rosenzweig said. That works out to about $1.66 a month per active user. By VC Jeremy Liew’s estimate, market leaders Habbo Hotel and Club Penguin are earning $1.30 and $1.62 monthly average revenue per user, respectively. How did IMVU grow?
Most of IMVU’s massive catalog of avatar clothing, accessories and other objects available on its online catalog are made by the users themselves. They purchase those items from each other with IMVU credits. (A block of 1000 costs you $1.) IMVU then takes a cut of the profits for each virtual item sale, with the rest going to the individual user.
The result: fresh quality content produced on a regular basis by energized creators. “It’s my personal belief there’s maybe in the order of dozens who are doing this for a living,” Rosenzweig said. “Perhaps hundreds who are doing it for spending money.”
Some more notes:
While not yet profitable, the company plans to roll out pre-paid IMVU currency cards in Target, Blockbuster and other major retail chains in the next two weeks. With light 3-D graphics and cute-sexy cartoon avatars that appeal to girls and young women, it’s easy to see IMVU dominating its particular niche in the virtual world ecosystem, roughly dead center between Second Life and Barbie Girls.

I think it’s safe to say that the era of next-gen gaming as a driving force is over. Why? As of the week ending June 7th (the most recent tally available), just over 9 million copies of the highly touted Grand Theft Auto IV had been sold worldwide for the Xbox 360 and Sony PS3 combined, according to VGChartz.
That may seem impressive, until you start looking closer — which Microsoft, Sony, and the many publishers who develop for their respective consoles are surely doing now. For one thing, its predecessor, 2004’s GTA: San Andreas, sold 21.5 million copies. With GTA IV sales already plummeting, the franchise’s latest installment from Take-Two Interactive will be lucky to move 12-14 million copies total. What’s more, it cost a record $100 million to develop.
But it gets worse.
Despite being part of one of the most popular video game series of all time, the arrival of GTA IV failed to boost sales of new next-generation consoles. (PS3 and 360 are defined as “next-gen” for boasting the best and latest graphics features.) Meanwhile, sales of the non-next-gen, GTA IV-less Nintendo Wii were double that of PS3/360’s numbers combined. If Grand Theft Auto can’t move more machines, nothing can. Which not only suggests that the market for next-gen consoles has been exhausted, but that the audience for big budget, AAA next-gen titles has been tapped out, too.
Which is why I think GTA IV is next-gen’s siren song, and a sign of drastic changes to come. Expect to see games made for lower budgets, targeted at wider audiences (ones that aren’t fixated on high-end 3D graphics) and delivered over broadband with a micropayment program in place. Don’t expect a follow-up to the 360 or PS3 anytime soon, either. In other words, the days when so-called “next-gen” gaming reigned supreme are coming to end — instead, the industry’s future will be shaped by games like Rock Band.
Image credit: www.rockstargames.com/IV/

Ah Vermont, that lovely New England state known for its maple syrup, Ben & Jerry’s ice cream…and now, limited liability corporations that only exist online.
On June 6th, Gov. Jim Douglas signed an inauspicious-sounding bill entitled “H.0888, Miscellaneous Tax Documents” that could revolutionize the way startup companies are formed and run. As New York Law School professor David Johnson explained to me, up until now, U.S. law required LLCs to have physical headquarters, in-person board meetings and other regulations that have little relevance in the digital age.
No longer. Under the new law, for example, a board meeting may be conducted “in person or through the use of [an] electronic or telecommunications medium.” A “‘virtual company’ will be, as a legal matter, a Vermont limited liability company,” said Johnson. And other states are required to recognize the corporation as a legitimate LLC. So while in the past many companies registered in Delaware to take advantage of that state’s business-friendly policies, with this law, Internet-driven startups may find Vermont even more ideal.
Johnson was instrumental to crafting the bill’s language; he, along with his NYLS students and a couple of professors at Vermont Law School, spent the last two years putting it together. He foresees virtual companies launched for countless reasons, such as the production of software or publications written by people across the country, even for corporations that exist only in Second Life.
As you may have guessed, this isn’t just an academic exercise for Johnson; he’s also developing software to manage virtual corporations through NYLS’ DoTank project. Since word of the Vermont bill’s passing got out, he said, “I’ve had two people beg me to be the first to get on the list” to start filing virtual incorporation papers. Indeed, it’s easy to see this becoming standard practice in coming years, with traditional office buildings being abandoned for dynamic companies that exist wherever its employees happen to crack open their computers.
Image credit: Vermont.gov

There’s a lot of VC money going into web-based, advertising-driven casual games, so here’s a wake-up call to investors: They may get better ROI with mobile phone-based gaming.
In 2006, mobile game platform Greystripe launched GameJump.com, a distribution site for free, ad-supported cellphone games; since then, consumers have downloaded over 65 million copies of Greystripe’s hundreds of titles. The company will publish an extended report of their user data later this week, but were nice enough to give me an advance peek. I’m looking at a lot of surprising numbers, but the most striking one to me is how gamers interact with the ads that appear before and after gameplay.
According to Greystripe, 10.1 percent of them click on the ads, a CTR that far outstrips web ads, which average some 1 percent to 2 percent. I strongly suspect at least some of these are accidental, fumble-thumb click-throughs, but even then, from the advertisers’ perspective, that’s not a bug, but a feature. And while mobile games are almost by definition casual, the demographic breakdown is markedly different from the web-based casual space, which is dominated by older women.
By contrast, 69 percent of the site’s U.S. users are aged 18-34, and 60 percent are male — roughly the same percent that own a PS3/360/Wii game console. So unsurprisingly, the top 20 titles are not just puzzle games, but arcade-flavored titles like Rollercoaster Rush and Bikini Pool Summer, from a studio called, appropriately enough, Guy Games. With data like this, I think we’re going to see a lot more money moving to mobile.
Image credit: GameJump.com

If you’re good at leading people in online games, you’re good at doing it in the real world. At least that’s the theory posited in two studies, one by IBM last year and another, more recent one from Harvard. Both studies noted similarities between CEO skills and those displayed by in-game leaders. They also found that specific characteristics of those virtual worlds could “make leaders out of lemmings.”
While those studies looked at what it takes to lead groups within games, they didn’t focus on player-vs.-player interactions. If you believe business is warfare, then it’s worth studying which factors the winners have in common. That’s just what four researchers at the University of Michigan have done in a report published late last year, using data from Blizzard’s Worlds of Warcraft MMORPG.
In their study, the researchers looked at several variables that affect gameplay, including whether the server allowed widespread fighting amongst players, how populated the server was, and how the guild to which players belonged was structured. These environmental factors are critical: As the Harvard study noted, “Successful leadership in online games has less to do with the attributes of individual leaders than with the game environment, as created by the developer and enhanced by the gamers themselves.”
WoW is an excellent study environment for research into communities. For one thing, there are over 10 million subscribers playing the game. The client is also relatively open, making it possible to collect in-game data reliably. Finally, MMORPGs are filled with rankings, scorings and variables that affect gameplay, all of which offer opportunities for analysis.
The researchers combined data on who was winning fights with algorithms that analyze relationships and advanced visualization techniques. Using the resulting visualizations, they were able to speculate on several factors that may shape winning teams.
They concluded that closer teams scored better, and that certain environmental factors — such as relative server population and whether players’ guilds demanded significant time commitments — led, in turn, to these teams becoming closer.
In particular, they found that “players who frequently collaborate with other players in WoW may adopt better coordinating strategies” while “members of low-performing teams, since they are not part of large communities…may have not developed successful strategies for coordination.”
The study was not clear about other factors that may have given players an advantage. For example, raiding high-level game instances yields better equipment, improving hit rating and dodging ability that can give a fighter the upper hand.
The researchers had a vast amount of detailed information from which to draw their conclusions. But businesses may not be far behind. Electronic interactions provide a “breadcrumb trail” of how organizations tackled a problem, which can then be analyzed in ways that weren’t possible before. By applying this type of research to data from messaging analysis tools like Xobni and Xoopit, or instant messaging, organizations will ultimately identify which people and practices give them a competitive advantage, and which factors lead to success when dealing with specific kinds of problems.
Where online games have the edge today is in their control over environmental factors. Game designers can explicitly control the gameplay, encouraging players to attack monsters over one another, or to spend their time harvesting vs. solving quests. But company executives have a much harder time setting explicit rules — collaboration over mercenary attitudes, for example.
It’s clear that many of the skills people develop online today, such as through the use of instant messaging, avatars and shared environments, will help in the business world of tomorrow. Electronic interactions with distributed teams require different communications styles and leadership techniques. Teams that insist on frequent collaboration and become familiar with their tools will thrive, while occasional users with infrequent interactions will stumble.
As companies learn to harvest the vast amounts of data they have on employee behavior, it will become commonplace to analyze your workforce the same way you tweak an online marketing campaign. If you’re an information worker, get ready to be optimized.

The thumbnail on the left depicts a service that, if it fully delivers as promised, has a decent chance to transform the web as profoundly as AdSense. Launching today, it’s the NeoEdge Game Channel, an ad-driven game widget from NeoEdge, the Mountain View startup we wrote about last November. Its Game Channel is a kind of videogame jukebox offering a selection of titles from several genres; when you click to play, NeoEdge’s advertising feed kicks in as the game loads.
Here’s the thing that excites me most: Pretty much any web owner (including bloggers) can install this plug-and-play widget on their site, and share advertising revenue with NeoEdge. (Hence the comparison to AdSense, only fun and interactive.) The social network PerfSpot is using the Channel, so you can go here to get a sense of what it’s like.
For site owners, NeoEdge Marketing VP Ty Levine told me, “This is a way of keeping people on your site.” It also gives them a new revenue stream; a site with 200,000 unique users, Levine estimated, could earn $1,000 to 5,000 a month, depending on the owner’s sponsorship deal and revenue share. With some 400 titles in the NeoEdge library, the channel can be customized with selections that fit a site’s demographics and branding.
As with AdSense, the Game Channel widget gives site owners far and wide an incentive to install it — and gives casual-game developers reason to keep creating content for it. Whether NeoEdge can capture and hold this market depends on its ability to deliver a diverse and compelling library of games — and to stay ahead of its competitors. With so many players rushing into the ad-driven casual game space, I wouldn’t be surprised to see similar services, purporting to offer better titles and/or revenue shares, launched by NeoEdge’s rivals. Let the casual game wars begin!

A few months ago we made note of the public beta of GameLayers’ Passively Multiplayer Online Game, the immensely clever MMO that turns web browsing into a game. Now with 20,000 registered beta users, it’s finally open for public play — go here to check it out.
It debuts with a cool kicker: GigaOM itself is one of the game’s destination sites! If PMOG players visit this blog enough times they win a “KillahOM” badge. “It’s like an Xbox Live achievement that you get based on your surfing habits,” GameLayers’ chief creative officer, Merci Hammon, explained to me. “A lot of players actually change their surfing habits to get all the badges.” It’s also a clever way to get top blogs involved in PMOG — by appealing to our vanity.

The casual games space keeps getting more interesting. Digital media company RealNetworks said today that revenue from its games division rose 33 percent in the first quarter, to $31.8 million; the company also announced it will spin off its games properties, which primarily consists of cellphone titles and its RealArcade casual game site, into a separate company (see CEO Rob Glaser’s appearance on the GigaOM Show last summer). “[T]he spin off will create a pure-play casual games business with increased transparency,” CFO Michael Eggers told MarketWatch, “[and that will] result in lower complexity in understanding and tracking RealNetworks’ performance.”
If the Alexa rankings are any indication, the new company will have a long way to go before they catch up with the likes of Electronic Arts’ (ERTS) Pogo.com. The real question, however, is how does this relate to RealNetworks’ stated intent to buy Scrabulous?

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The best sign that someone’s qualified to run an Internet startup may not be an MBA degree, but level 70 guild leader status, according to the latest issue of Harvard Business Review.
“Leadership’s Online Labs” by Byron Reeves, Thomas W. Malone, and Tony O’Driscoll is based on the authors’ research into the leadership and management skills required by fantasy/sci-fi MMORPGs like World of Warcraft and Eve Online. In those multiplayer games, the hardest-to-achieve goals (such as killing the demi-god dragon, wiping out a competing space corporation, and so on) often require dozens or even hundreds of players working together in concert, so the skills required to lead a successful mission, the authors argue, are very much like those needed to run a profitable business.
The theory is hardly new; venture capitalist and hardcore WoW player Joi Ito has been talking about this for years. But the HBR team bolsters it with extensive interviews and observations to turn out an article that could help revolutionize business management in the digital age.
So what are some of the main managerial lessons they learned from the worlds of orcs, elves and battle cruisers? Below are the three that stand out most to me — call them the habits of highly effective half-elf managers:
Embrace Failure As a Rung on the Success Ladder
“In one incident that we recorded from EverQuest,” Reeves, Malone and O’Driscoll report, “seven guild members prepared for a brand-new quest that required them to get their team across a large lake protected by a gruesome and hostile creature.” They did this despite knowing they were likely to drown, which they very nearly did. But when the team failed to make it across, it was simply viewed as a learning experience, and after re-orientating themselves, they went right back to try it again. (The classic corporate response would be to simply cut the failed program’s funding, as opposed to re-launching with a new strategy.)
Rotate Individual Managers to Individual Goals
The authors were also surprised that guild leaders often became followers, letting temporary leaders come forward to direct specific sub-goals:
Put another way, leadership in games is a task, not an identity—a state that a player enters and exits rather than a personal trait that emerges and thereafter defines the individual.
It’s easy to see how that principle would apply to real-world business; of course, it would require a managerial culture in which personal pride is attached not to a job title, but to getting the job done. This could be why MMO guild leaders rarely seem to be managers in real life. Indeed, Joi Ito once told me that while his We Know World of Warcraft guild includes top Silicon Valley execs, when it comes to WoW, they’re not always good leaders. One of its best commanders, he said, was an EMT worker.
To Get Better Management, Change the Game
The authors went in expecting to learn managerial wisdom from MMO’s top guild leaders, interviewing them as though they were virtual Jack Welches. But the players suggested a different approach: “If you want better leadership,” they said, “why not change the game instead of trying to change the leaders?”
Quite literally. Online games are highly structured, and successful gameplay is determined by the amount of virtual treasure players have in their possession and the amount of game information of which they’re aware (player stats, enemy capabilities, etc.). The authors suggest a number of ways business data can be given a game-like structure, which would then shape how the company runs. For example, what if your CEO assigned value, in virtual currency, to your company’s internal email?
Attaching a large amount of the scarce currency to a particular message would draw attention to it or even serve as a feedback mechanism: You send me an e-mail you value at 100 units, and I respond with one valued at 200, giving you a credit of 100 units to validate the usefulness of the information you sent. One experiment showed that the currency, as a marker of information importance, in fact influenced how quickly colleagues opened and read different messages in their inboxes.
With online gaming so mainstream (World of Warcraft now has 10 million subscribers), many people in the tech business world have already learned these lessons. The Harvard authors note an IBM survey of its managers who were also gamers, and the results are striking:
Three-quarters of the respondents said that environmental factors within multiplayer games could be applied to enhance leadership effectiveness in a global enterprise. Nearly half said that game playing had already improved their real-world leadership capabilities, particularly for managing teams whose members didn’t fall under their formal authority.
At the same time, the business leaders also worried that implementing what they learned in games would require drastic changes to the companies’ existing corporate culture. Which is why I think we’ll see these invaluable ideas put into practice not by established firms, but by startups eager to level up into world-conquering profitability.
Image credit: harvardbusinessonline.hbsp.harvard.edu. Hat tip: Virtual Worlds Review.

Finally, another game widget worth adding next to Scrabulous. Last week came news that Jeff Bezos invested $3 million in casual game site Kongregate; I just noticed that CEO Jim Greer and his team have added a Kongregate Facebook widget to their service, too.
Right now, it’s mainly just a platform to launch featured games from the Kongregate site, but it’s got some cool Facebook-unique functionality as well: Your best scores are featured on your FB profile, for instance, and you can compare your Kongregate rank to other gamers on the social network.
According to the widget FAQ, upcoming features include Kongregate games playable right on Facebook, as well as high-score leaderboards for you and your friends. In between rounds of Desktop Tower Defense and Sonny, be sure to check out this 1UP interview with Greer, where he describes his company’s bid to become “the Xbox Live for Flash games” — and the smart development deals they’ve worked out with indie Flash game developers.

The casual games market is booming, generating over $2.25 billion in yearly revenue despite virtually no brick-and-mortar representation or advertising and marketing costs. But is this market rewarding for investors? For VCs interested in this space, here’s rundown of how it works.

A casual game is defined as a stand-alone entertainment software title that is digitally distributed by one or many “portals,” or independently owned Internet retail sites. Casual games typically operate under a try-before-you-buy business model –- the downloads allow players to play for a set period of time (usually 60 minutes) before shutting down. If the player wishes to continue playing, they must pay the retail price, which they can do electronically from inside the program, instantly unlocking the game for unlimited play. The average rate of purchase to play is lower than 1 percent, and games that convert higher than 2 percent are considered “hits.” The largest market for these games is women ages 30-60, a significant departure from the standard computer games market.
Development costs
The development cost of a casual game typically hovers somewhere around $100,000. That money goes into paying developers, including artists, programmers, game designers, project managers and audio engineers, as well as the developer’s overhead. This investment usually pays for between eight and 12 months of work. Of course, there are ways to reduce costs. In recent years, many developers have outsourced art and coding to companies overseas, in places like Eastern Europe, India or China. But such a move needs to be carefully managed, as many outsourced games are shipped with little quality control, often sporting poor or confusing English.
The primary profit center for casual games is online retail. Games in the genre retail for $19.99, minus retailer discounts and incentives. Since conversion rates for a casual game usually linger below 1 percent, the only profitable games are hits – mid-level successes rarely recoup their development costs. Causal games are not a high-margin business. Because the market involves so many middlemen, the final slice of the pie that makes it to developers is usually quite small.
Investing
Investment in casual game development can come in two forms: as a publisher or as a development partner. Each carries its own risks and rewards. Typically most VC investment in the casual games industry goes to the publisher, and most of the major publishers (including PlayFirst, Big Fish and iWin) were founded with VC money. Publishers then contract with individual developers to create games, paying them an up-front amount as well as a percentage of sales. Once the game is completed, publishers then distribute the game to portals and handle receivables from those portals. Most of the major publishers also maintain portals of their own, retailing both titles they publish as well as other games.
VC money does not, of course, guarantee a hit game. PlayFirst is the best example of using venture capital to successful ends, commissioning Gamelab (where I currently work) to develop their first set of titles, including the very successful Diner Dash. But another Playfirst-commission title we developed, Subway Scramble, didn’t do nearly as well.
Recently, a few studios have worked with VCs on the development side and then self-published the resultant games. This method eliminates the publisher’s revenue share, meaning more of the total income goes to the developer. Studios that have followed this method are typically more established in the marketplace, with at least one successful title under their belts. However, the lion’s share of the game’s sale price still goes to the portals and distributors, and recoupment can be slow.
Revenue streams
Developers and publishers depend on the revenue from hit games to subsidize their output, and there is still no dependable method to predict which games will be hits. With an average of one new game getting released every weekday, the market is already becoming saturated. Because development time is relatively short, a successful game will see its mechanics and theme copied and cloned within six months to a year of being released. So while the development cost of a casual game is low compared to a standard PC or console title, the chance of a single title turning a profit is also reduced.
Secondary revenue streams from casual games include advertiser-supported, “free-to-play” versions, which are generating a higher revenue-per-download rate than purchased games, as well as boxed
physical retail copies (usually handled through another third-party distributor) and ports of the game to other devices, including mobile phones and portable gaming consoles. Because casual games are
typically small in file size, with simple input mechanics, they make this transition more easily than complex PC games.
Investing in the casual games market is much like investing in any content market – dependent on a large number of unpredictable forces. There are proven marketing and content models that are exploitable, but the saturation of the market with products slavishly following those models steadily reduces their effectiveness. For a VC, the best bet is to work with an established developer with a strong, marketable idea and keep costs low. Anything else is way too risky for a market this crowded and volatile.
Written by K. Thor Jensen, who’s worked in the games industry for nearly 10 years and is currently an associate producer for Gamelab.
Image credits: playfirst.com, bigfishgames.com, and iwin.com.

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Here’s the metaverse mystery of the week: This strange new private island with a very familiar name recently emerged on the server grid of virtual world Second Life. Spotted yesterday by Second Life blogger Tateru Nino (and confirmed when I checked the world’s dynamic map today), we have to assume it’s an official Nintendo property. When someone buys a virtual island from Linden Lab, they also get to name it. Given Linden’s DMCA enforcement policy, it’s unlikely they’d let just anyone dub an island “Nintendo.”
But that just adds to the puzzle. Unlike console competitors Microsoft and Sony, Nintendo has few properties directly tied to the PC market, and last February, Nintendo President Satoru Iwata said they had no interest in adding an MMO to its Wii system. Nintendo’s U.S. president, Reggie Fils-Aime, said they wanted the Wii to appeal to crossover demographics “very much like the Second Life audience,” so maybe it’s just a virtual marketing site, like Microsoft’s Xbox island.
Here’s a more tantalizing possibility: A German firm has created a Wii-to-SL interface for the treadmill, and developers with Japan’s Softbank have created a Wii-like accelerometer game in Second Life, so maybe Nintendo is cooking up some interesting new product feature. Neither Linden Lab nor Nintendo’s PR firm replied to our queries by publication time, however, and the island’s off-limits to outsiders. For all we know, the Hanso Foundation is involved.

GameRail, a startup purporting to optimize latency for gamers, has closed up shop. An announcement posted on the company web site says that: “[T]he market does not appear to be ready to support a standalone network for gaming at this time.”
I never had a chance to check out the service, though early consumer reports were decidedly mixed. Still, GameRail’s death notice suggests a broader reason: There are probably very few gamers out there willing to pay extra to become what’s colloquially called an SLPB, or “super low ping bastard.”
As one GameRail user endorsement reads, “I had hops to Texas causing pings in excess of 150 and 200 [milliseconds]. Decided to start up the Client, within 3 seconds my pings were 45-50ms.” In other words, paying $11.99 a month dropped latency from a fraction of a second to an even smaller sliver.
When I play Halo or Team Fortress 2, I personally get about 125 millisecond latency on my remarkably mediocre AT&T broadband service, which is probably around average; you’d have to be gaming on a professional level to want it much smaller. Maybe if you’re competitive gamer like Johnathan “Fatal1ty” Wendel or you’re planning to go head-to-head with him, you’d pay for that boost. But if you’re just a weekend warrior, how much is it worth to get your Counterstrike crosshairs on your opponent’s head 1/25th of a second quicker?
In any case, the system wouldn’t serve the tens of millions of hardcore gamers who play Xbox 360 or the Sony PS3. Nor would it be of much use to the hundreds of millions who play web-based casual games or online worlds and MMOs where latency isn’t such a crucial issue. (You can still play World of Warcraft with a dial-up modem, for Pete’s sake.) Even for first-person shooter fans, the pickings are going to be slim: A large number of them already use Valve’s Steam download software (it currently boasts 15 million accounts), and are thus disinclined to download another service on top of that, while many of them play in Internet game cafes where they can’t download anything. So in the end, a standalone network is probably fated to going after too few gamers and thus flounder, if not outright fail.

Pop music keeps getting more virtual! Today there’s news that ’80s metal stars Mötley Crüe are releasing a new single via Xbox 360/PS3 download to Rock Band, the epic bestselling multiplayer rhythm game. And it’s just the latest development in what’s fast becoming a larger trend.
Last month, the game got its own iTunes-like download service, an inevitable move as it and its predecessor, Guitar Hero, instantly attracted millions of download sales. It’s a smart move on the Crüe’s part, and for the embattled record labels, a move that’s probably the best (last?) chance to recover their revenue in the post-Gnutella era: They license their back catalog and new hits to game music publishers; publishers turn their songs into fun interactive experiences; gamers who might otherwise download pirated MP3s or ignore them altogether happily pay to play them on their console.
The amazing thing is how much of this enthusiasm is driven by the gaming experience, as opposed to the actual bands. After all, many of their songs only show up on Guitar Hero/Rock Band as covers and almost as often, the bands were famous well before most gamers were even born. In coming years, I fully expect to see Guitar Hero-like MMOs, where fans jam as avatars with their favorite rock stars (who log in from the comfort of their studio, as opposed to touring in person.) Why stop there? Next up: Popstars who only exist as avatars.
Image credit: www.motley.com.

While Second Life is frequently described as a 3D web browser, there’s a chance it may be remembered as the (late and lamented) Netscape Navigator of metaverse browsers.
That thought occurred to me as I was attending the “Open Source Virtual Worlds” panel at last week’s Virtual Worlds 2008 conference in New York. Like Netscape, Linden Lab last year open-sourced its viewer code, which led to a number of unofficial versions, some of which have been reverse engineered to run on non-Linden servers. And at least one of them already looks significantly better in some respects than Linden’s official viewer.
While IBM showed off its contributions to the open-source 3D Internet on the showroom floor, two of the SL spinoffs were featured at the panel, along with two unrelated platforms — one from a startup and another from Sun Microsystems. Here’s a look under their BSD-friendly hoods:
Billed as a “virtual spaces for real work,” Qwaq is a user-friendly enterprise-level application built on the Croquet open-source virtual worlds platform; it uses Python-powered application and employs XML standards. As presented by company VP Remy Malan, its main value proposition is the ability to quickly launch prefab 3D spaces for business presentations and meetings.
A spinoff of the GPL-ed Java 3D and Sun’s Project Darkstar open-source server software for online worlds, Wonderland also emphasizes business applications, such as the sharing of Open Office documents and Firefox pages in an avatar-driven 3D space. Sun’s Nicole Yankelovich showed off Wonderland’s ability to broadcast multiple group voice chat, a feature intended to simulate the valuable “watercooler chitchat” that real-world office spaces provide. Even more impressive, telephony is integrated into Project Wonderland, so users can communicate in or out of the virtual world space by phone.
Derived from Inspired by Second Life’s open-sourced viewer code, the BSD-licensed OpenSimulator Project was presented by key developer Adam Frisby, a young Australian with a distracting resemblance to Charlie from “Lost.” With an aim of becoming the “Apache of virtual worlds,” OpenSim is built with a set of modules that can be tweaked and added to without disturbing the underlying code. Frisby announced that his team is working with Linden Lab to connect OpenSim-driven servers to Second Life six to 12 months down the road.
Among OpenSim’s developers are two full-time employees of IBM. “What we did is hook that up with IBM’s Open Source team to see how we can contribute,” Michael Rowe, the company’s “3D Internet Manager,” told me at their VW2008 booth. IBM is using Open Sim to experiment with practical 3D applications, including a “3D-Data Center” (pictured) that’ll enable developers to plan, build, and monitor server farms. At the same time, it’s also part of the company’s dedication to leading the way to an open 3D Internet. IBM’s Craig Becker foresees a coming “[S]tabilization of two [to] three virtual world platforms, and it’s important they interoperate.”
realXtend is the name of another modified version of outgrowth of the open source Second Life viewer, created by a Finnish non-profit group that’s aiming for avatar interoperability between various worlds. (Here’s an extensive write-up of the project from the blog of Tish Shute, panel moderator and tireless supporter of open source metaverse projects.) realXtend’s Jani Pirkola presented an impressive demo video, showcasing graphics and physics features that look better than SL’s, including more diverse avatar creation, mesh-based avatars, and more realistic rendering and lighting. Recently partnered with OpenSim (see above), this may become the strongest alternative to official Second Life. Unsurprisingly, Linden Lab founder Philip Rosedale was in the audience, listening intently.
Image credits: RealxtendVideo. 3D-Data center courtesy of Michael J Osias, Chief 3D Architect, Grid Operator, IT Optimization, IBM.

I’m still in Manhattan recuperating from last week’s Virtual Worlds 2008 conference; here are some news and trends that I’ve observed:
Barbie Rising: Subscription option announced for girls’ virtual world with 2.3 million unique users.
Since launching last spring, Mattel’s Barbie Girls has amassed a jaw-dropping 11.2 million signups; of those, a company publicist told me last week, they’re attracting well over 2 million monthly active users. Up to now an entirely free world, in May they’ll launch a subscription-based “VIP” membership, conferring on their users (86 percent of whom are girls over the age of 8) the right to wear a virtual tiara, among other premium content. I’d bet on huge upgrade rates with this model — and for other companies in the growing virtual worlds-for-kids space to follow suit.
IBM gives the metaverse a corporate firewall.
My pronounced bias for Second Life notwithstanding, this is legitimately big news: Working with Linden Lab, IBM showed off its “enterprise-safe” virtual world portal — that is, Second Life regions that exist on IBM’s servers behind their corporate firewall, but are still connected to the larger (and far more anarchic) world of Second Life. More crucial, IBM will offer this setup to other companies. (As an IBM staffer told me cheerfully, “What the hell do you think we’re doing this for, anyway?”) Numerous companies have resisted development in virtual worlds precisely due to the lack of a firewall, so now that the options exists, big announcements in enterprise-class metaverse development could soon follow. Check back here for more details over the coming months.
Leading metaverse developer throws cold water on virtual worlds applications.
Despite the foregoing, I should report the strong note of skepticism offered in the keynote address of Sibley Verbeck, CEO and founder of The Electric Sheep Co., which has built high-profile virtual world projects for CBS, MTV and many other top clients. I missed the talk, but he summed it up for me afterward.
“[M]ost applications for Virtual Worlds are not ready for prime time,” said Verbeck. “Only a few are, and so if you’re expecting to build a business anytime soon in this industry, you’d better do a full analysis on whether your use of virtual worlds is one of those rare ones that is ready here and now with only a feasible application of resources. One big part of that analysis is one of the underlying technology, and I see that as a limiting factor for most of the applications one might consider as otherwise ‘just around the corner’ for virtual worlds.”
Open world vs. walled garden? Competing development models vie for preeminence.
Overall, the strongest tension at VW 2008 was between companies that want virtual worlds accessible via the Internet but otherwise closed off from the wider Net vs. developers from the “Web 3D” school. In the former category, for the most part, are worlds for kids and/or “branded” worlds that exist solely to market the IP and products of a company and its partners. As Linden Lab’s former CTO Cory Ondrejka notes on his blog, “[W]hat really struck me walking around the show was how constrained the virtual world dream has become…with some marketing material promising a ’safer’ or more ‘corporate’ environment.” Like Prodigy or AOL in the early 90s, most of the money is still moving in that direction, but at the conference, there was also a strong showing of open-source worlds, too. More on that in my next post from New York.
Image credit: www.barbiegirls.com. Disclosure: My Second Life blog was an unpaid “media partner” with Virtual Worlds 2008.

Here’s a small sign of larger changes in the game industry: I got word today from Rockstar Games that April’s Grand Theft Auto 4, the latest installment in their huge (if controversial) thugs-in-the-sandbox franchise, will launch with a “Social Club” (open April 15), a site where gamers can track their game scores and achievements against other players.
Anyone with an Xbox Gamertag or PlayStation Network ID can sign up, which means the site will incorporate data from both Xbox 360 and Sony PS3 players; most interestingly, it’ll come with an “LCPD Police Blotter,” which will dynamically display “aggregated data of millions of connected players — showing the most dangerous areas of town, most commonly used weapons and more.”
The announcement and branding hints at more functionality down the road — perhaps a full-fledged social network, or even early preparation for a GTA-based MMO, a spinoff that’s long been rumored but never confirmed. In any case, it leverages the web and aggregated player data in a way we don’t often see with hardcore games, especially cross-platform console titles. And since GTA is the big daddy of console franchises, expect others to follow.
Image credit: www.rockstargames.com/socialclub

The National Health Service is the UK’s state-funded health-care system, and with 1.3 million staffers, the fifth largest employee in the world. And thanks to a chance meeting at a Texas bar at last week’s SXSW, I discovered they’re about to get avatars for their internal resource network. As such, they’re probably the biggest non-gaming organization to incorporate whimsical alter egos into their enterprise infrastructure.
The enterprise part stems from NHS’s licensing deal with Microsoft, which built their online Resource Centre. The avatars come from WeeWorld, the Benchmark Capital-funded social network featuring customizable avatars that resemble “South Park” characters cleaned up for prime time.
“We thought avatars might engender more of a community feel,” Microsoft Web Editor Marilisa Vergottini told me. “Otherwise it’s a bit more anonymous.” (The site is not just for the NHS’s IT department, but for the organization’s health workers, admin staff, etc.) Microsoft last summer initially tried using more generic, non-customizable avatars, but was unsatisfied, so it recently partnered with WeeWorld. And no, British tax dollars aren’t paying to bring avatars to socialized medicine. It’s a promotional showcase for Microsoft’s enterprise solutions, said Vergottini. “The NHS do not pay for this web site; it is entirely a Microsoft-funded site and we see it as a value-add to our NHS customers.”
It’s also the latest application of MMO-like features for corporate use, joining job fairs, virtual world intranets, and other applications that have been introduced in the last couple years.
“[National Health Service] employees are outfitting their WeeMees to reflect their personalities and medical specialties,” said WeeWorld’s marketing & editorial director, Maura Welch, who first told me about the NHS program over Austin margaritas. “It’s becoming a core part of the community NHS is developing for their far-flung employees.”

The Burning Man era of Second Life is over. According to Reuters and a personal announcement on the official blog of Linden Lab, the company behind the user-created online world, Philip Rosedale is stepping down as Linden’s CEO. The company is searching for a replacement with more operational and management expertise; Rosedale will stay on as chair to work on development and strategy.
Rosedale founded the startup in 1999 with an infusion of his own cash from his dot-com boom days as Real Network’s CTO, along with investments from Mitch Kapor, Benchmark Capital and Catamount Ventures. Perhaps just as significantly, that was also the year he made a trip to the famed temporary arts community in the Black Rock desert. In my view, that visit contributed significantly to SL’s phenomenal success under his management — and to many of its setbacks.
Others have attempted to create a user-created 3D world — VRML and Active Worlds are two early failures that spring to mind — but as I write in “The Making of Second Life,” it was Rosedale’s visionary sense of making a new country defined by imagination and egalitarian opportunity that fostered a sense of utopianism and patriotism among the users — which helped them endure the many downtimes and other frustrations that still beset the world. Burning Man, Rosedale told me:
[R]einforced that idea that what we believe in or what we make of things is all that is real. It was unreal because everything was clearly made of found materials and was transitory. But it was real, because when you were there, it was real to you.
And while inspiring words like these helped attract a tight-knit community of early-adopter innovators creating genuinely impressive content — Macworld-meets-the-Metaverse, as I argued in my ETech talk, “Why Won’t Second Life Just Go Away, Already?” — they aren’t always germane to scaling a system. New user retention steadfastly remains at just 10 percent, while monthly active users have recently plateaued at around 550,000. This is largely due to the complex user interface and confusing first-hour experience, neither of which have been significantly improved in Second Life’s five-year existence.
It’s become my firm belief that this lack of progress stems from Philip’s (likely unconscious) desire to recreate the Burning Man experience in SL. (As a new user, you’re generally dropped into a desert of the unreal, and only get anything out of Second Life if you reach out to the creative, often eccentric community already there.) The spirit of Burning Man is also arguably discernible in his “Tao of Linden” company philosophy, in which employees choose their own tasks — as opposed to, say, tasks that might grow the user base. With Rosedale in a more ancillary visionary role, and a more experienced day-to-day, managerial CEO in place, that’s likely to change things, surely for the better.
The screenshot, by the way, is from last Tuesday’s mixed reality interview with Philip (in RL and SL) for the GigaOM show.

How serious is Sony about online worlds? For the longest time, execs at their Tokyo HQ kept an arms-length distance from the San Diego-based Sony Online Entertainment, purveyor of Everquest I/II, the recently released Pirates of the Burning Sea, and other PC-centric MMOs and online games. Over the last decade, anytime I’d write about an SOE property, their press flacks made sure I clearly distinguished the company from the Japanese mother ship.
That’s about to change. Starting April 1st, SOE will be managed directly by Kazuo Hirai, Sony president and group CEO. The move is meant to better integrate their online PC properties with their Playstation 3 console — just as the press release is probably meant to tell the market that Sony is finally waking up to the fact that their console is in desperate need of more online games and functionality. In my opinion, it’s about five years too late, mixing two mediocre vintages past their prime.
Once the dominant console manufacturer, Sony’s PS3 is floundering in third place with just 21 percent of the market, according VGChartz. Once the dominant MMO publisher, SOE’s two Everquest MMOs have less than 500,000 subscribers combined (according to MMOGChart) and far less for its Star Wars Galaxies, which was largely undermined by disastrous policy changes. Still, it’s too early to dismiss this out of hand. SOE’s recently announced, kid-friendly Free Realms shows promise, and Japanese competitor Nintendo said they won’t be making a MMO for the Wii anytime soon. Seen that way, this could be Sony’s best (and only?) chance to recover its past glory.

Last summer we wondered where the games for the iPhone were. Now we know they’re coming, in a big way.
Apple last week showed off the details of its SDK, with VP Scott Forstall promoting it as “a great platform to develop games on.” Just as crucial, publishing giant Electronic Arts said they’d be porting Will Wright’s greatly anticipated Spore and other franchises to the iPhone.
The editor of leading game industry site Next Generation is duly excited by the iPhone’s potential as a game platform, touting its large install base, online distribution network, and intuitive touch-screen interface. All true, but I wouldn’t crown the iPhone king of the phone game platform quite yet. The Google-backed Android, for example, is open source, and the search giant is sponsoring a $10 million developer challenge for Android applications, including games.
Other third-party developers are considering even more exotic applications of Apple’s SDK: A company called BOXFab is cooking up plans to release “a Virtual Reality display device which uses the iPhone as the viewing plate so that it becomes a wearable virtual headset simply by clipping on a special attachment.” Very interesting, if they can pull it off — and convince consumers to clip a phone to their face.
Image credit: BOXfab.com.
