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The other virtual shoe finally dropped today– after a year and a half of rumors, Google (GOOG) now brings us Lively, a web-driven mini-virtual world. Not a contiguous, immersive, fully user-created metaverse like Second Life, as it turns out– so it’s not really a direct competitor– but a series of virtual world chatrooms more akin to IMVU. (However, IMVU has a virtual economy of user-created content, while Lively does not, least not yet.)

On first glance, Lively seems too similar to several existing (and very large) MMOs, making it an also-ran without a key market distinguisher to be truly compelling (besides being from Google). You can stream YouTube videos in these rooms and embed rooms on websites, and it’s got appealing cartoon visuals and a fairly intuitive interface, but that’s true of numerous online worlds already out there.
 Of course Google is the Net’s dominant force, but then, that probably won’t matter to the tens of millions already happy in existing virtual worlds. Without some special magic that I’m not seeing as yet, it could easily wind up being a virtual world version of Google Video, easily eclipsed by the YouTube-level dominance of Habbo Hotel/Club Penguin/Gaia Online/etc.

Of course, all this doesn’t answer the most salient question: why would a search engine company create a virtual world in the first place? Does it even fit into their larger plans? As Mel Guymon, Google’s Head of 3D Operations, suggests to Virtual World News, the real takeaway is to validate a growing market for this space. “We’re basically saying this is a real space and everyone is doing this.” Sounds like the 800 lbs. gorilla is just saying, “Me too.”

Lively image credit: Metaverse analyst Dusan Writer, who has some interesting thoughts.

Outspark, a San Francisco-based casual games publisher with offices in Seoul, South Korea, launched its North American games portal yesterday. Like Nexon’s South Korean-developed MapleStory, Outspark games will be free to play — in addition to advertising built into the games and the portal, the company will rely on micro-transactions of virtual goods sales to generate revenue.

Their first game, Fiesta, published by OnsOn Soft in Asia, is an MMO currently in open beta. Outspark, which secured $4 million in funding earlier this spring from Altos Ventures and Doll Capital Management, plans to work with other developers to publish community-oriented multiplayer casual games as well.

I put a few questions to CEO Susan Choe and Chief Studio Officer Nick Foster yesterday to get a better sense of the company’s plans.

The micro-transaction model has been shown to be very successful in South Korea, where Outspark also has experience, but has been slow to take off in North America. Why do you think that is and why do you think it’s time to launch this revenue model here?

SUSAN: The micro-transaction model was slow to gain traction in North America due to a lack of payment solutions like those readily available in Asia. The response of North American gamers, however, to this type of game and item sales model has been tremendous and forms the basis of Outspark’s initial releases. Our expertise in running global portals like Yahoo (YHOO) and leading game product management at companies including EA (ERTS), Nexon, Blizzard and NHN will help us continue to deliver great results.

What demographic do you see as your primary target and how will you reach it?

NICK: Outspark’s initial target demographic is the youth market, specifically those between the ages of 13 and 24. Friendly, socially driven games appeal to all ages, however, and we’re attracting a diverse community of people looking for a different style of play than can be found in conventional console or hardcore games.

Your competition, in my view, is not necessarily World of Warcraft but socially rich Web 2.0 apps like Facebook and YouTube (GOOG). How will your products compete — or integrate — in that space?

SUSAN: Outspark’s goal is to provide a socially active virtual playground for online gamers. By providing games that players genuinely want to spend time in and building a community around that shared experience, Outspark can be a good partner for socially rich Web 2.0 companies by providing their communities with additional engaging activities.

You talked [in the release] about Outspark as a “platform.” Can you tell us more about that?

NICK: Outspark understands online gaming and the human drivers that make game communities successful. We’re combining our expertise in global entertainment with an understanding of virtual item sales and good game design. Outspark’s goal is to find media partners and work with them to apply this holistic “platform” approach to help build additional channels for their IP, around which online communities can grow.

Yesterday Jane brought news of Google actively reaching out to game developers to partner with its Adsense/Adscape network. I just got word that San Francisco-based casual game ad network Mochi Media is partnering with London-based MyGame.com, a casual game site with a user-created flavor.

MyGame.com is also an offshoot of King.com, a truly gigantic game network that boasts 10 million active monthly users (according to a spokeswoman) that recently partnered with RealNetworks (RNWK). Mochi Media’s MochiAds division creates a revenue source for Flash game developers; it already has partnerships with massive casual hits like the beloved Desktop Tower Defense. MyGame has a comparable program in which developers can upload their games and — if the games prove popular — share revenue with the company. (More or less a YouTube-meets-casual games proposition, not unlike Kongregate.)

Where is all this going?

Hard to tell, but with Google (GOOG) sniffing around, there’s sure to be even more activity in this space — partnerships made, buyouts offered, startups launched, and so on. At the same time, it’s difficult to determine how much revenue can be generated from advertising linked to casual games.

As it happens, Gamasutra just published a great article on business models for Flash games featuring extensive conversations with Kongregate CEO Jim Greer and MochiAds CEO Jameson Hsu. While Hsu touts developers who make thousands of dollars monthly with Mochi, Greer emphasizes the modest income even at the upper level: “Let’s say Armor Games gives you a sponsorship for $2,000,” he says. “You get another $1,000 from ad revenue, another $1,500 from prize money, maybe Miniclip licenses your game for $5,000…you might make $10,000 to $15,000 on your Flash game — and that’s a really successful Flash game.” Greer prefers the model used by Electronic Arts’ (ERTS) casual game site Pogo, which gets ad revenue for their free games, but also charges a modest subscriber fee for added benefits. (About 1.5 million Pogo players out of some 13 million have paid that $40 yearly subscription.)

All in all, this reminds me of the tumult over YouTube and other user-created video sites from the last few years — before Google took out its checkbook. If that history is any guide, expect a lot of furious activity and money spent over this war for casual game eyeballs, followed by the industry’s morning-after question, “OK, explain again how we make money from all this?”

Here’s some recent Second Life-related news items:

• A development studio based on an SL avatar secured venture funding from a NYC financier.

• A consortium of U.S. government agencies (including the Navy and Air Force) announced plans to develop a substantial presence in SL.

• An international coalition of labor unions is preparing to strike on behalf of Italian IBM workers at the company’s massive SL campus today.

If you’re a successful tech professional with zero personal interest in online worlds, those blurbs probably just provoked a bemused shrug. Even after reading constant rumors that Google (GOOG) itself is creating a competitor to Linden Lab’s user-created MMO, you’re probably still wondering, “But why should Second Life matter to me?”

In full disclosure, I’m writing a book on the subject, so I have a vested interest in replying. And while I’ve already written a lot about Second Life here, Om asked me to back up, and start from the beginning.

So, the brief answer: In a rapidly growing market of online world users, it’s the most successful example of an embodied, dynamically collaborative content creation platform that’s personally and economically transformative, and scalable to the entire world.

That’s a mouthful, so to break it down into individual parts:

1 - Rapidly growing market: By one reasonable estimate, 80 percent of active Internet users will participate in an online world by 2011, a trend largely driven by the young, who define and shape future Net usage. (A separate study forecasts 53% of all kids on the Internet will be in an MMO by that year.)

2 - Most successful: Currently with some 550,000 monthly active users, SL has grown rapidly and with general consistency since 2004 (12 months ago, it only had about 150,000 avid residents.) Yes, other MMOs are larger, but none of them are user-created, a crucial distinction I’ll get to later.

3 - Embodied: A 3D space navigated by user-controlled avatars that are convincing enough to make their owners feel a personal and social investment in the simulated world they’re in. MMO players refer to their avatars as “me”; several studies suggest this perceptual leap is a real phenomenon. When controlling a Second Life avatar, we even unconsciously obey our unwritten rules of eye contact and personal space.

But what’s so special about feeling like you’re in a 3D world? The better question is: what’s so special about words, numbers, and flat imagery? Those are relatively new tools, artificially imposed on a human evolutionary cycle of a couple million years. When we remember the past, plan the future — when we dream — we do so in the three dimensions displayed by our mind’s eye. Communicating information in simulated 3D seems to enhance learning and insight for that very reason: a common sense intuition that some studies seem to reinforce. Of course, other successful MMOs convey this embodied effect, but largely through content created and controlled by the world’s holding company. Which brings us to the next feature:

4 - Dynamically collaborative content creation platform: A medium where online multi-user content creation is updated in real time. SL is often called “a 3D wiki” — an apt analogy. Consider Wikipedia: At first, most entries in the amateur-driven encyclopedia were mediocre; through a networking effect, however, it quickly became an indispensable resource for every type of information. Second Life is Wikipediafying the universe in 3D, not just the real one, but fictional and even conceptual realities, including abstract art and mathematical theorems. Like Wikipedia, Second Life content skews heavily toward Internet culture in all its lovably geeky strangeness. But dismissing it on those grounds is like dismissing Wikipedia because most of its users (as this search ranking shows) are primarily interested in sci-fi/fantasy/videogames, celebrities, and sex.

5- Economically transformative: SL’s virtual currency (which can be bought and sold for US$) and intellectual property rights to user-created content (which are retained by their creator, even in non-SL projects) are transferable in and out of the global economy. In practical application, this has resulted in movie-makers, fashion companies, and even architecture firms using SL as a prototyping platform for their real-world businesses. The depth and variety of projects that have made the leap from online world to the real world market is unprecedented in other MMOs — or, arguably, in any other web 2.0 platform.

6 – Personally transformative: The striking thing is just who is doing this work, even making a living at it. Often they’re business-savvy homemakers, talented bohemians, physically or mentally impaired people, retirees, tech workers in developing nations, and people who’ve been otherwise kept out of the mainstream job market through real-world barriers that become irrelevant in Second Life. And this is what’s meant by personally transformative: a technology that improves people’s lives in a substantial, profound way. On the macro level, this leverages dormant human capital into the larger economy. eBay (EBAY) is revolutionary because it converted thousands of people into garage-based entrepreneurs and channeled enormous wealth back into the market. Second Life is an eBay of the imagination. (And unsurprisingly, eBay’s founder was an early Linden Lab investor.)

7 - Scalable to the entire world: Last January, Linden open-sourced its client code, and from this flowered a variety of alternate access portals into SL, including Wii controllers, cell phones, and thanks to a 15-year-old female hacker, the web itself. This makes SL a lead contender to become a universally accessible mirror world, where all our physical data is modeled in a dynamic network, an inconceivably valuable resource for scientists, governments, corporations, and beyond. Linden’s stated intentions to open-source their servers would make this outcome even more probable, while transforming the Net itself into a 3D medium.

That’s just the beginning. Many futurists envision a time when 3D printers will supplant or enhance much of our traditional modes of production. Impressive trial runs are already being conducted in Second Life, exporting avatars and other content into the real world — early glimpses, perhaps, of a time when most of our real world goods are developed and produced in the metaverse.

Does the above mean SL itself is an all-bets-on phenomenon? No, because it’s still staggering under scaling difficulties and poor retention rates, while a slew of competitors — Metaplace, Multiverse, HiPiHi, whatever Google’s cooking up, and near a dozen more — are attempting to outgun Linden Lab on their own terms. They’re creating new MMO platforms that’ll also feature avatar-based content creation where users own their IP, and some will probably do it better than Linden is right now. The ferocity of this competition proves one thing: from the market’s perspective, what Second Life originally unleashed is simply not going away.

Image credit: DeltaDharma Dawn