vw07

When CSI's CEO Anthony Zuiker threw out a thousands Mars bars at the audience at the Virtual Worlds Fall 2007 convention in San Jose this week, he meant to symbolize the sweet mash-up of 50 years ago, when Milton Hershey and Frank Mars traded chocolate and cookies to make the century's winner with "pleasure you can't measure" as the old ad slogan said. But a lot of the candies fell on people's heads, prompting Zuiker to quip, "Do we have insurance?".

That's the question to ask, because the TV invasion into virtual worlds is a gamble for TV (not just a stress-test for VWs), one which appears to have been handled well by There.com with Virtual Laguna Beach, and which remains to be seen as a challenge to SL on October 24 for the first CSI: NY/SL airing. Yet the deeper question to ask is whether the TV invasion will destroy the very integrity of the virtual world that attracted TV in the first place. One workshop was even titled: "Virtual Worlds and Big Media: The Future or the Ruination of the Virtual Worlds Space." The discussion was largely framed around the brand-driven model for sustainable recurring revenue versus the purely socializing experience of Second Life and There. Inworlders are hoping that big media will stop trying to get their ad companies to drop discrete product logos or even discrete miniatures into the virtual streaming scene, and move to a more sophisticated model of sponsorship of community activity, like Philips Electronics was the sole sponsor of CBS' "60 Minutes" to make longer news segments and fewer ads, just as Toyota sponsored Scion city.

One TV producer very matter-of-factly told me that whether the CBS gambit on October 24 with CSI and Second Life succeeds big or fails small, the future of the population in VWS will have to be cross-over audiences for them to succeed, as their user audiences now simply are not big enough to sustain their cost. The people coming to search for clues will be the next wave of residents, not the oldbie craftsmen, the midbie inworld entrepreneurs, and the newbie clubsters and campers -- or for that matter, midbie big business and newbie corporate staff. They'll be TV-watchers or corporate networkers, who may or may not want to do these earlier activities, and may or may not contribute to the existing inworld economy as consumers or even producers.

I'm betting they won't, and that the inworld economy will take a severe hit. It is already being replaced by another model: the company town. In this model, a company like ESC or MOU brings in a big media client and creates not a world or an economy but an event or series of events. They hire a team of people, much like a Hollywood producer would hire a troupe of actors and stage-set designers. These hired hands get union salaries and they don't *need* to sell their designs or services to individual consumers anymore -- so their IP, rather than needing to be protected by themselves individually from a horde of consumers who will knock them off, will insteady be given to a company that will either simply buy it and protect it -- or not bother, because they *real* content is no longer contained in a box, a skin, a building but in *an event*. Companies and their creators can even afford to give away the dress of the murder victim that week, a coffee cup made with the same textures as something in the build, etc. because it simply won't matter -- advertisers will pay them, not consumers.

My thesis is born out by the DRM saga. This week's Economist explains, "Abandoning DRM might at least force record companies to develop new business models that focus not on the songs themselves, but on the activities that go with them, argues Mark Mulligan of Jupiter Research." The Economist notes that increasingly artists sign "360-degree contracts" including concert, merchandise and endorsement deals. I say: what better place to drop down a "360-degree contract" than in a 3-D virtual world?! Sell the event, the swag, the branding as a package of experience, and you no longer have to worry about Copybot.

So what happens to the thousands of craftspeople in Second Life and their Tupperware-like loyal customers? They will either get hired by big media companies and their metaversal development agencies -- as they already are -- or die. Perhaps a few sturdy boutique names will remain, possibly to dance the old native dances and wear the colourful constumes of the indigenous peoples for tourists...

It may be a long time before the dying dinosaurs of the big media companies understand what they have trampled, which is a burgeonining movement of independent intrepreneurs and serendipitous teams of creative people solving problems by making their own content, at levels ranging from amateur to professional. Eventually such entrepreneurs will prevail, however, in the long run in the Long Tail because ultimately, people don't want others telling their story for them; they want to tell it themselves.

Two back-to-back workshops today at the Virtual Worlds Fall 2007 Convention in San Jose illustrated the potential for business in two different kinds of worlds: those with closed economies, with no or minimal or potential user-made content, and those with open economies with extensive freedoms for user-made content. The panelists at "Virtual Goods: the Next Big Business Model" (Craig Sherman, CEO of Gaia Online; Timo Soininen, CEO, Habbo; David Fleck, CEO, GoPets, Kyra E. Reppen, Senior VP and General Manager of NeoPets and Susan Wu, Charles River Ventures, moderator) gave us the main key for success: sell pets even for the pets, and make halos scarce (one reportedly sold for US $6,000 on E-bay). The closed economies can not only ensure uniformity of content and safety for this child and teen market; they make it possible for complete game-god control to preserve value (the E-bay sale took place without Gaia's knowledge and in violation of the TOS).

More realistically, the percentage of revenue for these companies selling virtual goods ranges from 65-85 percent; the question is whether they will open up enough as they scale to enable more user-created and developer studio designed content to enable the industry to grow. GoPets envisions the offering of a Worldbuilders Kit in 2008 to provide opportunities for entrepreneurs; the far-seeing CEO Eric Bethke of GoPets is drafting a kind of Bill of Rights for customers to give them rights to their intellectual property. Advertisers are able to work with these game companies to do product placement, and they seemed keenly aware of the sensitivities of their customers to over-advertising -- the "TIVO effect" that is driving so many people to ignore TV advertising, even as they begin to move away from television all together to the web. With tens of millions of young people joining these games, the audiences begin to look substantial, although possibly skittish about branding; yet to sustain the continued development and maintenance of them, advertisers' support is needed -- as even users concede, sometimes looking for branding as a kind of imprimatur of "cool"..

At the panel "Virtual Currency/Virtual Business = Big Business (Guntram Graef, Co-Founder, Anshe Chung Studios, Ltd., John Bates, Evangelist, Entropia Universe, John Zdanowski, CFO, Linden Lab, Peter Phillips, Technical Director, Millions of US, and Edward Castronova, Associate Professor, Indiana University, moderator), it was clear that the subscription numbers of these user-generated virtual worlds are far less, but the volume of transactions in the world not only for the world-makers but the various businesses operating inworld are in real dollars. Still, the economies *are* synthentic and strict controls exist. Restraints on the Linden currency, for example, include a determined policy of Linden Lab to keep printing five percent or so of the money supply to ensure the stabilization of the rate at about L$270 per US dollar. When the economy suffers a profound shock, like the sudden banning of casino gambling this summer, driven largely by credit card processors who put pressure on LL to shut down gambling in compliance with new legislation banning of Internet gambling in the US, 40 percent of the volume of user-to-user transactions were lost in a single day. Yet the exchange rate only dropped a point, and the Lindens simply stopped printing and selling Lindens, and within 3 weeks they absorbed the overhang and were able to make it up due to continuing growth.

Asked about inflation and depression of wages with this dictator-like money-printing policy, which wouldn't be fiscally sound in healthy real-life economies, John Zdanowski said that in the long run, a stable currency was better for everyone and made doing business more predictable; deflation was not good for anyone. The ability to adjust rates of emission when crises occured was something Guntram Graef of ACS said was particularly welcome. When an audience member asked Graef if his assets reported by Business Week at a million $US were all trapped inworld and not able to be expatriated to real life, Graef confidently pointed out that ACS' some 500 islands were a fraction of the more than 12,000 now open on the SL grid, and that in the very unlikely event that ACS were forced to sell their holdings, the Lindens could stabilize the land market by simply rolling out less sims on the auction for a few weeks and sop up the excess without incident.

I queried Zdanowski (Zee Linden) if he would have to conceive of closing the LindEx when Linden Lab open-sources the server code within the next year, as a possible surge of many third-party servers would lead some other companies to make their own currencies or merely charge costs in real-life currencies (a possibility contemplated on the wiki for the Open Grid Architecture). He said a plan to make some kind of "SSL Token" that would be "limited, valued, and secured" was being considered, and that history showed the countries tended to cooperate to make common currencies. He sees his job as mainly how to make the LindEx and the virtual economy sustained and able to survive in a complex regulatory environment, as the Linden dollar that enables microtransactions is a very important part of the Second Life experience. Zee conceded that probably the next wave of regulatory activity could be related to banks and stock exchanges in SL, although LL has no intention of becoming involved in regulation. He said he has hired an attorney familiar with the prosecuting of Internet crimes to in a sense play the role of "Eliot Spitzer" [http://en.wikipedia.org/wiki/Eliot_Spitzer]. Quite a few Europeans peppered Zee with questions about the VAT tax; which he explained LL had absorbed for its customers but now could no longer justify, although an additional month's grace period for enforcement was being added, along with new account features to provide detailed invoices in PDF form required for VAT reporting.

Edward Castronova commented that in this Metaverse, "We already have to worry about government and virtual world relations," which he felt was a common theme running through the conference. "Those who went ahead are doing the mine-sweeping," he said. While some companies might want to make a safe bet on a safe pet, depending on their profile and their brand, others will be attracted to the high-stakes game of Second Life and other worlds with compelling user-to-user real-money-trade economy that helps integrate virtuality with reality for an increasing number of VW inhabitants.

Just how much are the companies represented at Virtual Worlds Fall 2007 willing to gamble now on virtual worlds? At the first VW 2007 conference in the spring, the volume of deals was estimated at $5 million -- later this was revised to $7.5 million with more contracts following as a result of connections made at the meeting. Now the figure estimated conservatively for VW Fall was $20 million, a mixture of investment directly in worlds themselves, in metaversal development agencies, and tools to make the worlds. Part of the reason is that in this "Age of the Avatar," as Reuben Steiger of MOU dubbed it, when asked from the podium by by Chris Sherman, Executive Director of Virtual Worlds Management/Show Initiative, LLC (the convention organizer), nearly every one of the some 800 people in the hall for the keynote speech said they had an avatar, even though roughly half were coming to seriously look at the virtual world industry for the first time.

For businesses contemplating getting their feet wet in virtual worlds, the appearance of new virtual worlds rivalling Second Life matters, both for gaining more flexibility for their own needs, and ensuring that competition drives not only further innovation but better stability, quality assurance, and customer service.

Second Life, for so long the first Next Big Thing in virtual worlds, is everywhere -- and nowhere at the Virtual Worlds Fall 2007 convention in San Jose. Linden Lab, makers of Second Life, do not even have a booth in the expo, and no swag in the goody bag although they are a sponsor. Philip Rosedale, Linden's CEO, who was a keynoter at this prestigious industry conference and expo when it convened in New York in March, is not on the program to speak at all, although Robin Harper, Vice President of Marketing & Community Development and John Zdanowski, Chief Financial Officer, are scheduled to speak.

Rosedale himself nevertheless showed up with trademark carefully-coiffured touselled hair and a tight black shirt, when his plans to go to Korea were changed. Asked if he felt left out, he said, "We're famous enough that we don't have to worry about things like that." Linden staffers explained that they don't want to overwhelm everyone at a time when Second Life has had enormous press coverage -- both positive and negative -- and want the spotlight to shine on those who use their platform to do high-profile projects, like the CSI cross-media project to attract viewers of a television detective series to come into a virtual world and search for murder clues on their own, or IBM and Cisco, companies that have bought dozens of private islands to do trainings and conferencing with their staff.

Some Lindens looked a bit nervously at the huge number of virtual worlds springing up around them -- this convention boasts 30, and a sampling of all the demos showed strikingly Second-Life like scenes, with beautiful graphics, avatars that can do any Second Life animation including flight, as well as movable objects, and geographical contiguity. To be sure, some of them, like Forterra Systems, Inc., appear to be designed for real-life simulation uses such as in the medical field, not for socializing; others, like SceneCaster promise very rich possibilities for socializing and user-made content and integration into Internet social sites like Facebook -- although not user-to-user sales.

Truly, we're now going from the Golden Age, of mythic heroes and conquerors like Philip Rosedale, to the Iron Age of replication by lesser gods -- and more importantly, users themselves. Except...after perusing the many worlds and games on display here, I didn't see any that had as robust a virtual economy based on free user-created content and virtual land sales and rentals. "There's no real estate market quite as free and robust as Second Life- you're good," I assured Philip -- but in fact the others are getting a bead on him. Red Light Center, a new very easy-to-use virtual world for adult activity, will soon release a developers' system where apartments and designs cleared by the world makers for sale will contribute to a user economy, and eventually items are planned for sale. There.com already has a content-creator system that must pass through a central committee and be judged for PG suitability; Red Light Center's review will be for compatibility to prevent crashing of their servers -- which they assure us will hold hundreds more avatars than Second Life, with the limits determined by your client-side ability to render them, not by the companies' servers. Red Light Center could see a surge in membership when the Lindens finally institute age-verification and the adult-only blocks on land menus.

Still, regardless of whether Second Life itself is eclipsed by some of its users flocking to other virtual worlds in search of less lag and more swag, the experienced gained on this pioneering platform has been invaluable, and is cited repeatedly in every workshop discussing practices to replicate -- or avoid.

The pre-meeting to big industry conferences like the Virtual Worlds Fall 2007 convention in San Jose is often more important than the actual pre-set speeches and trade booths. And from various Twitters and Facebooks and hotel lobby chit-chat, the word on the street is that the pre-meeting involved a closed session of game and world makers like Linden Lab and Metaplace together with large companies like IBM, Cisco, and Samsung about interoperability -- starting the conversation about making standard protocols for 3-D virtuality on the Internet, and ultimately realizing the geek dream of walking between worlds, of having one identity or one log-on to reach the soon-to-be numerous virtual worlds, and being able to port content among the worlds.

The meeting evidently didn't get that far beyond outlying some basic common denominators. Some of the giant business companies hadn't even heard of some the game-gods that we avatars believe are our heroes, like Raph Koster, and the for their part, the game-gods marveled that a conversation about standardizing protocols that they have had been holding among themselves for more than a decade since MUDs was only now getting attention from the guys who want to make sure to sell them the widgets to connect their worlds -- as if men in tights was the only activity somebody would want to universalize.

This may be one of those occasions, to paraphrase Adam Smith, when the public has to worry when large competitors finally start to cooperate. Why? Because the diversity and integrity of individual worlds and games are at stake, and the RMT economies of some of them may depend on their makers being willing to keep tough protectionist legislation and strict customs inspection at borders. Real-life globalization has devastated the economies of the developing world and, Americanized content all over the planet. Will virtual globalization be as bland or even destructive? While developers and advertisers might like to see convergence and globalization, and an end to "walled gardens" and "silos" as the games and worlds are scornfully dubbed in order to sum up the problem of lack of passports and portability, no serious studies have been made of the consumers desire -- and willingness in practice -- to cross over among their worlds and games. Obviously an Eve starship jars the story line for the orc in World of Warcraft on the moor (of course, some will want to deliberately mix and mash these genres).

Aside from world-hopping, however, standardization not only of technical aspects but policy aspects of virtual worlds are an inevitability as more and more individual, corporate, and educational users are attracted to virtual worlds. For example, US government and publicly funded websites are mandated to be "Section 508 compliant" in conformity with a law to enable access for the disabled, so the government already legislates standards in some areas. If the industry doesn't make its own standards, government regulators may do it for them.

Eager to stay on top of the standardization race, Linden Lab issued a breathless press release today in San Jose saying that have launched a collaboration with IBM "to develop new technologies and methodologies based on open standards that will help advance the future of 3D virtual worlds." Evidently they didn't find any other takers at the pre-meeting for such announced collaboration, though surely other world-makers will be avidly following the LL claim that they have "built the Second Life Grid as part of the evolution of the Internet" as Ginsu Yoon, VP of Business Affairs claims. The standards contemplated include "universal" avatars to cross into multiple worlds, security-rich transactions of virtual goods, platform stability, integration with existing Web and business processes, and open standards for interoperability with the current Web -- all of it total blue-skying for the avatars of Second Life, who are lucky to hang on to their inventory from one log-in to the other, let along across the Metaverse.

The scene is a crime investigation lab, a preview of a clip from CSI, one of the most popular TV shows in the world. The detective is looking inside Second Life at an avatar woman whose real-life typist has been murdered. He tries to explain the reality of virtual worlds to his skeptical colleagues. "It's not a game," he says philosophically, staring at the screen. We first-lifers need to understand that you can socialize, even make businesses, he begins to explain. "Why?!" says his fellow detective, completely skeptical.

The detective's question may be asked by many TV-viewers on October 24th, when the TV episode airs, and when CSI's creator, Anthony Zuiker. and his consultants, the Electric Sheep Company, a top metaversal service agency developing content within the platform of Second Life, will offer viewers a chance to follow the mystery story into a virtual world. Anthony Zuiker, keynote speaker at the Virtual Worlds 2007 Fall Conference in San Jose this week, and Sibley Verbeck, CEO of the Sheep, are expecting as many as a million CBS viewers to log on to Second Life to investigate a crime story generated within Second Life. If behavior of TV viewers on other shows with placement of 2-D Internet sites within their story line is any indicator, 50 percent increase or more in log-ons to the TV-related sites results, even frying the servers. Sibley says they won't fry -- they are laying on hundreds of new SL islands to accommodate the surge. The Lindens say they'll be able to support these new sign-ups and a huge jump in concurrent log-ons -- a special team at LL has been assigned to work on the CSI episode, a decision they justify by telling themselves that if they can accommodate big user jumps like this, it will help everyone eventually, not just one company.

Skepticism at the convention abounded -- but the real issue isn't whether the Lindens' servers crash -- an old story for Second Lifers. More importantly, industry observers will get a chance to see whether couch-potatoes will bother to download an avatar and begin interacting with media inside a virtual world instead of merely consuming a TV show passively, and whether existing Second Life users will bother to visit the pre-fabricated CSI site, given that many long ago abandoned passive television watching for the compelling experience of making their own content or at least acting in their own generated free-flowing virtual story.

Zuiker believes that the shock of the 9/11 terrorist attack made a whole generation of youth feel as if they could no longer control their world, and forced them "underground" -- to worlds, games, social networks they *could* control. The question is whether there is enough of a niche of people who will accept prefabricated story lines and content generated from a television show -- especially if some of the scenes have free content or prizes -- or will ignore or even trash such scenarios. Only the traffic will tell -- if people can get logged on, the Second Life community accepts it, and if some darkly suspect, "preferred log-ons" aren't instituted at least to make a good showing for the real-life media. Given that asynchronous accessing of the story is possible, and people will try and keep returning to solve clues, so load may be distributed, and the potential for the move away from the blue screen to the green hand cannot be judged by the one day of heavy log-ons

TV executives are hugely motivated, like print media, to investigate virtual worlds, because they are losing their viewers to the Internet and online games -- and they are trying to find ways to follow them. Marketers are assured that they can drop products like i-Phones of Q-tips into the crime scenes of CSI and get placement assured a lot of eyeballs. The model has not yet been seriously tried in Second Life yet, although Metaversatility did create a mystery house filled with clues as part of the promotion related to the movie The Nines and of course the L-World, a Showtime series, has theme-related sims in Second Life. One thing is certain: existing television production budgets and story ideas are still huge enough to make a big impact on virtual worlds, and perhaps that infusion will be enough not only to get passive viewers to become assisted doers, but to get the Linden servers to hold up under the load.