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The Business Relevance of Virtual Worlds

Analysis of News Events
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The worlds may be virtual, but their future is real.

By Ron Exler (Ptolemy Jacobus in Second Life)

IBM and Linden Lab, creator of the virtual world Second Life (SL), recently announced that they demonstrated virtual world interoperability by teleporting avatars between the Second Life Preview Grid and an OpenSim virtual world server. The companies said that the joint development project "represents an industry first of a quantifiable milestone for virtual world interconnectivity." In related news, Google introduced its virtual world, Lively, at the beginning of July.


But do virtual worlds matter to businesses? Should they?


A virtual world is a computer-based simulated environment in which people can live and interact using avatars, or representations of themselves. Some of these environments are set up for gaming, while others are more general in nature. The range of press coverage has ranged from excessive hype of virtual worlds to negative backlash.


SL is one such virtual world, launched in 2003 by Linden Lab. SL uses three-dimensional (3D) graphics to create a beautiful and realistic fantasy world. Users sign up using make-believe names and dress up their avatar to their liking. Users can then roam around this virtual world by walking, flying, and even "teleporting" (think Star Trek) to locations. According to the company, the current total number of "residents" tops 14 million, with more than 700,000 of them logged in during the last 30 days.


According to some experts, the number of people registered that is touted by the virtual worlds is misleading. "The real issue is the number of people who regularly use them, and that ratio [to registered] is still very low," said Barry Gilbert, VP and Research Director of Strategy Analytics. "For every 100 who register in a virtual world, ten are repeat visitors. Of the ten, five become active." However, Gilbert believes this is a temporary shortcoming reflecting the nascent nature of virtual worlds. "It's the future for business interactions. Virtual worlds are not going away, and it is time for companies to begin understanding them."


Most virtual worlds began as social venues for gaming or interest sharing, and many people enjoy taking on alter egos or pretending to be someone or something they are not in real life. Recently, however, businesses are moving in, believing there is real commerce potential in these worlds. IBM, American Apparel, BP Global, Circuit City, Dell, Intel, Sears, Starwood Hotels, and Toyota are among the companies that have presence in virtual worlds.


Virtual worlds provide a way to interact in either a one-to-one or one-to-many setting. This is possible not only through visual cues, including avatar movements and chatting in the virtual worlds, but also via events. Events include lectures, tutorials, and even conferences. There are, of course, simpler alternatives such as WebEx and GoToMeeting for conference calls and Webinars. However, Gilbert's research shows that people interact differently in virtual worlds, even when their identities are known. The gaming element of virtual worlds lends appeal and even a mask of safety to people, removing some barriers to open communication. Businesses that use virtual worlds for meetings report savings in travel costs, less reluctance to attend meetings, and improved interactions--even over face-to-face meetings. "WebEx and the others will adopt virtual world attributes that people want. These things are converging," added Gilbert. Likewise, while virtual worlds offer social networking, such capabilities are available on more widely used sites such as Facebook and LinkedIn. As with the Web conferencing, the social networks will likely converge with virtual worlds.


In addition to collaboration, virtual worlds are venues for marketing and research. For example, Starwood Hotels used Second Life to test its aloft hotel brand concept. The company built online prototypes of the hotels with many design details and solicited feedback. People could move around a model of the hotel and comment on its features. In September, the company opened the new aloft hotel brand inside SL, claiming to be the first company to do such a thing.


SL now promotes its virtual world platform to businesses, claiming these benefits:

•·                 Increased productivity via events, meetings, training, simulation, recruiting, and product research

•·                 Effective collaboration via scripted training simulation and cooperative design.

•·                 Improved communication supported by images, audio, video, text, and voice, with both groups and individuals

•·                 Enhanced engagement with customers or audience through 3D interaction

•·                 Reduced business costs with savings on travel, video conferencing


However, SL and other virtual worlds are not without their problems and critics. It can be difficult to get started; SL requires a proprietary SL download that runs outside a Web browser. Then, one has to configure an avatar and then figure out how to use it in the virtual world. Once inside, it is not clear what is really there and how to find things of interest. However, if someone has a specific purpose in mind when visiting, the experience can be meaningful. The rich graphics and easy interactions with other members and objects can be valuable.


The largest virtual worlds are closed environments, i.e., avatars and objects created in one world cannot easily transfer to other virtual worlds. With the interoperability announcement by IBM and Linden Labs, avatars can now teleport between virtual worlds, making this the first significant interoperability success. According to the companies, IBM plans to offer the extensions developed for OpenSim to the OpenSim community, and Linden Lab plans to make the extensions developed for the Second Life viewer available as open source.


Other venues provide focused business collaboration tools in the virtual world. For example, Qwaq offers virtual rooms for business meetings along with tools for using documents, spreadsheets, presentations, videos, and even 3D objects from design software. Communication inside the rooms is via text messages or Voice over IP (VOIP). Qwaq also provides security not available in most popular virtual worlds. Forterra Systems provides tailored 3D business collaboration solutions based on industry- and customer-specific needs in business, government, education, and healthcare.


IBM has made significant investments into virtual worlds. In SL, IBM not only advertises, it holds education sessions, events, and internal meetings. IBM sees a link between virtual worlds and the collaboration required for modern application development. Virtual worlds do provide another collaboration platform that goes beyond email, instant messaging, and teleconferences. For distributed teams that cannot meet in person, all of these online tools are invaluable. Plus, virtual worlds are fun to use, in contrast to the other commonly used electronic communication tools.


Company presence in a virtual world is one that requires not only the initial investment, but also ongoing care and feeding. Strategy Analytics estimates that, on average, companies should expect a 60 percent annualized investment of the initial investment required. The challenge for companies is to capture, retain, and incent repeat visitors. However, there are neither return-on-investment studies nor even a process for justifying business participation in virtual worlds. As it is early, companies need to have realistic expectations. Being in virtual worlds may not access huge numbers of prospects, but presence of a company gives it a leading-edge cachet not available elsewhere. Such perception is especially important to companies targeting the younger demographic. "Companies need to be clear on their objectives going in and view it as a long-term activity," stated Gilbert.


While existing virtual worlds are fantasy, integration of the real world will happen. For example, some streets of Dublin are replicated in SL. In an article titled "Second Earth" in MIT's Technology Review (July/Aug. 2007), author Wade Roush discusses in detail how Google Earth might be integrated into virtual worlds to support a variety of real-world applications such as weather analysis, military planning, emergency planning, and more. Integration of sensors collecting live information will further enhance the potential for applications of virtual worlds based on the real world.


Resources for investigating virtual worlds include these:

•·                     Virtual Worlds News

•·                     Alltop Virtual Worlds News            

•·                     Virtual Worlds Review

•·                     Virtual Worlds Conference and Expo, September 3-4, 2008, Los Angeles

•·                     Cisco's Virtual Worlds Blog

•·                     Journal of Virtual Worlds Research


Virtual worlds are "here" to stay. Venture capital is going into the early entrants. There are approximately 137 million unique registrations in non-gaming virtual worlds, and there is dramatic growth. A recent Strategy Analytics study shows that over the next 10 years, 22 percent of global broadband users will have registered for one or more virtual worlds, resulting in a market approaching one billion registrants and an $8 billion services opportunity. Businesses should start investigating the potential applications and possible issues of virtual worlds--their future is real.

Ron Exler

Ron Exler is a senior product manager at Arbitron, the media ratings company. Previously, he was an independent analyst and consultant. He was formerly Vice President and Research Fellow for Robert Frances Group (RFG), a provider of advisory services for information technology (IT) executives and vendors. Mr. Exler has worked with executives from some of the world's largest enterprises, so he understands how business executives make decisions. He also writes a blog (http://www.thegeofactor.com/) and was named one of the top English-language analyst bloggers by Technobabble 2.0. Mr. Exler has had more than 125 articles and technical papers published.


Prior to RFG, Mr. Exler worked for several enterprise software companies, including Landmark Systems (now ASG) and Intersolv (now Serena Software). He held positions in marketing, product management, research, sales support, software development, and training. He has an M.S. from the University of Wisconsin, Madison and also earned a B.S. from Oregon State University.



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