Second Life Lessons

You may have heard the hype about popular 3D online universe Second Life, but setting up shop there presents unique challenges

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For real-life companies from Warner Bros. (TWX ) to Adidas (ADDDY ) to Intel (INTC ) seeking to brand themselves as hip and forward-thinking, virtual community Second Life has quickly become a trendy marketing and advertising outlet. Opening virtual offices or shops, selling and market-testing digital replicas of products, and creating 3D online personas or "avatars" in Second Life are becoming items on the to-do lists of those eager to tap into the nascent market. The three-year-old Web-based world has more than one million "residents" who spent $9 million in October on virtual land, products, and services. And while advertising's traditional outlets are losing eyeballs, so far this year the population of Second Life has increased 995% -- a growing potential consumer audience for marketing messages.

Second Life, of course, is still a work in progress. None of the companies spending real money to launch campaigns can yet gauge how successful their efforts will be, and virtual campaigns aren't without their own unique dangers. One problem is hackers, who periodically shut down Second Life. Linden Lab, the company behind the site, recently met with federal authorities to address this cybercrime. In addition, many long-time residents view the arrival of big brands as a threat to established mom-and-pop entrepreneurs. Annoyed vigilante residents have set off bombs -- via malicious computer code -- that destroy virtual buildings or cause the application on your computer to freeze. American Apparel has had to deal with virtual protesters scandalized by the scantily clad models in the company's real-world ads. And there is one weird technical glitch: When a space is swamped with visitors (more than 60 to 90), a bug in the system can make avatars' clothes disappear.

But Philip Rosedale, CEO of Linden Lab, says the supporting technology is continually advancing. "Second Life is improving in resolution and functionality at the rate of Moore's Law. The real world isn't getting better by the day." Rosedale views Second Life not as a multiplayer online role-playing game, like World of Warcraft, or in the same category as Will Wright's forthcoming Spore, which allows players to design their own species. Rather, he sees it as a new social-networking platform, like MySpace (NWS ).

In the future, Rosedale conceives of Second Life as a possible 3D Web browser. The ambitious idea, as he explains, is that instead of using your mouse to click on links, you would direct your avatar to walk into a 3D (AMZN ) shop, browse shelves, buy books, and chat over a virtual cup o' joe with other people visiting the site.

The current flood of companies announcing a Second Life presence echoes the late 1990s, when every CEO wanted an e-commerce site. Yet while Second Life is cool and timely, it's not easy to make real money selling virtual goods (cars go for $2 each). Why? Not enough volume. The registered population has passed a million, but only 10,000 people on average are online at any one time.

What sets Second Life apart is that the big-brand products offered can be customized by virtual users. And Second Life is an interactive, intensely social environment where companies hope not only to find customers and strengthen their brands but one day also to connect remote employees to one another and recruit new hires.

Clearly, for a company considering jumping into Second Life now, serious homework is needed. Turn the page to see which real-world industries have Second Lives and learn what steps to take and mistakes to avoid.

By Reena Jana and Aili McConnon

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