More From The Emory Event (Linden CFO & Kaneva CEO)

At the Emory event John Zdanowski opened by discussing the Second Life virtual economy which has thrived on the trade of user-generated content:

One of the key differentiators for Second Life [is] that there’s a sizable virtual economy that’s really built up around all the individual creations and the intellectual property of all the users. And just to put some numbers around that, last month there were about 55,000--I’ll call them “profitable,” (in quotes)--in world businesses or unique accounts that had positive monthly Linden flow, and I think that those 50,000 accounts are creating a significant amount of the content in Second Life, certainly not the majority of it. And those 50,000 profitable accounts then turn around and make up a significant portion of the sales of Linden dollars on the LindeX, the virtual currency exchange. And last month, about 8.2 million Linden dollars were bought and sold by residents.

John also notes the importance of entertainment in the initial success of a new medium.

One of the stories that [Linden Labs CEO] Philip [Rosedale] likes to tell is, in the earliest days of television, in the earliest days of any new media, it’s basically entertainment that drives its success. In the earliest days of television, it turns out that professional wrestling was basically one of the most popular things on television. I think in the same way there’s some sublime things going on in Virtual Worlds and Second Life and then probably also some ridiculous things as well as people experiment to find what works.

Chris Klaus described the virtual world Kaneva, which focusin primarily on entertainment and social connection.

Entertainment’s the great hook to say, “Hey, come in and check this out. Have fun.” And then, as people are exploring these worlds, I think we’re going to see it morph into a lot of other goals. I think this conference has been great, in terms of having the discussion way beyond just entertainment. ... So one of the key things is we integrated social networking into the World. So if you’re familiar with MySpace or Facebook or even linked in, it’s about connecting with people you know. And so we’ve tried to integrate that capability into the World so that not only is it you in the World, but it’s your friends, and you can quickly communicate when did they come on, where are they, what are they doing? And then, as you’re finding new people, you can quickly look at their profiles and find out who are they, what are their interests, and see how relevant you might have stuff in common, what interests you have in common.

Ultimately, as people are spending more time in Virtual worlds, I think it’s a chance to bridge between what people have been doing with TV sets and watching programming and start merging it together with a Virtual World... we sat down and started brainstorming, “What could we do?” And one of the interesting ideas was not just broadcast the TV shows into the Virtual World, but we’ve really sat down--and Turner created the sets of these shows so that you can actually go on the set of Family Guy--and we’ll do the sets of all the other shows that they’re licensing or broadcasting, and what’s exciting is ultimately our community can engage, not just with the sets and watching the TV show--and it is a social connection where your friends from all over the place, or if you’re a fan of a show, you can find other fans and discuss it. But ultimately I think it’s about engagement.

While user-generated content can support a more engaging environment, the recent SL banking crisis highlights the additional risks that come with imposing less control on the residents of a virtual world. Zdanowski comments:

I think banking got some interesting views simply because of the broader things going on the Real World around the banking sector. But primarily banking in Second Life really wasn’t banking. What it was, was basically scams providing a horrible user experience, involving high interest rates that were unsustainable, for the most part. Certainly there were probably some legitimate organizations that may have been swept up in that, but those organizations are certainly welcome to seek a banking license in the Real World and then come back in to Second Life and offer that service, if it’s in demand. And I think shutting down banking as we did in January basically saw almost no impact on the overall economy. I think it was kind of probably much over hyped and over pressed for the actual impact that it had on the Second Life economy.

Open standards, open source, and interoperability are seen by many as central to the future of virtual worlds. Klaus and Zdanowski each comment in turn:

Chris Klaus:

I think ultimately the more successful platforms will be open. I think they have to support open standards and be interoperable with all the major components with what is the infrastructure of the Internet. I think we’re at the early stages and, like any technology, you kind of start off building it and seeing what happens and what the value is.

And then, as you start to adopt and get customers, the natural evolution is, “Hey, can you make this work with something else?” Initially it’s, “Hey, does this thing work?” And then you’ll see companies demanding that it has to work with all the other infrastructure that they’ve acquired. And either you make your platform open or you probably will get subjugated, or some other platform that is more open will come along.

I know for our platform we are looking at open standards and being part of, Rob, your organization, with interoperability. I think IBM is also taking a lead there to say, “Let’s discuss what are the things that are important for interoperability.” Everything from the data formats of the world to how do you connect one avatar or one identity to another world.

The good thing is you’re starting to see with Web 2.0 almost all these platforms are opening up API sets and allowing others to connect in to their platforms. Not so long ago you could say the web world was never interoperable between identities, and now you’re starting to see a lot of the major portals, and Internet players like Google and Yahoo and Microsoft adopting OpenID, I think, is another standard that’s emerging. So I would imagine all these worlds, over time, will end up supporting them.

I think we've got to decide what are those standards that we got to support. Some of them don’t exist today, in terms of we’ve got proprietary stuff. I’m sure Second Life has proprietary components as well. But, long term, I think everybody who’s looking at this business has to open up and has to connect beyond just their small little platform.

John Zdanowski:

Yeah. I’m not sure there’s a ton to add to what Chris said, except I think he’s right on. I think the there’s a general feeling, certainly at Linden Lab, we’ve open sourced our viewer, and I think we’ve got tremendous success with that effort. I think there’s also open-serve, open-sent types of environments that are coming online and are definitely pushing the envelope of technology there as well. And I think, of those, we couldn’t agree more here. The more open worlds are going to be the ones that are more successful in the long run.

And then it’ll be interesting to see if you think the regulatory issues around managing inside just Second Life itself are challenging, I think the concept that you could be taking inventory between worlds and land on different levels of permission systems and things like that, on different levels of trust, I think those are issues that are going to make it more challenging sort of than certainly just agreeing on technology standards. Not insurmountable by any stretch of the imagination.

I think there’s a lot of really smart people in lots of companies, from Intel and IBM down to Linden Lab, trying to help figure this stuff out, what’s going to make it all work. And I think, at the end of the day, the more open and the more accessible those technologies, certainly at the lowest levels, then the more applications are going to be developed, the more successful certain areas will be.

Finally, Chris Klaus comments on the future of virtual worlds:

Gartner Group basically has come out and said by 2011, which is not too far away--less than five years--250 million people will have an avatar and be in Virtual Worlds. So that’s their prediction and that they think 80 percent of all active Internet users will be in these Virtual Worlds by 2011.

Within that, I also think, as these worlds are being created, almost every large you just look in the entertainment space. Disney World for example, has already announced they’re committing over $100 million to create ten new worlds specifically to different themes or properties that they own, from Pirates of the Caribbean to Club Penguin. They spent close a billion dollars on Club Penguin, so they’re pretty serious about this world phenomenon.

And I think ultimately, if you ask me where is the worlds going, I think we’re going to see a similar parallel to asking somebody in 1994 or 1995, “Where is the web going? What’s going to be happening? Now that there’s this web browser and there’s a web server? And five years from now, can you predict what will happen with Web sites?”

And I think nobody would have predicted an Amazon, a Google, an eBay, but ultimately those did manifest themselves using this new technology platform. I think we have the same potential to see new businesses and new thoughts scale and become exciting with the Virtual World platform.

So the answer to crystal ball is, it’s going to be bigger, and specifics, I think, are going to be left up for everybody with any imagination coming up with ideas, as John was talking about, and they’ll pursue whatever makes sense in the Virtual World.