Impact Of Second Life On Business

IMPACT OF SECOND LIFE (A VIRTUAL WORLD)
ON BUSINESS

PRITAM DEY
pritam.dey@gmail.com
2007

Pritam Dey

ABOUT THE AUTHOR

Pritam Dey has an extensive background in IT and business consultant. He has designed and
developed IT solutions for customers across domains and technology platforms. Having joined Tata
Consultancy Services in 1999, Pritam has handled complex project assignments for Global
Insurance and Financial Services firms. With specialization in Internet technologies and object-
oriented design principles, Pritam has led cross-functional teams to execute IT projects for clients
such as Tata Internet (India), Prudential Financial (USA), ING Bank (Netherlands) and A.P. Moller-
Maersk Group (Denmark).

Pritam has also played a significant role as a business consultant. To maximize his education during
the MBA program, Pritam has led and mentored teams to provide data-driven business consulting
and recommendation to deliver bottom-line results to his clients. He has executed a wide array of
projects on business strategy, market research, business process analysis, competitive landscape
study, new market entry and pricing strategies. He has consulted for Fortune 500 organizations such
as 3M, UnitedHealth Group, Thomson-Reuters, and Northwest Airlines (now Delta). Post his MBA
program, he has also consulted for a plethora of non-profit and startup organizations and has
created marketing and business development opportunities for the respective organizations.

Pritam is passionate about playing a major role in creating executable IT strategies and roadmap that
increase the value of IT projects and that strive to reduce the gap between IT and business
objectives. He spends a great amount of time following the latest technology trends and
understanding how technology is going to drive business and consumer needs in future. He intends
to use this knowledge to create effective IT solutions for his clients.

Pritam holds a BE degree in Electrical Engineering from Maulana Azad National Institute of
Technology at Bhopal (India) and an MBA from University of Minnesota at Minneapolis.

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TABLE OF CONTENTS

I. Executive Summary: ............................................................................................................................................................... 4
II. Introduction to the technology ............................................................................................................................................. 4
a. Description ....................................................................................................................................................................... 4
b. Explanations ..................................................................................................................................................................... 5
c. Example ............................................................................................................................................................................ 6
d. History and Forecast ....................................................................................................................................................... 6
e. Features ............................................................................................................................................................................. 7
III. Local Vendor – Linden Lab .................................................................................................................................................. 7
a. Competitive Environment ............................................................................................................................................. 7
b. Vendor’s Value Chain and Value Systems ................................................................................................................... 8
c. Long Run Profitability of Second Life to Linden Lab .............................................................................................. 8
IV. Focal Customer – IBM.........................................................................................................................................................10
a. Competitive Environment ...........................................................................................................................................10
b. Value Chain, Value Systems .........................................................................................................................................10
c. IT Infrastructure issues .................................................................................................................................................11
d. Business Case for adopting this technology for this customer ..............................................................................11
V. Discussion ..............................................................................................................................................................................13
a. Predictions, insights, takeaways, recommendations .................................................................................................13
b. Conclusion ......................................................................................................................................................................15
VI. References: .............................................................................................................................................................................17
VII. Appendices: ............................................................................................................................................................................18
Exhibit I: System Requirements.....................................................................................................................................................18
Exhibit II: SL Business Opportunities ..........................................................................................................................................18
Exhibit III: SL Key Metrics ............................................................................................................................................................19
Exhibit IV: Second Life Value System..........................................................................................................................................23
Exhibit V: Membership Plan Summary: .......................................................................................................................................23
Exhibit VI: Getting Started in Second Life ..................................................................................................................................24
Exhibit VII: How IBM uses Second Life .....................................................................................................................................25
Exhibit VIII: Costs...........................................................................................................................................................................25
Exhibit IX: New IBM Mainframe Platform for Virtual Worlds ..............................................................................................26
Exhibit X: Other Benefits of using Second Life .........................................................................................................................27
Exhibit XI: IBM’s Generic Value Chain and System .................................................................................................................28
Exhibit XII: How IBM and Linden Lab seek virtual-world interoperability..........................................................................29
Exhibit XIII: IBM in Second Life .................................................................................................................................................31

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I. Executive Summary:

Second Life (SL) is an internet-based virtual world launched in 2003 by Linden Research, Inc. SL1
was inspired by Snow Crash, a novel by writer Neal Stephenson who is known for his science fiction
work which focuses on technological developments in near future society. There have been over 11.3
million SL accounts registered. The stated goal of SL is to create a user-defined world in which people
can play, interact, do business, and communicate. Besides other features, SL has a fully-integrated
economy, also called the Marketplace, architected to reward risk, innovation, and craftsmanship. SL’s
virtual currency is the Linden Dollar (Linden, or L$) and is exchangeable for real world currencies in a
marketplace consisting of Residents2, Linden Lab and real life companies. Residents create their own
virtual goods and services. Because residents retain the IP rights of their creation, they are able to sell
them at various in-world venues. SL’s real estate market provides opportunities for residents to
establish their own communities and business locations. Virtual world technologies such as Second
Life are going to play a big role in areas such as education and training, brand marketing, healthcare,
customer support and feedback, and could also be a new brand channel. This paper will describe how
Second Life is going to impact business in coming years.
II. Introduction to the technology
a. Description
SL is a 3-D virtual world entirely created by its Residents. In general, the main features of the technology
are:
Convenient, cost-effective thin client: One 10 MB download delivers persistent desktop access
to SL. All content resides on the SL server grid, so that all users need on their computer is a small,
easily updateable viewer.
Real-time 3D streaming using intelligent compression: All content is streamed to the users’
desktop in real time at DSL/cable modem bandwidths. An advanced compression system sends
thousands of objects per second. Residents can display any number of textures at any resolution,
streamed with progressive wavelet compression.

1For the sake of convenience, the paper would refer Second Life as SL.
2A Resident is a uniquely named avatar with the right to log into Second Life, trade Linden Dollars and visit the
Community Pages.
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Endlessly expandable landscape: SL exists on a scalable server grid running Linux, capable of
supporting thousands of simultaneous SL residents and allowing the world to grow infinitely in
any direction simply by adding more Linux boxes.
Contiguous, persistent world: Residents can go anywhere in SL’s expansive, persistent
landscape – there are no “shards” or duplicate servers. Everything they build stays in-world, even
when they’re not logged in.
Infinite avatar customization: Residents create their unique look with high-resolution character
meshes. Using over 150 unique sliders, they can change everything from their foot size to their eye
color to the cut of their shirt. They can also upload textures for clothing or tattoos, as well as make
and wear objects such as hats, wings, and shoes.
Built-in creation capabilities: Residents can easily modify and create objects and add special
effects in-world, without separate tools or applications. Second Life’s persistent, streamed
environment allows any number of residents to collaborate on building projects in real time.
Cross-platform portability: SL has been created with industry-standard cross-platform
technologies: OpenGL, UDP networking, Linux servers, and Oggs-Vorbis compression for audio.
Realistic environment: Dynamic lighting and shadowing, a complete weather system, rigid-body
physics simulation, and uploadable textures and audio all add to residents’ visceral experience of
the world.
A description of system requirements is provided in Exhibit 1.

b. Explanations
SL is a convergence of the three primary types of online participatory media: social media (FaceBook,
MySpace); gaming (World of Warcraft, the Sims); and simulation and training (Forterra). Its hybrid
heritage gives SL flexibility and makes it a potentially powerful tool for B2B marketers in five primary
ways:
• Shared real-time experience
• A new forum for explaining complex products and services
• Inexpensive prototyping and customer focus groups
• Training and recruitment
• Global reach and accessibility
About a decade ago, marketers were struggling to understand how users interacted with the internet.
Today, the internet has added even more outlets into the marketing mix with the emergence of multiple
social networks and virtual worlds. Second Life, the most popular virtual world, is quickly becoming an
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important platform for marketers to consider. These worlds, also referred to as Massively Multiuser
Online Media (MMOM), are currently in a state of tremendous growth. This growth provides
companies the opportunity to enter SL and establish their brand footprint, or level of impact, in this
new world. Virtual worlds like SL are rapidly changing the brand marketing mix.

The Marketplace is a full integrated-economy architected to reward risk, innovation, and craftsmanship.
It is made up of Residents, real life companies, and Linden Lab. Residents create their own virtual goods
and services. Businesses succeed by the ingenuity, artistic ability, entrepreneurial acumen, and good
reputation of their owners. The SL exchange rate fluctuates depending on the game economy but is
usually around one US dollar to every 250 Linden Dollars. In SL there are numerous in-world
businesses and user-groups created specifically for the game but there are also many real world
companies that have taken an interest in the game.

c. Example
How pervasive and remarkable is Second Life? As examples:
• Reuters has opened up a news service devoted to the virtual world. The in-game currency, the
Linden Dollar, fluctuates hourly, like any real-world currency, and is monitored by Reuters Second
Life Bureau.
• On Dell's Second Life island, visitors can enter a giant 3-D Dell computer to see the inner
workings of a PC. Most important, if visitors have questions, a virtual representative can answer
them in the moment.
• PA Consulting built a virtual bank branch for a client to gauge customer reaction to the space
and to give bank representatives a chance to try different sales techniques on visitors.
• Second Life is becoming a valuable training ground for Cisco, which recently conducted its
network academy instructor training series inside the virtual world.
• Cisco holds its monthly user group gatherings and events with partner companies in Second Life
and has a virtual trade show floor where the company holds product launches for the press and
analysts.
• The Centers for Disease Control conducts training on HIV and disaster preparedness in Second
Life.
d. History and Forecast
SL may be more important, long-term, than what it is now. That's because what it really may represent is
an alternative vision for how to interact with information and communicate over the Internet. SL goes

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much further. It took a radical approach to design from the beginning. It offered itself as a mere
platform for the creations of its occupants. Essentially everything seen inside the software today was
created by its users. There are as many opportunities for innovation and profit in SL as in the Real
World. Open a nightclub, sell jewelry, become a land speculator; the choice is yours to make. Thousands
of residents are making part or all of their real life income from their SL Businesses. Exhibit II lists a
few in-world business occupations which Residents founded and currently run, and make part or all of
their real life from. Exhibit III lists the key economic statistics about the population, market, and
business potential in SL.
e. Features
One feature that makes SL so unique is that Linden Lab does not create the contents of the virtual
world, but is instead created by the Residents themselves. The players use 3D modeling tools which
allows them to create virtual buildings, vehicles, machines, furniture, and landscape that can be sold,
traded, or kept for own personal use. Second Life uses a scripting language which is used to add
autonomous behavior to SL objects such as a door that opens when a Resident approaches. Much like
in the real world, Residents may retain a copyright for the SL items that they create.

III. Local Vendor – Linden Lab
a. Competitive Environment
Second Life plays a crucial role in the strategy and position of Linden Lab in the Virtual World industry.
Founded in 1999, Linden Lab is a privately held company established to pioneer a digital space as rich
and complex as the real world. Its strategy is to connect us all to an online world that improves the
human condition. Through its online service Second Life, Linden Lab is able to meet that strategy by
offering a truly collaborative, immersive and open-ended experience, where people are creating and
inhabiting a new world of their own design. With advances in broadband access and computer hardware
development, the potential now exists for a truly interactive virtual society. Second Life is the next
evolutionary leap in the formation of virtual communities. The extent to which Second Life is able to
offer a collaborative open-ended experience is made possible by Linden Lab’s technological break-
through. Because of the company’s innovations in advanced compression, 3D streaming and distributed
simulation, Second Life Residents have the ability to build and modify their creations in real-time, to
collaborate with each other in-world even though they could be sitting at computers thousands of miles
apart, and to travel across the entire virtual world unlimited by server constraints.

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In terms of competition, Linden Lab holds an edge over other players in the virtual world such as
DeepGrid and Multiverse. As a first-mover in this space, Linden Lab is an industry leader who will
continue to drive and influence the future of 3D virtual worlds, and looks forward to further broaden its
success and exponential growth. There is not an actual threat to Second Life mostly because Linden Lab
sees the demand for these kinds of services growing far ahead of the supply. Explosive growth, in this
case, isn’t considered so much a problem as it is an assurance of future business.
b. Vendor’s Value Chain and Value Systems
In terms of value chain, Linden Lab proposes to manage a way to enable the activity of creating and
distributing content, with all corresponding support activities, to third parties and players. It focuses on
the creation and technical support of a virtual world infrastructure with a powerful set of tools to
enhance it. The quality of the content depends largely on the adoption by professional or semi-
professional builders, which in turn depends on the creation of contents becoming a profitable activity.
The value net for Linden Lab is shown in Exhibit IV.

Second Life started with a slightly different business model, based on creation costs, taxes and stipends,
and monthly subscriptions. These taxes had to be very high in order to maintain the platform, making
more difficult the creation in large scale and its maintenance. The existing business model, based on land
taxes, is working quite well since it evolved. Right now everything points to success. The demand for
more land is growing. Linden lab is extending their cluster at the rate of 30 to 40 machines per month.
This growth relation is being fed by adding more computing resources, a viable strategy depending on
structural scalability of the computing architecture.
c. Long Run Profitability of Second Life to Linden Lab
Long run cost picture: What Linden Lab has is a head start, and that’s not to be understated. Even
though Linden Lab is a first mover in this segment, the amount of things that Linden Lab has
discovered heuristically by having the community in place to provide feedback is enormous. It is still in
the “early adopter” phase. As broadband penetration increases and drives prices down and as more
users move in world and the game gets more press, it will be more efficient. The other factors that are
likely to help Linden Lab grow in the experience curve are: standardization, value chain effects, network
externalities and use-cost reductions.
Adopters: The most profitable adopters of this technology are mostly business organizations. The
Marketplace enables them to monetize their content as they can in the real world. Businesses use SL for
collaboration, research & concept training, simulation & prototyping, hosting events, brand promotion,

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philanthropy & fundraising, education & training, and communication. A list of other businesses is
provided in Exhibit II.
Pricing: In terms of pricing, Exhibit V shows the membership plan and land use fees. Businesses also
need to buy land to establish a presence on the SL.
Switching cost and lock-in: There is a huge lock-in aspect right now. Once users join and begin to
pay, they are locked-in forever. Users are limited to their servers, their designs, their tools, and their rules.
One of the smartest moves that Linden Lab has made recently is that it has decided to go open-source.
In order to attract more users, it has to find a way to improve performance, and in the order of several
magnitudes. Even with slow growth, SL can’t cope with the traffic and rendering, and with the
exponential growth to be expected, Second Life will just implode. Restricting access isn’t an option for
the obvious reason that it’d mean the end of Second Life. Same goes for making it a premium, paid
service. The only way that it would work here is to open-source it. Additionally, the switching cost
would be high because of the high lock-in factors such as ownership of land, paid membership, account
in Linden exchange, etc. Open-sourcing SL is likely to create a network base – a pre-requisite for
network effects. Residents would like to communicate in SL, and a large user base will create that effect.
Complements to the product: The biggest complement to SL would be a standard Web site or real-
world presence itself. For example, even though only about 40 avatars attended a press conference with
Mark Warner, former tech entrepreneur and Democratic Governor of Virginia, it was covered more
widely by bloggers and the mainstream media than just another flesh-and-blood town hall meeting.
Social networking sites as such Facebook are another mode of complement for SL. With a Facebook
application, users can display their SL avatar to their real life friends. One of the advantages of open-
sourcing SL is that it will create a network base.
Standards and Interoperability: Currently a SL avatar cannot walk around in some other online 3D
community or Microsoft Virtual Earth because the virtual world is lacking the standards that would
enable such a level of interoperability. Fortunately, Linden Lab and IBM signed a partnership that will
seek to create open standards for not only interoperability, but also secure transactions and increased
platform stability. SL would benefit from the standards that the IBM partnership seeks to create.
Specific Investments: The specific investments for focal customer are mentioned in Exhibit I and
Exhibit VI. Businesses can seek the services of Solution Providers that manage the entire project for
them. These solution providers can also assist with selecting a location on the SL and promoting the
projects.

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IV. Focal Customer – IBM
Exhibit XIII shows a visual representation of IBM in Second Life.

a. Competitive Environment
IBM is a multinational computer technology and consulting corporation headquartered in Armonk, New
York. IBM manufactures and sells computer hardware and software, and offers infrastructure services,
hosting services, and consulting services in areas ranging from mainframe computers to nanotechnology.
IBM competitors are primarily in the Information Technology Services industry. IBM also competes in
the Computer Networking Equipment, Computer Peripherals, and Mass Storage Systems sectors.
Customers are at the core of its business. To be competitive in today’s marketplace, IBM must not only
attract new customers but they must build customer loyalty by providing a superior customer experience.
One area where IBM is facing lots of competition is in its server business. IBM still sells a lot of servers.
Obviously Second Life with its huge user-base and even bigger server and power requirements is of
great interest to IBM. If the virtual world comes to reality, there will be a huge need for Second Life
style server or service. IBM feels that this area is likely to be a source of competitive advantage for it
(Exhibit IX mentions how IBM is exploring ways to create mainframes for virtual worlds).

b. Value Chain, Value Systems
Exhibit XI shows a likely value chain and value system of IBM. (In the absence of an actual value chain
and value system of IBM, I have taken them from one of the power points of the IT class).
One of the ways by which IBM intends to use Second Life in its value chain and systems is for
communication purposes. As shown in Exhibit XI, communication is the overarching layer in the value
chain. It is also an important element in the value system connecting the upstream and downstream
chain. IBM is increasingly looking toward using Second Life for the communication purpose.
IBM has a bit of a challenge when it comes to bringing together 80,000 employees spread across 30
different countries, and its suppliers and buyers. The company realized the only practical way to build
transcontinental relationships was through the use of virtual technologies and peer-to-peer connections.
Employees are participating in 3-D virtual worlds such as Second Life to help them collaborate and
share best practices.

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c. IT Infrastructure issues
However from an infrastructure end, IBM has issues mainly with virtual world interoperability.
Currently it is a challenge to move from one virtual world to another with ease, much like we can move
from one website to another on the Internet today. There is an increasing need for interoperability
which is the key to the continued expansion of 3D internet. IBM is working closely with Linden Lab to
accelerate the use and further development of common standards and tools that will contribute to this
new environment. IBM and Linden Lab plan to work together on issues concerning the integration of
virtual worlds with the current Web; driving security-rich transactions of virtual goods and services;
working with the industry to enable interoperability between various virtual worlds; and building more
stability and high quality of service into virtual world platforms.

d. Business Case for adopting this technology for this customer
Presently IBM uses SL for three key reasons: a) to connect their employees and their alumni, b) to set up
virtual world sites for external companies, and c) for future business prospects. It uses SL as a virtual
meeting place to talk with customers and get valuable, real-time feedback. IBM’s push into virtual world
is the result of seeking to engage with people in the way they want to engage. In May 2007, IBM opened
a new virtual business center where IBM salespeople, clients, and partners can meet, learn, and
collaborate, and conduct business. It is staffed by real salespeople - not kiosks and robots. IBM is also
doing consulting services for companies such as Sears, etc where it has helped Sears to set-up a virtual
presence in Second Life. IBM believes that this could a new business opportunity in future. Finally IBM
is looking at opportunities where the virtual world would be standard and it would be able to make and
sell hardware (high-capacity servers for virtual worlds etc).

i) Benefits of adopting and using this technology
IBM adopted SL to research and experiment with virtual worlds to understand, among other things, the
importance of visual imagery to convey information – and a vast range of other aspects of human
interaction with visual and virtual spaces. It believes virtual worlds and gaming will have a huge impact
on IT, business, society and our personal lives in the very near future. They will help IBM design,
simulate, optimize, operate and manage business activities of all sorts. For example, today’s commercial
applications, such as ERP, are very complicated, monolithic and static, and often end up frustrating their
users. IBM is convinced that dealing with such business applications in a simulation fashion - that is, the

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application feels like a realistic simulation of the business and its operations – will not only transform IT
but business itself. Perhaps for the first time, we will be able to understand what is really going on in a
business and its various processes, and then systematically improve and optimize them in a multiple
dimensions. IBM wants to create 3-D environments that mirror SL’s interactivity and sense of
immersion. It envisions scenarios under which, say, a team of healthcare researchers from around the
world could enter a virtual meeting room to tackle a disease outbreak. Some of the ways by which IBM
uses this technology is shown in Exhibit VII. Besides these, the main benefits of using SL are:
New Brand Channel
Consumer Feedback
Brand Engagement
Exhibit X describes these three benefits in detail.

ii) Cost of adoption and ownership of this technology
Investments in readiness: Even though the exact cost structure of investments for IBM is not
available, Exhibit VIII mentioned the general cost structure of developing a business in Second Life.
Complements: For IBM, Second Life is a good complement to its online services. IBM does not
believe that the virtual world will replace the two-dimensional internet experience, but does think
destinations like Second Life offer a nice complement to the online experience. It feels the beginning of
a major transformation on how people are going to interact on the web, going from a flat to an
immersive experience. IBM however is not necessary leveraging this new platform for marketing
purposes; rather it sees Second Life as a model for things to come. A model capable of enhancing the
way we learn and share information on a global scale.
Switching Cost: There is no switching cost involved as IBM is not switching from its existing
technology and infrastructure. Second Life is simply a complement to its existing services.
Specific Investments: IBM is set to invest $10 million over the next twelve months to increase its
presence in the market for technologies that enable so-called virtual worlds such as Second Life.

iii) Comments on adoption issues
It makes sense for IBM to source the services of Second Life than make it. Setting up a virtual world
takes huge amount of investments. According to Jed Smith, who sits on the board of Linden Lab,
Second Life is worth more than $1 billion. It is just not financially viable for IBM to make a virtual
world of its own. Secondly, virtual technology is not IBM’s core competency. Therefore IBM did well
by adopting the already existing infrastructure and technology of Second Life. However IBM is
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collaborating with Linden Lab on platform stability, integration with existing web and business
processes, security-rich transactions, and open standards for interoperability with the current web. It is
expected that over a period of time IBM’s and Second Life’s services will complement each other.
Exhibit XII mentions how IBM and Linden Lab plan to collaborate on interoperable formats and
protocols.

V. Discussion

a. Predictions, insights, takeaways, recommendations
According to a recent Gartner study, by the end of 2011, 80% of active Internet users and Fortune 500
enterprises will have use virtual 3-D worlds if not necessarily in Second Life. Second Life itself currently
has more than 6 million registered users, among them 4,000 IBM employees. According to Irving
Wladawsky-Berger, IBM's chief technologist, “We view these virtual worlds at a very early stage, both
technically and culturally. The user experience will improve as we do more experimentation and figure
out how to better apply them to solve real problems in business and society. Commerce and
collaboration are two key areas ripe for applying virtual worlds to real life, but we also see applications in
education, healthcare and many other areas.”

Many successful companies have made the transition from the Real World (RL) to a three-dimensional
realm called Second Life (SL). The rationale behind these “transitions” is vast and ranges from attracting
press coverage to brand engagement with potential clients. Whatever the desired outcome and whether
by design or happenstance, millions of dollars are spent daily in Second Life environment. As the young
generation grows up and infrastructure is built out, virtual worlds will become a vibrant market all over
the world over the next 10 years. It’s not just about digital life, but also making our real life more digital.
The following graph summarizes it well.

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Second Life, among other things, could be the new mall. All of us shop online but we can't drift from
store to store, observe the shopping choices of other people, or enjoy the effects of serendipity. (We
didn't know we wanted another gadget from Sharper Image the last time, but there it was...at the mall.)
Second Life can duplicate all of this even as it makes it possible to try things on without the privations
or indignities of a changing room. Click on something and look in the mirror.

Second Life also has the potential to change tourism, working like a time machine in space, as it were.
Let's suppose that someday, the virtual Lindentown will someday be as different from my usual virtual
haunts, as Miami is from New York City. If I wish to go to Miami, it will cost me money, time, effort,
and inconvenience. But an afternoon in Lindentown costs me nothing more than the click of a mouse.

Second Life could serve as a magnificent platform for the new global university or B-school. Now that
entire fund raising would be about intellectual content and content providers, and hiring good teachers.
Not a penny need be spent on bricks and mortar. Even the reunions can be held on line.

Second Life might be the place that consumers go to help create the brands they care about. It would
be easy to create open air laboratories equipped with tools for developing concepts and changing
prototypes. And this will matter as marketing moves from "see" to "be."

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These are not small claims. Changing the nature of retail, adding new terrains to the world of tourism,
inventing the new university, creating the products and brands of the future, these would make Second
Life something more than a cul de sac. By this reckoning, SL is not merely part of the future. It will be
one of the things that make the future.

On balance, there is in Second Life lots to like and lots to loathe. But I believe two things are clear. We
now have proof of concept. And as Second Life supplies real opportunities for engagement and sorting,
this social world will expand at pace, supplying in the longer term, every kind of cultural innovation and
commercial opportunity.

b. Conclusion
In conclusion, virtual worlds such as Second Life are here to stay. They have become a serious business
in their own right. Consequently they are now attracting the interests of advertisers and even media
companies. According to one estimate, the real-world value of transactions taking place in virtual worlds
is rising steadily, and is likely to continue growing. One estimate if the value of commerce in Second Life
is of $265,000 per day, and it is estimated that average turnover is rising by up to 15 percent per month.
If these trends were to continue, Second Life’s overall GDP could be close to $700 million in 2007.

Significant technological barriers still exist for Second Life to be widely adopted. Fortunately, IBM and
Linden Labs decided to work with a broad community of partners to drive open standards and
interoperability to enable avatars to move from one virtual world to another with ease, much like you
can move from one website to another on the Internet today. The companies see many applications of
virtual world technology for business and society in commerce, collaboration, education, training and
more. As more enterprises and consumers explore the 3D Internet, the ecosystem of virtual world hosts,
application providers, and IT vendors need to offer a variety of standards-based solutions in order to
meet end user requirements. Linden Lab and IBM share a vision that interoperability is key to the
continued expansion of the 3D Internet, and that this tighter integration will benefit the entire industry.
Our open source development of interoperable formats and protocols will accelerate the growth and
adoption of all virtual worlds.

As the 3D Internet becomes more integrated with the current Web, we will see users demanding more
from these environments and desiring virtual worlds that are fit for business. In coming years,
companies will realize the benefits to transitioning into the virtual world environment. The main drivers

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(business rationale) for such a transition are likely to be new brand channel, consumer feedback, and
brand engagement. A “Virtual World” environment as a business platform possesses huge potential for
the future.

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VI. References:

1. http://www.itsma.com/NL/article.asp?ID=360
2. Second Life Product Fact Sheet
3. http://www.secondlifempire.com/
4. http://money.cnn.com/2006/11/09/technology/fastforward_secondlife.fortune/index.htm
5. Alves, Taigo Reis and Roque, Licinio. Using Value Nets to Map Emerging Business Models in
Massively Multiplayer Online Games.
6. http://metaversed.com/06-nov-2007/metanomics-reloaded-gene-yoon-aka-ginsu-linden
7. http://www.vnunet.com/vnunet/news/2200882/ibm-second-life-creator-build
8. http://secondlifegrid.net/how/communication+
9. http://irvingwb.typepad.com/blog/2006/09/transforming_bu.html
10. http://searchcrm.techtarget.com/originalContent/0,289142,sid11_gci1255404,00.html
11. http://www.imediaconnection.com/news/16402.asp
12. http://www-03.ibm.com/press/us/en/pressrelease/22428.wss
13. http://www.cultureby.com/trilogy/2007/02/second_life_the.html
14. Deloitte 2007 Media Predictions TMT Trends.
15. http://www.3pointd.com/20070425/new-ibm-mainframe-platform-for-virtual-worlds/
16. http://secondliferesearch.blogspot.com/2007/05/business-models-in-second-life.html
17. http://www.industryweek.com/ReadArticle.aspx?ArticleID=15345
18. Ray, Gautam. Class notes from IDSC 6040 class.
19. www.ibm.com
20. www.secondlife.com
21. The Virtual Brand Footprint: The Marketing Opportunity in Second Life
22. Wray, Richard. The Guardian. “Companies look for real benefits from the virtual world.”
23. Learnings from The Melbourne Laneways Project. “Would your business benefit from a second
life.”
24. Learning Light 2007. Second Life and Virtual Worlds.
25. Samonon, Mandy. Senior Researcher. Faculty of Life and Social Sciences. Swinburne University of
Technology. “Business in Second Life: An Introduction.”

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VII. Appendices:

Exhibit I: System Requirements
Computer: Pentium III 800 MHz or higher, with 256MB RAM or more
Operating System: Windows XP or higher
Video Card: NVIDIA Geforce 2 (32MB RAM ) or higher, or ATI Radeon 8500 (32MB RAM)
or higher
Internet Connection: DSL, cable modem or LAN (256kbps downstream or higher)

Exhibit II: SL Business Opportunities
1. Party and Wedding planner
2. Pet Manufacturer
3. Tattooist
4. Nightclub Owner
5. Automotive Manufacturer
6. Fashion Designer
7. Aerospace Engineer
8. Custom Avatar Designer
9. Jewelry Maker
10. Architect
11. XML Coder
12. Freelance Scripter
13. Game Developer
14. Fine Artist
15. Machinima Set Designer
16. Tour Guide
17. Dancer
18. Musician
19. Custom Animation Creator
20. Theme Park Developer
21. Real Estate Speculator
22. Vacation Resort Owner
23. Advertiser
24. Bodyguard
25. Magazine
26. Publisher
27. Private Detective
28. Writer
29. Gamer
30. Landscaper
31. Publicist
32. Special effects Designer
33. Gunsmith
34. Hug Maker

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Exhibit III: SL Key Metrics
Total Population: 11,297,876
Total L$ Supply (L$): 3,877,409,551

Estimated In World Business Owners:
Unique Users with Positive Monthly Linden Dollar Flow (PMLF)

USD Equivalent PMLF Nov-07
< $10 USD 25,591
$10 - $50 USD 14,156
$50 - $100 USD 3,145
$100 - $200 USD 2,210
$200 - $500 USD 1,848
$500 - $1000 USD 820
$1000 - $2000 USD 484
$2000 - $5000 USD 297
> $5000 USD 154
Total Unique Users with PMLF 48,705

Monthly Spending by Amount (2007 November):

Transaction Size Residents

1 - 500 L$ 134,846

501 - 2,000 L$ 55,246

2,001 - 5,000 L$ 43,202

5,001 - 10,000 L$ 29,960

10,001 - 50,000 L$ 49,189

50,001 – 100,000 L$ 10,058

100,001 - 500,000 L$ 7,213

500,001 - 1,000,000 L$ 622

Over 1,000,000 L$ 400

Total Customers Spending Money In-World 330,736

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Resident Transaction by Amount (2007 November)

Transaction Size Volume

1L$ 3,938,564

2 - 19 L$ 5,261,269

20 - 49 L$ 1,825,614

50 - 199 L$ 2,754,017

200 - 499 L$ 1,302,228

500 - 999 L$ 448,682

1,000 - 4,999 L$ 428,815

5,000 - 19,999 L$ 89,969

20,000 - 99,999 L$ 22,681

100,000 - 499,999 L$ 3,010

>= 500,000 L$ 254

Total Transaction Count 16,075,103

Economic Statistics: Graphs

Million Square Meters of Second Life Land

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Users Hours (in Millions)

US $ Exchanged on Lindex (in Millions)

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US $ Spent by Users (in Millions)

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Exhibit IV: Second Life Value System

Exhibit V: Membership Plan Summary:

Account Type: First Basic Additional Basic Premium
Customizable Avatar:
Building Opportunities:
Land Ownership:
Signup Bonus: L$250 L$1000
Weekly stipend: L$300/wk
Support: Basic Basic Premium
Monthly:
$9.95/mo
Cost: FREE! $9.95 Quarterly:
$22.50 - in full
($7.50/mo)

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Annual:
$72.00 - in full
($6.00/mo)

Land Use Fees:

Additional Land (In square meters) Monthly land use
(over 512 sq meters) fee
1/128 Region 512 m2 US$5
1/64 Region 1,024 m2 US$8
1/32 Region 2,048 m2 US$15
1/16 Region 4,096 m2 US$25
1/8 Region 8,192 m2 US$40
1/4 Region 16,384 m2 US$75
1/2 Region 32,768 m2 US$125
Entire Region 65,536 m2 US$195

Exhibit VI: Getting Started in Second Life
Ten suggestions to get started on Second Life Grid:

1. Register, create, and name your avatar. It will take some time to learn how to move and interact.
2. Go hang out at The Shelter (or one of the resident-run spaces for new members); make some
friends, learn how to dance, and get help from the friendly staff and visitors.
3. Find and attend classes and events - you'll find them in the Event Listing on secondlife.com or in-
world.
4. Subscribe and read periodicals, business blog, mailing lists, and other public information about
Second Life.
5. Visit places in Second Life and see what other residents and organizations are doing. You'll find
suggestions in Second Opinion, the Second Life newsletter.
6. Try your hand at building in one of the public sandboxes.
7. Buy some land and settle down - buy or build a house and furnish it.
8. Join a group; go to meetings or events with members of the group.
9. Talk to residents about what they're doing in Second Life and what they like - and dislike - about it.
10. Think about your audience in Second Life and how to engage them.

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Exhibit VII: How IBM uses Second Life
1. IBM already has a significant presence in Second Life, manufacturing presences for other companies
(like Sears and Circuit City) and buying up many more plots of virtual real estate.
2. IBM experimented with commerce in the virtual world during the 2007 Wimbledon tournament. It
built a site on Second Life that looked like a tennis court. Visitors could follow the path of the ball in the
virtual tennis court, and merchandise like Wimbledon towels were available for sale. It also built links to
other commerce sites like amazon.com to show how easy it is to link virtual worlds with the more
conventional Web world.
3. IBM’s new virtual business center will have six areas: reception, a sales center, a technical support
library, an innovation center, a client briefing center and a conference center. IBM is staffing the business
center with 40 IBM employees who have volunteered to answer questions in the reception area. Another
set of IBM sales representatives will be on call via instant messaging to answer more detailed questions
from within Second Life. This could have real repercussions and benefits for the practice of CRM.

Exhibit VIII: Costs
Membership
There is a sliding scale to the cost of becoming a resident.
Basic Membership: free. Allows users to explore, build participate in events and purchase goods
Premium Member: $9.95 per month (discount applies if paid 12 months in advance). Users have
the opportunity to buy or rent land. As well, they receive a $1000 Linden bonus and a monthly
stipend which they are free to spend on in-world items.
Land
Buying a presence in Second Life is like registering a Web domain. It buys ‘permanence’ on the Grid,
allowing the user to set up a house or business and have storage facilities, a work space etc. Interested
parties can either rent space on an existing island or simply buy their own. Like the real world, buying or
renting existing land or land structures fluctuates according to location and the degree to which that land
has already been developed. A waterfront house and land parcel of modest size rents for approximately
L$1500 per week and sells for between L$35,000 and L$50,000 depending on location.63 This costs real
money. Credit card or PayPal allows this transaction.
Private Island

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An island is the representation of a ‘sim’ a dedicated named region which itself equates a server. Each sim
is the equivalent to 16 acres (6.47 hectares). Linden conducts an auction system. Owning an island comes
with the benefit of setting access restrictions if desired. US$1,675 for initial set up and creation & US$295
per month for maintenance. A discount rate for ‘verified real world educators and academic institutions’:
US$980 and US$150 a month for maintenance. An order, once placed through the Land Store, takes
around 14 days to become available. Payment is made via credit card or PayPal.
Developing land
‘Terraforming’ a sim with commercial developer such as Electric Sheep Company (ESC) costs upward of
US$10,000. The New Media Consortium paid ELS US$13,000. PR firm Text100 paid US$20,000 for their
centre. Complex sites with large degree of interactivity, such as SonyBMG may cost as much as
US$200,000.64. However, companies could start with a modest outlay, using the expertise of the local
scripting community or their in-house resources.

Exhibit IX: New IBM Mainframe Platform for Virtual Worlds
IBM is launching a new mainframe platform specifically designed for next-generation virtual worlds and
3D virtual environments. In concert with Brazilian game developer Hoplon, IBM will use the
PlayStation3’s ultra-high-powered Cell processor to create a mainframe architecture that will provide the
security, scalability and speed that are currently lacking in 3D environments — a lack that is one of the
factors keeping them from becoming widely adopted. If it works, it sounds like worldmakers working on
IBM’s platform should be able to support concurrencies far above todays’ capabilities, and implement
commerce systems far more secure than is currently possible.

The IHT story talks about a server system that will permit higher levels of concurrency at greater levels of
rendering and realism. The machines will be priced beginning at hundreds of thousands dollars, according
to the story.

While it probably won’t have much impact on the state of virtual worlds right off, IBM’s new
infrastructure could make a big difference in the long run, by enabling much greater numbers of
concurrent users in next-generation virtual worlds, and by creating more secure possibilities for commerce.
Big media and entertainment companies continue to be interested in virtual worlds, but they are also
skeptical in many cases because there is no way to support many thousands of audience members at a
single event.

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The new mainframe infrastructure also doesn’t answer questions of fragmentation and convergence. Even
at higher concurrencies, IBM’s new system doesn’t move the virtual world toward a more unified state, in
which only a single browser or client is necessary to access any 3D space. Some other force will have to
come along to push that.

Since IBM started poking around in virtual worlds in the middle of last year, it has had its developers,
hackers and other geeks quietly peeking under the hood at companies from Linden Lab (makers of
Second Life) to Multiverse and more. While the company has been doing a lot of work in Second Life and
even some in Multiverse, it hasn’t been very clear just what tack it was planning to take — though its
enthusiasm has been plain: for some time now, its execs have been comparing the advent of virtual worlds
to the advent of the Web in terms of its impact on business and communications.

The new mainframe architecture looks like IBM’s big bet to capitalize on the shift toward the 3D Internet.
Look it for to have a big impact on the state of affairs over the next couple of years.

Exhibit X: Other Benefits of using Second Life
New Brand Channel:
This type of enterprise closely mirrors the real world establishment in terms of form, fit, and function.
Examples of organizations that use this model to extend their brand into a virtual world include Circuit
City, Sears, Reebok, PA Consulting, and a host of other B2B & B2C firms. By establishing a presence in
SL, they have created a conduit with a new channel to market.

Consumers in this realm view an interaction with one of the above listed firms as an affirmation of the
brand. In the above mentioned B2C venues, shoppers explore and discover on their own the many
products or services in this familiar environment (store or gallery setting). For example, Sears and Circuit
City have several floors chock full of scripted items which portray real products (like iPod, refrigerators,
and kitchen cabinets). With Toyota’s Scion City, current and future motorists are given the opportunity to
buy a Scion ($300L) and take a “test drive” around the island. The key criteria of casual use mean once the
visitor tests a product, they possess little incentive to engage the brand in the future.

In addition to a predominately self-service experience, a recent development has come on the scene -

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Nokia “hires” employee’s to stand by a kiosk and answer questions regarding cell phones. The avatar is
clothed in Nokia blue and white garb to match the brand identity. The idea of employing brand
ambassadors in shopping venues can enhance the experience and possibly lead to further investigation
outside SL.

Consumer Feedback:
A firm which is actively using SL to incite specific customer feedback is Aloft Hotels (W Brand). In
September 2006, Aloft was the first hotel company to launch a hospitality brand in SL. They opened its
first hotel with a virtual concert (Ben Folds) and much fanfare. They constructed a hotel which included a
lobby, food concessions, pool area, and an actual hotel room. They also placed laptop computers in the
lobby for guests to provide feedback on their experience.

Brand Engagement:
Probably the most powerful use of SL comes in the form of scripting – the ability for the user to engage a
product or service through direct interaction. Consider Dell City. Once you get past the high-tech design,
giant computer tour, or people-mover monorail system, you have the opportunity to enter the Dell factory
and actually witness the construction of your very own laptop or desktop computer.

Exhibit XI: IBM’s Generic Value Chain and System3

3 Source: Ray, Gautam. Class Powerpoint – IT Driven Transformation
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Exhibit XII: How IBM and Linden Lab seek virtual-world interoperability
IBM and Linden Lab plan to collaborate on:

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"Universal" Avatars: Exploring technology and standards for users of the 3D Internet to seamlessly
travel between different virtual worlds. Users could maintain the same “avatar” name, appearance and
other important attributes (digital assets, identity certificates, and more) for multiple worlds. The adoption
of a universal “avatar” and associated services are a possible first step toward the creation of a truly
interoperable 3D Internet.

Security-rich Transactions: Collaborating on the requirements for standards-based software designed to
enable the security-rich exchange of assets in and across virtual worlds. This could allow users to perform
purchases or sales with other people in virtual worlds for digital assets including 3D models, music, and
media, in an environment with robust security and reliability features.

Platform stability: Making interfaces easier to use in order to accelerate user adoption, deliver faster
response times for real-world interactions and provide for high-volume business use.

Integration with existing Web and business processes: Allowing current business applications and
data repositories – regardless of their source – to function in virtual worlds is anticipated to help enable
widespread adoption and rapid dissemination of business capabilities for the 3D Internet.

Open standards for interoperability with the current Web: Open source development of
interoperable formats and protocols. Open standards in this area are expected to allow virtual worlds to
connect together so that users can cross from one world to another, just like they can go from one web
page to another on the Internet today.

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Exhibit XIII: IBM in Second Life

31

Impact Of Second Life On Business

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