Why Millions Are Living Virtual Lives Online

Second Life is emerging as a powerful new medium for social interactions of all sorts, from romance to making money. It may be the Internet's next big thing.
By Jessica Bennett and Malcolm Beith
Newsweek International

July 30, 2007 issue - It's 1 a.m., and the "Dublin" nightclub is packed. Women in trendy ball gowns and men in miniskirts dance to Bon Jovi. Simon Stevens spins his wheelchair across the room, then leaps up and starts dancing, a move he can execute only here in Second Life, a 3-D virtual world that Stevens roams on his PC screen, using an avatar—a graphic rendering of himself, liberated from his cerebral palsy. "I flourish in Second Life," says the 33-year-old, who heads a disability-consulting firm called Enable Enterprises, out of his home in England. "It's no game—it's a serious tool."

Rhonda Lillie and Paul Hawkins live thousands of miles apart—she in California, he in Wales—and until this week, had never met face to face. But they've been dating for more than two years—in Second Life. The detachment of meeting through their avatars allowed them to open up to one another in a way they might never have done in the real world. "We felt like we could go in and really be ourselves," Lillie says.

Anshe Chung is a virtual land baroness with a real-life fortune. The woman behind the Anshe avatar is Ailin Graef, a former language teacher living near Frankfurt, Germany. Three years ago she started buying and developing virtual land in Second Life to see whether its virtual economy could sustain a real life. Turns out it can: Chung became Second Life's first millionaire in 2006. Her business, Anshe Chung Studios, with a staff of 60, buys virtual property and builds homes or other structures that it rents or sells to other denizens of Second Life.

When San Francisco software developer Philip Rosedale dreamed up the idea for Second Life in 1998, he never imagined that it might have such an impact on the world at large. Just as Google sexed up the way we search, and instant messaging altered the way we interact, Second Life is fast becoming the next red-hot tool on the Internet.

The numbers tell the story. Rosedale launched Second Life in 2001, but it got off to a slow start, reaching only 1.5 million registered users in 2006. In the past year, membership has soared to more than 8 million users—2 million having signed on in the last two months alone. This hypergrowth, driven mainly by word of mouth, is now attracting competitors. South Korea's Cyworld started out as a social-networking site, but has evolved into a two-dimensional equivalent of Second Life, claiming 20 million registered users from Asia to Latin America. Richard Branson's Virgin recently announced plans to create its own 3-D community called A World of My Own. By 2011, four of every five people who use the Internet will actively participate in Second Life or some similar medium, according to Gartner Research, which recently did a study looking at the investment potential of virtual worlds. If Gartner is to be believed (and it is one of the most respected research firms in the field) this means 1.6 billion—out of a total 2 billion Internet users—will have found new lives online.

The power of Second Life lies in its utility for the gamut of human activities. It's a potent medium for socializing—it provides people with a way to express, explore and experiment with identity, vent their frustrations, reveal alter egos. The likes of MySpace and Facebook have already created online communities, but they lack the three-dimensional potential for interaction that Second Life provides. The people who are coming to this online universe aren't just socializing, however. They're also doing business, collaborating on research, teaching courses, dating and even having sex. More than 45 multinational companies, including the likes of American Apparel, IBM, General Motors and Dell are beginning to use the medium for customer service, sales and marketing. Many people are coupling the Second Life chat technology with Skype, the popular audio Internet software, so they can talk out loud while interacting inside the virtual world. Or they use live streaming video to talk and see each other in real life (sitting in front of a computer screen), as well as through their avatars inside Second Life. "The unique thing about Second Life is that it's immersive," says Michael Rowe, head of IBM's digital convergence team. "There's a huge opportunity here, just as in the early days of the Internet."

The medium sucks people in. A recent Dutch study found that 57 percent of Second Lifers spend more than 18 hours a week there, and 33 percent spend more than 30 hours a week. On a typical day, customers spend $1 million buying virtual clothes, cars, houses and other goods for their avatars, and total sales within this virtual economy are now growing at an annual rate of 10 percent. As a result, the money flowing through Second Life has attracted the attention of the U.S. tax authorities, who are currently investigating profits made in online businesses. And as it has evolved, those with ill intentions have apparently discovered Second Life, too. FBI agents are investigating possible gambling operations, and the German TV news program "Report Mainz" recently revealed allegations of child abuse in the virtual world. (Adults were purportedly using their avatars to have sex with the avatars of minors; they were expelled.)

Back in 1998, Rosedale simply hoped to create a vivid three-dimensional landscape in which graphic designers could create likenesses of their real-world ambitions—houses, cars, forests, anything one might find in a virtual game like EverQuest or World of Warcraft. Except Rosedale's creation wouldn't be a game: Second Life had no rules, no levels, no dragons to slay. It was open-ended, a digital landscape without regulations (much like the Internet in its early days). It was created on software that operates across multiple servers—a grid system that could easily grow to accommodate a large, far-flung community. A user in Germany could easily partner with a peer in Mexico to form their own mini-community inside Second Life, based on common interests—architectural designs, whatever. "It's basically Tom Friedman's flat world," says Philip Evans, an economist at Boston Consulting Group who studies the industry. "It's the globalization of the virtual world."

At first, it was a world with no rules. Rosedale's company, Linden Lab, oversaw the allotments of server space, which translates into virtual real estate, but imposed no controls over what went on inside the Garden of Eden it had created. A user's representation in Second Life—his avatar—would be bound by no social constraints. And anything could be built, as long as you could write good enough code. The first pioneers—graphic designers, for the most part—simply set up display spaces for their technological projects. Then small communities with common ideas and visions—much like an artistic community, say, in the real world—sprang up. Since then, cities have grown, with urban amenities from stores to clubs. Upon arrival, users are given the PC commands that enable them to move around (walk, run, fly), dress their avatar and communicate with others.

Newcomers agree to a list of several do's and don'ts, but within the communities they form, residents can impose their own codes of conduct. That laissez-faire attitude seems unsustainable—as Second Life expands, eventually Linden Lab will have to figure out a way to deal with the darker elements. In one of the first troublesome incidents, residents reported last year that "gangs" were forcing avatars out of public spaces. Rosedale declined to intervene, saying his hope was that residents would organize to police their own communities. They are currently doing so successfully, with rare exceptions like the recent alleged child-abuse incident.

For the moment, the social freedom is one of Second Life's big draws. One can teleport to a nightclub like Dublin, find a pristine beach on which to relax or start looking for business opportunities right away. Crowded urban streets are lined with clothing stores, car lots, supermarkets and nightclubs. Real estate is the hot moneymaking market, with "islands"— private invitation-only plots of Second Life land—selling for as much as $1,650.

Real-world entrepreneurs and businesses sense the opportunity. With its large, densely settled population, which allows for division of labor, and citizens universally armed with ownership rights and the tools to produce just about anything, Second Life is in some ways the ideal free market. Consider 40-year-old Peter Lokke. Toiling away as a department manager at a Pathmark supermarket, the New York native had dreamed of opening his own design business, but "never pushed myself to get into it professionally." Two and a half years ago, a friend urged him to chase his goals in Second Life. So Lokke paid $230 to Linden Lab to buy a 375-square-meter plot of Second Life land, and opened up his own clothing shop.

Today his avatar—a woman, incidentally—earns nearly $300 a day selling clothing he designs for users to drag and drop onto their avatars—twice what Lokke earned at the supermarket. As for the clothes, he can make "infinite copies of anything." Once he's designed a T shirt, he can make millions of replicas at no additional cost. "My supply is limitless," he says. "There's no bottom line. The costs are only what I pay Linden Lab."

Linden Lab's "no control" policy allows for any income made inside Second Life (the virtual world's currency is the Linden dollar) to be cashed out through the company into U.S. dollars—even deposited directly into your checking account (at an exchange that has remained fairly stable at about 270 Linden dollars per U.S. dollar). A product created in Second Life can also be sold outside it—on eBay, for example, a private island was recently listed for $1,395.

And unlike, say, Sony, which owns the rights to anything created in EverQuest, Linden Lab has relinquished all intellectual-property rights to creations in its world, spurring entrepreneurship. Roughly 90 percent of Second Life's content is created by the users themselves—Linden Lab built the basic architecture, like "Orientation Island," where users first create their avatar and learn about Second Life. Indeed, the barriers to entry and to commerce are so low, it is hard to imagine a more ideal business environment for entrepreneurs, which may prove to be the biggest driver of Second Life's growth. Lokke is so hooked, he says, "I'd rather panhandle on the street than leave Second Life."

A kind of alternate global economy is emerging in Second Life. Linden Lab keeps information on transactions within the virtual world to itself, but economists who study it closely forecast that by the end of the year users will have spent 125 billion Linden dollars in Second Life (about $460 million). About 5 billion Linden dollars were changed (through the official currency exchange, the LindeX) into $19 million in 2006. So far this year, they've converted $37 million, much of it earned in virtual-world transactions.

The multinational companies are using Second Life in a different way: some are holding staff meetings where avatars representing employees can discuss ideas via instant message, e-mail or Skype, in a souped-up virtual office. Others are using it to connect to customers. For instance, IBM is working with clients like Sears and Circuit City to enhance the shopping experience: adviser avatars can walk customers through models of, say, televisions, and actually show them how the product might fit in the living room. The 3-D, real-time experience also allows multiple customers, who might not be together in the real world, to communicate while shopping. A husband and wife on separate business trips can pick out a new couch "together," discussing the dimensions, color and material in real time. "Second Life allows you to strike up a natural conversation that you can't do on a two-dimensional Web site," says IBM's Rowe.

With face-to-face interaction on the decline in offices—where it's easier to e-mail or videoconference than schedule a live meeting—and companies increasingly use the Web for everything from distribution to customer service, a virtual world offers the potential to form relationships that are far more personal than online forms or e-mail. Nissan, for instance, lets customers talk to salespeople and even "test-drive" its new Sentra on a virtual driving track in Second Life. The Dutch bank ABN AMRO has financial advisers available as avatars.

That communication potential also makes Second Life attractive as an educational and research tool. Architecture professor Terry Beaubois began teaching a Montana State University course in Second Life two years ago, remotely from his California home. Now at MSU full time, he meets with classes each week out of "University Island," a mock campus that his students designed and built, with classrooms, workshops and an oceanside gallery where they display their work. Rather than using paper sketches and cardboard models, they build interactive replicas of real buildings and neighborhood-development projects, adhering to proper structure, gravity and physics. The texture of these structures, though certainly animated, is detailed to the point where even a reporter can find herself lost in the arches and hallways of a virtual workshop.

The idea has caught on. Although Beaubois's colleagues questioned his decision to teach through what they called a "computer game," he's now head of MSU's Creative Research Lab and has the backing of the university's president (who has an avatar of his own). And more than 250 universities, including Harvard and MIT, now operate distance-learning programs in Second Life. Students meet in virtual classrooms to discuss history and political science. Teachers give virtual presentations, and lead virtual field trips. Guest lecturers visit from all over the world.

At the University of California, Davis, psychiatrist Peter Yellowlees has set up virtual simulations to show students what happens in a schizophrenic episode. Students can walk through a replica of his psychiatric ward, analyzing terrifying voices and eerie laughs, and can even see simulated schizophrenic hallucinations. Many students find the images disturbing, but Second Life helps them comprehend the "lived experience" of patients who "constantly complain" that doctors don't understand them, says Yellowlees.

True to the unofficial Second Life mantra—by the people, for the people—patients themselves are utilizing that clinical potential, too. "Brigadoon," for instance, is a Second Life island inhabited by a group of adults who suffer from Asperger's syndrome, a form of autism characterized by awkward, eccentric and obsessive behavior. Asperger's patients have trouble interacting socially and don't perceive things that should come naturally—how to introduce themselves or strike up a conversation, for instance. But in Second Life, these patients are learning to interact in ways that would be terrifying for them in real life. One sufferer has re-created a favorite restaurant, where the group regularly meets. Gradually, they are leaving their private island to venture into the rest of Second Life, integrating into the larger community. "The one thing that really amazes me about Second Life is the way it empowers people," says John Lester, the former Harvard Medical School researcher who set up the group (and now works for Linden Lab). "It frees them from the role of the biological device."

Not everyone is convinced that Second Life is a good thing. Some critics are uneasy with the idea of people's getting more and more of their social activity online. "No matter how you beef it up with little icons or fancy colors, [virtual worlds] don't have the nuance of face-to-face interaction," says Oxford University's Susan Greenfield, who heads the U.K.'s Institute for the Future of the Mind. It all depends, of course, on whether you see Second Life's taking the place of ordinary social interaction or supplementing it, or as just another kind of diversion—like "the 21st-century version of the novel," says Greenfield.

For diehard inhabitants, Second Life is a novel they won't put down soon. Elizabeth Ward, who suffers from reflex sympathetic dystrophy—a severe and chronic pain disorder that now keeps her at home—says "the interaction goes one step further than anything that could be achieved online." Ward, who lives with her husband, a software engineer, in Rhode Island, says her disability can make life "frustrating and lonely," but Second Life "has opened up another world." It's allowed her to continue working, to meet people, to visit her son, who lives in Nevada, and her best friend in India. She's gone sky diving, ice-skating—even played an eight-piece violin concerto with a group of mermaids under the sea. "I told my husband when I first started, 'I felt joy as I did when I was little, playing with paper dolls'," Ward explains. "But now the paper dolls are virtual and can interact with real people." Whether you think it's a pale imitation of reality or a vivid world of the mind, it's captivating the globe.
© 2007 Newsweek, Inc.

Source: Newsweek
Why Millions Are Living Virtual Lives Online