The virtual world was meant to be a boon to business - but now it's got the financial jitters, writes John Collins.
Could the much-hyped computer world Second Life be facing the first virtual economic recession? In recent months, the creators of the popular virtual world announced a ban on gambling, saw its stock exchange robbed, had a run on one of its banks and has seen a significant fall in the amount of daily economic activity.
Second Life may not be the most popular of the virtual worlds that have sprung up on the internet in the last couple of years, but it has certainly attracted the most publicity. The media can't get enough of it: it has been featured in a cover story in Business Week and Reuters now has a full-time bureau there. And a range of businesses, from car maker Toyota to computer giant Dell, have set up virtual shop.
For those unfamiliar with Second Life, it is an online computer game, created by Linden Labs, based around a virtual reality. Users create their own avatar - their digital representation in the game - and can then interact with other users and objects in the world.The ability to teleport à la Star Trek and to fly short distances are some of the improvements over users' first lives. Membership is free, but to access the more advanced features of the world, such as owning land, it's necessary to pay for a subscription. Just as in the real world, users can buy and sell property and other goods, attend concerts, even have sexual relationships of a sort. But, unlike the real world, more tech-savvy users can hack into the system to get an edge on other players and disrupt this digital utopia.
Second Life's high profile has led to discontent amongst some long-term residents. Attacks, known as "griefings", have been directed against buildings and avatars by groups with names such as the Second Life Liberation Army. Opposing Spanish political groups have also taken their differences into the game and recently tried to burn each others' virtual offices.
Second Life has its own in-game currency, the Linden dollar, which has a floating exchange rate with the US dollar but generally trades at around 250 Linden dollars to a greenback. This, of course, presents challenges for companies doing business in Second Life as it is exceedingly difficult for them to generate a real-world profit.
Jane McDaid, managing director of Dublin-based Thinkhouse PR, generated plenty of PR for the company and its clients last year when it announced it was opening an office in Second Life. Ultimately, the plan was to have that office manned around the clock. "Dedicating real life hours and time to Second Life is expensive, as the Linden dollar is so weak compared to the euro," says McDaid. "As a result, we are now looking to recruit people in Second Life as it makes more economic sense." Despite this, McDaid is still upbeat about the potential of Second Life as a networking tool and her firm continues to use it to launch products simultaneously in both real and virtual worlds.
Second Life claims to have signed up 8.5 million users, of whom only a relatively small number are active users - just 1.6 million have logged in over the last 60 days (1,500 are estimated to be from Ireland) and there are usually about 50,000 people "in-world" at a given time.
LAST MONTH, LINDEN Labs announced it was banning all forms of gambling in Second Life as regulations on online wagering vary in each jurisdiction and there was no way of coming up with a regulation that would satisfy lawmakers in each resident's real-world country. As a result, daily economic activity in the game has reportedly dropped by about 25 per cent. The gambling ban and high interest rates have also seen a run on the deposits in one of the virtual world's main banks, Ginko Financial, leading it to close its virtual doors.
Technology advisory firm Gartner this week cautioned businesses against falling for the hype of virtual worlds and the major "security and risk-management issues they expose enterprises to". In plain English, the consultants believe that the free-for-all nature of Second Life, which is clearly an attraction for many users, means that businesses can have no certainty that the people they interact with online are who they say they are.
It's unclear whether the businesses deserting their Second Life properties will be nursing big losses. Many were reported to be using low-cost software developers in Indian "coding factories" who were willing to churn out Second Life artefacts for a fraction of the cost of European web developers.
Of course, Second Life apologists would say that Second Life is merely going through the "trough of disillusionment", a phenomenon made popular by Gartner, which suggests that as any new technology is adopted into the mainstream it is first hyped, and then suffers a backlash as new users find it's not all it's cracked up to be. Whether it can climb Gartner's slope of enlightenment to the plateau of productivity is something that will be revealed in the coming year. If that happens, many dormant users could be digging up their old username and password again.