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A Different World
With online alternate realities, flourishing businesses are discovering a parallel (retail) universe.
American Way
Chris Warren
December 1, 2006

Earlier this year, the hip clothier American Apparel — well known for its risqué ads and sweatshop-free T-shirts — opened its newest store on the island of Lerappa. As with its other store openings, American Apparel turned the event into a party, complete with festive music and refreshments as well as prizes and giveaways for shoppers who stopped by. There were, and are, a number of unique quirks to the Lerappa store, however. For one thing, T-shirts and other clothes are mind-numbingly cheap at $1. The clientele is also somewhat unusual. It's not uncommon to see well-dressed animals — as in foxes or birds — saunter into the shop, and a fair number of customers enjoy flying from rack to rack.

Before you make plans to visit, though, keep one thing in mind: American Apparel's Lerappa shop isn't real — at least physically.

See, Lerappa (apparel spelled backward) is actually an island in an online virtual world called Second Life. As its name implies, Second Life is a sort of alternate —reality in which people, by downloading software to their computers and logging in, can create and participate in an entirely new existence for themselves on their computer screens. Just about anything that can be done on terra firma — and quite a bit that can't — is possible in Second Life, including starting a business and making money from it (this world's currency, the Linden dollar, is convertible to U.S. greenbacks), buying land, joining clubs, attending concerts and events, and on and on.

When it comes to virtual worlds, Second Life, which was created by San —Francisco-based Linden Lab, is hardly the only option. In fact, in what are loosely termed multiplayer— online games — thus named because so many people, located in different places, can participate simultaneously — Second Life is fairly small. By contrast, World of Warcraft, a medieval-themed game in which players battle for power and treasures, boasts more than five million players worldwide. Other virtual worlds include Habbo Hotel, There, and Entropia Universe. What distinguishes Second Life from some of the other virtual worlds, though, is that players have access to 3-D modeling tools and scripting technology, which allows them to create homes, clothes, dances, and walks for their online graphic characters, called avatars, rather than being confined to a premade universe designed by a game company's programmers. In —addition, —residents own the content they create, enabling them to participate in Second Life's robust economy, in which $1 million is traded— each month.

The possibilities are endless: You could design an avatar to represent you as a tall, fashion-savvy hipster (with a taste for American Apparel clothes) or as a long-haired hippie; pounds can disappear with the click of a mouse; and nothing requires people to stick to their real-life gender — you don't even have to be human. After establishing an on-screen persona, which users maneuver through the virtual world with a keyboard and mouse, Second Lifers join more than 940,000 other residents from all around the globe in the game of, well, living.

At any given time, there are potentially millions of people checking out of the physical world and pursuing relationships, careers, and entertainment in one of the many virtual worlds. While it might all sound bizarre (and, to some, like a colossal waste of time), there's a fairly persuasive case to be made that these virtual worlds, growing as they are in popularity, are poised to have a profound impact on the way people interact as well as on how companies operate, market to their customers, and train their employees.

"I think that it's almost indisputable that a significant fraction of humans' time will be [spent] in these worlds. At a minimum, you want to get somebody's attention, whether it's because you want to teach them something, impress them with a brand image, or help them understand that some option is available," says Edward Castronova, author of Synthetic Worlds: The Business and Culture of Online Games and an associate professor at Indiana University. "Your company, your organization, or the government is going to have to be in there."

He may be right. Second Life is growing at a rate of almost 20 percent per month, and it's not just businesses that want to have access to a growing virtual population. Seeing it as a promising venue to get in front of potential voters, Mark Warner, the former governor of Virginia and a potential 2008 presidential candidate, was interviewed — through his avatar — in Second Life this past September.

Clearly, something socially, culturally, and economically significant is happening in these virtual worlds. Looking to tap into what could be a much larger movement, companies are probing what sort of presence they should have there.

"Corporations are discovering this as a place to do business," says David Fleck, vice president of marketing for Linden Lab. "They don't necessarily understand what Second Life is, and there's this discovery process they're going through." In opening its Lerappa store, American Apparel became the first real-world retailer to actually establish a presence in Second Life.

With its clothing for avatars selling for as little as $1, American Apparel isn't exactly going to generate a lot of revenue from sales in Second Life. But that was never the intention, explains Raz Schionning, the company's director of web services. Instead, it wanted to boost the company's profile among what Schionning believes is a promising demographic. "If you have computer equipment and the bandwidth to run Second Life, you have to have a way to afford that, and you can probably be a reasonable consumer of our products," he says. "And even though Second Life has been around for three years, it's still cutting-edge, and just to be aware of it and to have gone so far as to get involved with it means that you're a trendsetter, not a trend follower."

In other words, these are just the kind of tech-savvy folks with disposable income whom lots of companies want to reach. Although it views its presence in Second Life as primarily a marketing tool, American Apparel obviously wouldn't be upset if avatars looked so good in their clothes that they influenced their human creators to go out and buy the same outfit. To help encourage that, last August American Apparel gave everyone who bought an item in Second Life the opportunity to buy the same piece of clothing in a real store at 15 percent off. Schionning believes that besides providing a locale for the marketing and incentives, virtual worlds hold promise as a place to test consumer reaction to new products before they're actually released. For instance, this past fall, American Apparel came out with denim trousers. Before they hit stores, they were on the racks in Second Life. "You could try them on before you saw them in real life," says Schionning.

While it's certainly a pioneer, American Apparel is far from the only company exploring the potential of virtual worlds. When Warner Bros. Records was getting set to release a new CD by one of its artists, Regina Spektor, they set up a listening lounge so avatars could sit around and hear some of her new songs. The room was designed to look like a New York loft and had a coffee table with a book on it that people could leaf through to learn more about the artist. "Their goal was to create awareness and to create a fan base and, just as importantly, to generate sales for her music," says Linden Lab's Fleck.

There are plenty of other examples of companies trying to harness the power of virtual worlds. Vexed Generation, a British clothing company, tapped the opinions of the members of Entropia Universe, which was created by the Swedish company MindArk,— about new clothing styles and inventory in its actual brick-and-mortar stores. "Never before had they had such immediate feedback from the end customer," says Marco Behrmann, chief information officer of MindArk. "They were thrilled and even got a new computer in order to more efficiently talk to the Entropia participants."

Massive Incorporated, an advertising agency recently purchased by Microsoft, supplies ads that appear on billboards inside Entropia. In Second Life, Warner Bros. held a premiere for X-Men 3, complete with avatars who represented Hugh Jackman and Halle Berry and walked down the red carpet. Major League Baseball built a replica of Pittsburgh's PNC Park, the host of this year's All-Star Game, and ESPN did a simulcast of the home-run derby into the virtual world, with avatars who represented sluggers like Boston's David Ortiz and the eventual winner, Philadelphia's Ryan Howard.

All of this may just be a precursor of what's to come. Reuben Steiger, CEO and cofounder— of the company Millions of Us, which helps businesses understand virtual worlds and take advantage of their possibilities (an indication in itself that the real and virtual economies are becoming increasingly intertwined), envisions auto companies actually letting users of virtual worlds design cars. "They'll have a competition, and the one that is most popular will be a concept car and go into production, hypothetically," he says. "I think it ties into the whole cultural zeitgeist of the wisdom of crowds and the ability to use distributive systems to do things that even the smartest individuals can't do."

While Castronova can see plenty of ways that the virtual and real-world economies intersect, he's far from convinced that companies have much of a clue about how to operate in places like Entropia and Second Life. Even advertising and raising brand awareness, probably the most doable ventures thus far, can be done in a way that is strongly rejected by virtual-world participants. A hard sell is just asking for trouble because, as Castronova points out, people in virtual worlds have complete control over everything, including the advertising message you might be trying to send. "I think few businesspeople understand how empowered users feel themselves to be. They tolerate nothing — nothing — that they don't choose themselves," he says. "Think about the era of TV. It was possible to send an image into the living room and control it. And what is happening with virtual worlds is the image is coming right off the TV and the people are holding on to it, and they can toss it around and jump up and down on it."

Because business executives are just now discovering virtual worlds, it is perhaps not surprising that individuals are responsible for most of the economic activity: In the virtual world, at least, mom-and-pop outfits trounce big corporations. Take the case of Christopher Mead, a 36-year-old former factory worker and a stay-at-home father from Norwich, England. He sounds like just about the complete opposite of a cutthroat businessman. "I came to Second Life because I wanted to get away from conflict and people who put greed ahead of other people's feelings," he says. "I'm no businessman; I'm not constantly looking for ways to squeeze more money or to cut costs."

Since gravitating to Second Life for entertainment, though, Mead has become a successful entrepreneur, opening up four shops, all of them called Bits and Bobs. Using an animation program, Mead creates and sells unique dances, walks, and other activities for avatars, particularly couples, to do together. People from all over the world not only give Mead suggestions for new creations but are also willing to pay good money for his offerings. And because Linden dollars, the currency in Second Life, are convertible to U.S. dollars, this is real income; Mead says it varies, but he makes about $1,700 a week from his sales. In fact, both Entropia Universe and Second Life say they have thousands of people who make a profit from what they do in a virtual world. People who use Entropia can even use an Entropia Universe Cash Card at any real-world ATM in Europe to withdraw money earned in the virtual world.

The growing popularity — and influence — of virtual worlds raises some important questions. Castronova envisions the onset of a slew of policy and legal issues. "You realize what is happening inside Second Life is an economy and that real values are being exchanged. What a disaster if the government decided to intervene, regulate, and tax," he says. "On the other hand, if Second Life says its currency is freely liquidated against the U.S. dollar, why should that be tax free?"

Eventually, these topics are certain to be debated by policy makers. But of even greater— importance are the societal implications of so many people spending so much time in a world separate from their everyday lives. Steiger of Millions of Us predicts the possibility of, five or six years from now, virtual worlds becoming the "organizing principles of society," taking on the historical role of clubs and local churches. The difference, of course, is that few or none of these people will have actually ever met. "It's just easier to find like-minded people and to assemble with them," he says. "It is, depending on one's perspective, either massively dystopian or very encouraging."

For his part, Steiger can understand why this is happening. In the real world, individuals feel like they have very little control, particularly over the physical world surrounding them. In places like Second Life, though, they are in complete control. "When I travel through America and see the strip-mall culture and the Wal-Martification of America, that really depresses me," he says. "Second Life, what makes me excited about it is it's got a baseline democracy to it and a kind of a leveling of the cultural playing field that is really very nice."

Castronova can even see how the popularity of virtual worlds is akin to the waves of migration of Europeans to America in the first 100-plus years of our country. What drove them, he says, was dissatisfaction with their lives and how European society functioned. It may be the same thing luring people to virtual worlds. "If we want to know how important this is going to be, we have to ask ourselves, how many people are going to find the fantasy existence preferable to the game we're building out here?" Perhaps, he says, people will take the things they like about their virtual lives and apply them to the outside world. "My gut feeling is we have to change what we're doing out here."
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