New Realities in Commerce

2/11/2008 New Realities in Commerce. In February, Metanomics held a multi-world broadcast from the Emory University Conference, Virtual Worlds and New Realities in Commerce, Politics and Society. Streaming live simultaneously from Emory University and Second Life, our cross-world panel included Benn Konsynski of Emory University, Chris Klaus, Founder and CEO of Kaneva, and John Zdanowski, CFO of Linden Lab.

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Last Monday, February 11th, 2008, Metanomics held a multi-world broadcast from the Emory University Conference, "Virtual Worlds and New Realities in Commerce, Politics and Society." Streaming live simultaneously from Emory University and Second Life, our cross-world panel included:

From the Emory conference,
- Robert Bloomfield, Cornell University (Host/Moderator)
- Benn Konsynski, Emory University
- Chris Klaus, Founder and CEO, Kaneva

From Second Life,
- John Zdanowski, CFO, Linden Lab (aka Zee Linden)

This esteemed panel discussed this week's topic, "Possible Futures of Virtual Worlds and Society".

For some mind-expanding pictures of the world-within-world-within-world broadcast, you can see pictures taken by:
- JenzZa Misfit
- JimmyJet

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

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

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

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

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

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

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

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

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

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

Chris Klaus:

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

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

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

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

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

John Zdanowski:

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

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

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

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

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

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

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

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

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

NOTES FROM PROFESSOR BLOOMBERG ON THE PRE-CONFERENCE SURVEY:
To spark discussion on the panels, the conference organizers asked me to distribute a survey which address research questions, research methods, collaboration opportunities, and "commercial, social and political possibilities."

The link to the survey is here.

Below I list the questions themselves, and give my stab at some of the answers. You don't have to write as much as I have after all, your responses will be private (unless you want to post them here publicly, as I have. I am sure that just a few bullet points would be a great help.

1. QUESTIONS THAT MATTER: What research questions or inquiries are important with regard to studying virtual worlds in the next several years (think 2008-2015)?

I answer this question from several directions. First, what research questions can virtual worlds help us answer? Virtual worlds are particularly valuable for studying economic and regulatory issues. The power of virtual world economies is shown quite clearly by high degree of market activity in user accounts and assets, even when explicitly banned by the Terms of Service. Thus, I hope and expect to see virtual worlds used to answer basic policy questions, like:
--How does tax policy affect investment and economic growth?
--How do financial regulations (including those governing insider trading, market transparency and financial disclosure) affect capital flows and economic growth?
--How do markets and economies behave in the face of lax (or non-existent) regulations?

The second direction is to consider what we need to know about virtual worlds in order to conduct more effective research on other topics (like economics, as described above). This leads to questions like:
--How can we make virtual world roles entertaining enough for players that we can build a large and committed subject pool, while not violating the tenets of experimental economics (which emphasize that all participants are motivated primarily by financial incentives)?
--How does the use of avatars affect individual behavior, particularly in business/economic settings?
--How can researchers implement experimental controls over participants in virtual-world experiments? Challenges include identifying participants uniquely, controlling participant-to-participant communications during and between research sessions, etc.

A third direction is to study how for-profit, not-for-profit and governmental enterprises are using and should use virtual worlds for education, simulation, research, outreach, marketing and other uses? Virtual worlds seem to be particularly amenable to entrepreneurship, so this should be a focus of study as well.

Finally, for the political animals out there: how will virtual worlds affect democratic institutions in the real world (by allowing community building, etc.)? What governance works within virtual worlds? And how do we ensure egalitarian access to virtual worlds, which currently require pretty expensive hardware and internet connections?

METHODS: What research methods and approaches are valuable in the study of, and study in, virtual worlds?

Research on and in virtual worlds is exceptionally interdisciplinary. I have found my training in business, behavioral economics and experimental economics extremely useful. But lately, I wish I were a macroeconomist! Sociologists are also making great headway, and I think as they start working with econometricians, we are going to get some fascinating looks at the networks that arising in these spaces.

Legal and political issues loom large in the metaverse. Sometimes these groups don't play so well with social scientists (who are almost always data-driven these days, while legal/political researchers are more qualitative). I think virtual world research provides some opportunities for collaboration here, because it is easier to do comparative analyses (virtual worlds may differ less from one another than countries in the real world do).

I just walked out of a 3-hour meeting on survey research, much of it devoted to the difficulties of conducting phone surveys in a cell-phone world. What will surveys in virtual worlds be like? My head hurts just thinking about it!

COLLABORATIVE INITIATIVES: What might be some ways to effectively establish more multi-university and multi-institutional research, both with regard to studying virtual worlds as well as using virtual worlds to facilitate research collaborations?

Many of us have been talking about a "supercollider model" for virtual world research—an attempt to get massive funding to create a platform for virtual worlds that researchers of all stripes could use. Of course, the original supercollider project failed, but the model seems more likely to succeed given the relatively low cost, rapid translation into commercial application, and distributed financing (one problem with the supercollider was that it had to be in one location, raising the question of who would get to/have to host it.)

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Here are the questions, which address "commercial, social and political possibilities will influence the design, adoption, applications and implications of virtual worlds":

What, with regard to the current state of virtual worlds, is important and noteworthy to you?

What interesting institutional changes might take place as virtual worlds spread with regard to business, government, and society?

How might virtual worlds change the socio-political environment and nature of human interactions?

What radical changes with regard to virtual worlds might we expect in the two to five year horizon, or beyond?