Thursday, November 8, 2007

Second Life and corporate hubris

A version of this piece was published in Marketing in 2007

You don’t have to be close to the news to know that the internet’s doing pretty well these days.  More than half of UK homes have broadband, 14% of advertising spend is expected to be online this year, the IMRG reports online retail was up 80% in July, and my mum just celebrated 10 years online.

Wind back a few years though, and it was all gloom and doom.  Dotcoms dropping like flies, and investors running away from the internet sector like crowds in a Godzilla movie.  Lycos (bought by Terra Networks in 2000 for $12.5 billion) sold for $95m in 2004, eToys, Boo and Kozmo all went bust, and AOL Time Warner quietly dropped the AOL from their name.

Vast amounts of cash were burned in the boom and its subsequent bust, and the world’s investors reacted against their losses by vowing never to darken the internet’s door again.  But as it turns out, their knee-jerk rejection of the internet was as irrational as their embracing of it was exuberant.

Because every day of every month as the crash continued, more and more people got connected to the internet.  Eventually, business re-adopted the internet and started to make money out of it, and now investors can’t get enough.

But this rosy outlook isn’t universal.

After the initial excitement and irrational exuberance that marked the first two years of Second Life, the voices of the naysayers are now coming to the fore.

The recent ban on gambling in-world led to the biggest bank in SL, Ginko, closing its doors after a run on the bank.  Starwood hotels announced the closure of their Hotel, and others are left wondering whether it was worth all the effort.

A quick visit to American Apparel reveals it to be closed permanently for business, the Reebok store is empty.  Leo Burnett’s treehouse was vacant, shops and other commercial environments have virtual tumbleweed blowing through them.

So was it all just one big PR stunt, or have we just hit a digital speedbump on the road to next-generation media?

What drove these businesses into Second Life was the feeling that there was new area of the economy opening up.  People were spending time there, and importantly they were making money – SL’s first millionaire (that’s in real-world US dollars), Anshe Chung, emerged last year having made her fortune principally in real (is that the right word?) estate.

Few companies really believed that they would earn huge returns.  What piqued their interest was the potential that these alternate worlds might offer in the future.

Second Life isn’t alone.  World of Warcraft, City of Heroes, There, and now the Lord of the Rings are amongst dozens of virtual worlds where millions of people spend hours of their time.

They’re trading with each other, fighting each other, marrying each other.  Their lives spill in and out of these virtual worlds, and when you talk to someone who spends time there, their language is that of someone who regards it not as a game, but as a part of their life.

For some time now, it’s been possible (in a lab) for a person to control a computer game directly from their brain.  Now, a study at UCL has shown that someone who is prodded in the chest at the same time as this is done to their virtual self can associate that sensation with their virtual self rather than the real one.  The applications for virtual environments like Second Life are obvious – making them more immersive, more personal and more real.
So the likelihood is that we’re underestimating the potential impact of these ‘games’ on humans.  Understanding more about these phenomena is both fascinating and important, but what’s happened in SL has been more about corporate hubris than about targeted learning – it’s hard to see what Telecom Italia expects to learn from operating a racetrack in SL, other than that nobody wants to go there.

There are big lessons to be learned – but you don’t necessarily need to buy an island to learn them. 

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