Posted in General Technology

The Metaverse as a business platform

March 31, 2007 - 8:00 am

1. Introduction

Mankind’s new frontier is neither the far reaches of outer space nor deep oceans, but rather a limitless, ethereal virtuality that we are collectively imagining one pixel at a time. This is the Metaverse, an immense and immersive 3D virtual rendering of the real world, populated by millions for the purposes of gaming and, increasingly, social and economic pursuits. It provides the freedom to live dreams and will extend our notion of the self.

The Metaverse represents a disruptive technology through a significant extension of the existing 2D-Internet into a multifarious and emotive 3D-Internet. The speed and graphic capabilities of personal computers and gaming devices coupled with the ubiquity of broadband access to the Internet is unleashing a dramatic new world of opportunities and challenges.

The Metaverse eliminates real world constraints and in doing so it will redefine our view of the real world through new realities that are created in the virtual space. The breathtaking rate of change within these virtual worlds outpaces that of the real world by a magnitude. In its rapidly evolving form, the Metaverse hints of a compelling environment to conduct business. Organizations are jumping in with the speculative promise of exploiting a new channel to market and sell their wares. But how compelling is this notion and what is the sustainable value proposition?

When technology catches up with great ideas, profound things can happen. Now is one of those times.

2. What is the Metaverse?

The term, Metaverse (short for metaphysical universe), was coined in 1992 by Neal Stephenson in his book Snow Crash which envisions how a virtual reality (VR) based-Internet may evolve in the future. The notion of VR – a computer-based simulation of a real environment, with many products and solutions already in use – is not a new phenomenon. Today’s Metaverse brings together high-quality graphics, ubiquitous access to the Internet, the significant processing power of personal computers and gaming devices, and the imagination of millions to create massive immersive virtual worlds. Interaction is facilitated through the use of an avatar – a customizable, electronic persona that represents the individual. Barriers of space and time are largely eliminated since many of the constraints of the physical world become irrelevant. In effect, society is creating a new frontier that brings with it all the challenges and opportunities of settling a new world but without many of the constraints of the physical world. The Metaverse is taking the form of massively multiplayer online role-playing games (MMORPG) such as World of Warcraft; non-gaming worlds such as Second Life and There; and the mash-up social networking and virtual world Habbo.

3. The Metaverse as a Business Channel

While renderings of the Metaverse have existed for some time in such simulations as Electronic Arts’ The Sims and Microsoft’s Flight Simulator, a critical mass of processing power and global network connectively has exponentially elevated its potential, making it an impressive proposition in multiple domains. In addition, its pervasiveness on gaming devices and personal computers, and its broad acceptance and use across the globe ensures a captive and willing user base. For consumers willing to part with their cash and a market with a voracious appetite for new channels, the Metaverse becomes a compelling venue for consumerism. A new business platform is born.

Businesses in the Metaverse can be broadly defined as native and non-native. A non-native business refers to a real world organization building a presence in the Metaverse. That is, this world represents another platform for an existing business much like the Web has provided. Native businesses refer to those start-ups that are building businesses codified into the Metaverse fabric. These include new propositions that sell products and services that only exist in a virtual world, for example vendors that sell animations for changing or extending avatar movement capability.

So who are these businesses and what kinds of things are they doing? This article looks specifically at Linden Lab’s Second Life, the product that best encapsulates the virtual world zeitgeist.  Second Life is differentiated from other virtual worlds in that the intellectual property created by participants is retained by them. Commerce is conducted between participants in a manner that is independent from the platform provider. This is in contrast to a virtual world such as Sony’s Home product in which the vendor, Sony in this case, is the only seller. The authors suspect that this business model will change in favor of something closer to Second Life.

At the time of writing, in Second Life there are over 3,100 business entities in existence. They range from big non-native names such as Adidas, Calvin Klein, and Toyota to native vendors such as Anshe Chung Studios-a virtual real estate agency and developer, Cranial Tap-a designer of virtual environments and “in-world” applications, and OurBank-a full service bank for the Second Life currency Linden Dollars. Business activities for both non-native and native organizations range from selling real and virtual products, to recruitment, banking, marketing, real estate, and training. The following are all recent examples of Second Life business: Starwood, the hotel chain that owns Sheraton and Westin, built a concept hotel “in-world” and asked members to visit the building to provide feedback well before a single real brick was used in construction. Urban Outfitters sells real clothes that are shipped in the real world, but while waiting the clothing can be enjoyed by the consumer’s avatar. Reuters, the international news bureau, has an elaborate news presence “in-world” and has even assigned a full-time journalist to cover events throughout the Second Life universe. Anshe Chung, most notable as the first native business to supposedly create a millionaire entrepreneur, buys virtual land, develops on it, and then resells it at a handsome profit. The Versuvius Group specializes in a range of native-only services such as machinimatography-the process of creating movies “filmed” in the virtual world-and designing fashion clothing for avatars.

As of March 2007, about $2 million per day was being spent in this virtual world. During 2006, the economy grew at 270%. Residents number just over five million and are growing by over a million per month. Currently the return rate of those that sign-up for membership is about 10%. Today that still represents approximately 500,000 regular users. Do the math: if both this economy and population growth continues, any extrapolation estimate suggests a billion dollar virtual economy within just a few years. Does the value proposition of the Metaverse need any more convincing? But beware: any diligent industry analyst or economist should be quick to warn of hype or the potential for sudden bust.

4. Servicing Businesses in the Metaverse

With both non-native and native businesses flourishing in the Metaverse, new and ambiguous tax and financial implications emerge. Should the tax laws of the real world apply in the virtual world? Congress is already on the case (Reuters, 2006). New business models mean new financial challenges. For example, a digital object, created at time of purchase and reproduced in an unlimited fashion without cost or effort, essentially redefines the notion of inventory. While many new questions are raised, it is clear that as organizations develop a presence in virtual worlds, they will require the same type of services often requested in the real world such as business process improvements, risk management, controls and compliance, financial effectiveness, and business modeling.

As businesses have developed an online presence on the Web, many new supporting services have emerged such as Web designers and developers, hosting services, Web traffic analysts, and search engine optimizers (SEO). The same trend is expected as firms move into or are created within the Metaverse. Consider such services as those that help with developing digital products, digital property protection, marketing in a virtual environment, specialized tax and audit services, Metaverse cultural and etiquette training, and avatar trainers. Many new career opportunities will abound. Organizations of all sizes will require advice on their endeavors; advisory services demand will be diverse and abundant.

While we use the real world and the Web to make these assumptions about probable services, the most remarkable conclusion is that services will emerge that we cannot yet imagine, but in time will be born in this new virtual reality.

5. The Challenges Ahead for Doing Business in the Metaverse

The Metaverse currently exists in a state of low-level chaos and altruistic self-governance. While this is momentarily sustainable, as a critical mass of legitimate businesses establish themselves within these worlds and attempt to gain trust in the marketplace, it is likely that people and communities will group to form appropriate governance. Might there be an equivalent of the World Trade Organization (WTO) or United Nations (UN) for the Metaverse? In addition, how will law and order be established, monitored, and enforced? Rather than develop law in a piecemeal manner, there may an opportunity to establish a general agreement on acceptable behavior – something that leverages thousands of years of human trial and error to the rapid benefit of all virtual worlds.

In the real world, government agencies and institutions expend considerable effort and cost to ensure that a single identity is maintained by each individual. Proving the identity of the individual is a fundamental requirement for the tenets of civilized society to function and particularly in the context of this article, for most, if not all contemporary business transactions. The Metaverse largely relies on mapping an identity to an e-mail address or a credit card number. As the paradigm matures, this method of identity authentication will become massively inadequate since, for example, impersonation will be more possible and therefore more prevalent, and discerning between a human and a computer controlling an avatar will be difficult. New forms of identity management will need to evolve. Methods of detecting fraud and identify theft will be required. In addition, is it possible that an individual will have multiple identities based on different needs or roles? In fact, individuals could conceivably have hundreds of identities–for example, avatars that do specific tasks.

It is predictable that those intent on crime or simply malicious intent will make their way to the Metaverse. Note the recent vandalism on the Second Life campaign headquarters of Presidential hopeful, John Edwards (ABC7, 2007). While bringing down a Web site through a denial-of-service attack, or using a phishing scam–fake Web sites that mimic real sites such as an individual’s online bank in order to entice a user to enter his password thus enabling the perpetrator to steal the password–is painful and often costly, the implications in a virtual world are much larger. In the Metaverse, there will be complex interdependencies between many different types of processes and digital objects. Depending on the level of that complexity, disruptions to a part of its digital ecosystem could be the virtual equivalent of an interruption to the energy supply chain in the real world. Businesses could be destroyed, identities modified or eliminated, and digital factories shut-down. Injections of rogue avatars could roam and cause havoc, resulting in the collapse of the system’s integrity. Law enforcement may need to operate between two or more worlds both real and virtual, identifying and disabling digital criminals and stopping their human sponsors. Might this result in the creation of enforcement avatars or Metaverse army intent on protecting their owner’s digital assets, going as far as preemptively attacking other virtual worlds to thwart future invasions? Let’s stop there lest we get caught up in our own speculative hyperbole.

The Metaverse presents new opportunities and challenges in almost every discipline. It clearly represents a value proposition for businesses. The fundamental question is: can it be credible and sustainable? Since the rate of change in the Metaverse is progressing at an accelerated time frame compared to the “real world” it won’t be long before we know the answer.

6. References

ABC7 (2007). John Edwards’ Second Life HQ Vandalized. Retrieved March 31, 2007, from

Reuters (2006). US Congress launches probe into virtual economies. Retrieved March 31, 2007, from

Author: Jonathan Reichental, Ph.D. & Robert G. Eccles, Ph.D.

Originally published in the Harvard Interactive Media Review.


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