Second Life strives for a second wind

Updated at 6:15 p.m. PDT with correct list of companies that have signed on to test the software.

After it made headlines last week for yet another executive leaving the company, you'd really think things couldn't get much worse for virtual world Second Life and its parent company Linden Lab.

The marketing hype--it's the next Internet!--bottomed out long ago. There was a wave of unflattering press, from virtual terrorism to technical problems to banking scandals. Even the NBC sitcom "The Office" jumped on board, lambasting Second Life with an episode in which Dwight Schrute, the show's archetypal "creepy nerd," professed his addiction.

"I signed up for Second Life about a year ago," Schrute, played by actor Rainn Wilson, explained with his usual dweeby pomposity. "Back then, my life was so great that I literally wanted a second one."

This month's departure of Ginsu Yoon, vice president of corporate development, follows the exits of high-profile executives like chief technology officer Cory Ondrejka and eventually founder and CEO Philip Rosedale. In a post on the Linden Lab blog, Yoon called it "a graduation of sorts for the company and for me...great companies evolve their management around the reality that experienced executives enjoy different stages of company development."

Sunny spin, sure. But this might be one instance where a major executive shake-up could actually be a positive sign.

True to its reputation as a haven for utopian dreamers, Second Life's original executive team wasn't entirely in touch with the business side of things. "I describe it as sort of like being in a Berkeley commune and if the kitchen catches on fire you have to take a vote before you put it out," said Wagner James Au, author of "The Making of Second Life: Notes from the New World," who was employed as a contractor at Linden Lab in 2006.

Philip Rosedale's replacement, announced just over a year ago, was digital-strategies veteran Mark Kingdon. Critics took this as a move that Linden Lab meant business, and the sands shifted internally as well.

"It's got less of that start-up feel," Au said of Linden Lab, which now employs more than 300 people. "The big shift in corporate culture happened after Philip left, and after he stepped down as CEO and then took a chairman role."

Linden Lab representatives do not disclose financials, but they say that Second Life is profitable. Mark Kingdon explained in an interview with CNET News that he estimates user-to-user monetary transactions in Second Life may hit $450 million in 2009, up from $350 million. "(Revenue) comes from land maintenance fees, fees from the 'Lindex,' which is where people trade our micropayment currency, and also from the sales of Linden Dollars themselves," Kingdon said, "and some other sources like in-world advertising and e-commerce, where we recently made a couple of acquisitions."

Herein lies the heart of the matter. Second Life might have earned a reputation as a nexus of odd subcultures, but its primary sources of revenue--a virtual currency, micropayments, an array of virtual goods--fit right into the social Web's business model du jour. Facebook, for example, has been ramping up the focus on its virtual gift application, and is testing a new product in which members can purchase credits simply as street-cred points that they can dole out to their friends.

The system is there in Second Life, and in spite of what the media has concluded, it seems to be alive and humming, even if it's still relying on virtual-world enthusiasts rather than blue-chip marketers. More importantly, what Linden Lab seems to finally be recognizing is that Second Life needs some permanent institutions before it can hope for an influx of people.

Corporate participation is key
The burgeoning space known as "Enterprise 2.0" may turn out to be Second Life's real cash cow. While many marketing campaigns that went into the virtual world have since pulled out or lie fallow, IBM, which has had a presence in Second Life since late 2006, hasn't given up. There are more than 50 IBM regions, or "sims," in Second Life now, including sales and marketing centers, and IBM has been working with Linden Lab to develop and test a behind-the-firewall environment for workplace collaboration and training. Intel, Northrop Grumman, and the U.S. Naval Undersea Warfare Center have also signed on to test the software.

"Businesses are finding great value in collaborative tools and virtual learning, and I think it's going to be an incredibly powerful platform," Kingdon said. Having a more business-savvy executive team--which recently added veterans of Adobe, Pixar, and Intuit to its ranks--is key.

The corporate participation is crucial because you can't just throw individuals into Second Life the way you can into a social network or a role-playing game that has clear aims and instructions.

"It's like trying to learn World of Warcraft and Photoshop at the same time," Wagner James Au said, adding that Second Life's once crash-prone software is "slowly getting better" as new development goes on. "You go in and there's generally a bizarre menagerie of creatures, and it's just kind of overwhelming for people and there's not any specific goal. That's kind of the whole design of Second Life: you want this free-form world where you can do anything. But it's sort of that paralysis of choice that economists talk about. When you have way too many choices, a lot of people just kind of get frozen."

Au, who continues to keep close tabs on Second Life at the blog New World Notes, estimates its current active user count to be 650,000, and said that it's finally starting to grow again after a period of stagnation. Over half of its users are now outside the U.S.

"We had really terrific active user growth that started nicely in the middle of last year," CEO Mark Kingdon said. "In the last week of March, users spent more than ten million hours in Second Life, and that's up from six and a half million in the same week a year ago."

The organized groups slowly gravitating toward Second Life as a platform aren't restricted to companies, though. "There's a mini-MMO within Second Life called Bloodlines that's like a vampire role-playing game. It's got, like, 40 to 60,000 users in it," Au said. "It's gotten complaints, because to advance as a vampire you have to infect other people so they've been showing up in (virtual) shopping malls and fashion shows and started biting people."

Dwight Schrute had better watch his back--or neck.