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Virtual magnate talks China, censorship

Ailin Graef, aka Anshe Chung, may be Second Life's best-known resident. Here's part two of CNET News.com's interview with the in-world mogul.

This is part two of CNET News.com's interview with Second Life land magnate Anshe Chung, the in-world identity of Chinese businesswoman Aillin Graef. Click here to read part one, in which Graef tells how she got started in virtual worlds and shares her secrets for success.

Anshe Chung is perhaps the best-known resident of the virtual world Second Life.

Whether that's because of her massive land holdings, because she has integrated herself into many Second Life sub-communities, or because she was on the cover of Business Week, the fact remains: almost every Second Life resident knows who she is.

For various reasons, she's also controversial. Some view her as inflexible on land pricing. Others are annoyed that she has blanketed much of the virtual world with business signs visible to anyone flying overhead. Others charge her with convincing too many residents to sell their land to her.

She and her husband originally ran the company from Germany. But at the beginning of 2006, they set up shop in China and are building a small virtual-world land development and services empire. And at the same time, they're training new talent to help them build their business.

Graef sat down for a lengthy interview with News.com earlier this week in CNET's Second Life bureau to talk about these issues and more. The interview was initially disrupted by a "griefer," but it was moved to a different location and eventually continued for nearly three hours.

Q: You were talking about your Chinese operations. Say more about that.
Ailin Graef: In January, we set up a real company in China and began to employ people there. We needed money to pay salaries, rent an office, buy computers and show sufficient funds on our bank statement to satisfy government regulations. We did this with money coming from Second Life. We are 100 percent independent. My husband, Guni, and I are the only owners. And our Chinese operations are already profitable.

How many employees do you have, and where are your offices?
Graef: Our offices are in downtown Wuhan, a city larger than Los Angeles. We have a network of small studios in the same tower to provide different (atmospheres) and to encourage creativity. We currently employ about 30 people here and are seeking 20 more. We have support teams, many 3D artists and just began building programming teams. We also employ some people oversees.

How well do you pay your employees?
Graef: They are professionals once they are fully trained by us. Some worked for companies like (World of Warcraft publisher) Blizzard Entertainment or Japanese game outsourcing companies in the past. But most are fresh graduates who go through our special training process. The wages we pay are very clearly above average in central China.

The reality on the Internet at large is that people currently are much faster and smarter than censors.

Two of our employees just bought their own 100-plus square meter apartments in downtown Wuhan. And our working conditions are set according to German workplace standards, so they're better than U.S. standards. This means no cubicles or workplaces in dark corners. It includes full insurance and a social benefit package and so on. I really have the strong ambition to help establish the new middle class Western standard industry in my home province.

Tell me a bit about the training.
Graef: I am a little bit limited in what I can reveal here because of competitive concerns. But people usually join us with some basic experience in standard 3D tools or some standard programming language, or they just studied English. Then we train them in metaverse platforms. Several of us were teachers. This is a big help in scaling up so fast. Without training we could not do it. It is not like in other industries where you can just snap your fingers, offer some money and then have 100 fully-trained people switch jobs from some other company to yours.

Some of the consultant companies in the U.S. manage to hire from the Second Life community to some degree, but this is already leading to the talent pool being drained. I did not want engage in competition for such a limited resource, but rather wanted to create resources and integrate people into the metaverse economy.

Are there any kinds of censorship on Second Life in China?
Graef: There (are) all kinds of censorship in countries such as China, the U.S., Iraq or Afghanistan. The reality on the Internet at large is that people currently are much faster and smarter than censors. In China, in particular, this means that some political and porn Web sites are banned, while many more political and porn Web sites with similar content are easily accessible.

There was some issue with China Telecom and Second Life in August, which we at Anshe Chung Studios were able to resolve, and Second Life is accessible to most residents of China again. At the moment things are normal and quiet. Of course we never know what somebody in the bureaucracy may do tomorrow, but there is a general trend of things in China becoming much, much more liberal, in practical terms, than even two years ago. But, yes, while there is that strong general trend, an unlucky backlash can always happen.

What kind of growth do you have, percentage-wise, month to month?
Graef: We grow 10 percent to 20 percent per month, at least. Probably it is even more.

Is the growth tied pretty closely to , or would you say it's independent?
Graef: It used to be tied to Second Life growth, but our reliance on that virtual world is decreasing. We are at the stage now that the failure of Second Life would no longer mean the failure of our business. Even in Second Life we completely reinvent our business model every few months to keep up with rapid change. There are some similarities and many differences between what we do in Second Life and on other platforms. But what is the same across all platforms are people and people skills. We cannot transfer sims to other worlds, but minds we can.

Do you feel there's room for more Anshe Chung-scale businesses?
Graef: There is room for more businesses of Anshe Chung scale, but maybe not of the same business model. The economy could support multiple huge resident-run businesses of this size if each pursued some new and innovative business model. And don't overlook the number and size of the more widely spread content businesses in Second Life. I predict we see several content millionaires by the end of 2007.

I predict we see several content millionaires by the end of 2007.

However, I think many things will follow trends that you see in the music, film and software industries: as the population grows you will have a small elite that become content stars and terribly rich multimillionaires. But for the average person, it will become harder and harder because competition increases. Second Life used to be a village economy and now it has become cosmopolitan--a global, big economy.

Can you say what you think are five other lucrative Second Life markets that will stay so for another year or so?
Graef: The answer to this question can probably be found by researching the market for complex, high-quality standard content in Second Life. Very cool new applications that involve much optimization, programming and complexity and that everybody will want to buy one copy of. It's hard to be more specific. Finding the right application and niche is already half of the success. But one trend is clear: it will likely be more software and less art.

How many (land) sims that you own were purchased before the November 15 land price hike, and what do you plan to do about pricing once they are all sold?
Graef: I think before November 15, we had roughly 300 sims and we have currently no plan to change prices there. We also have more sims that we ordered before the price hike but that have yet have to be delivered and that we also plan to make available at our current pricing. Obviously, when all these sims sell out and we must expand with sims at the higher prices, we will need to use a different pricing model for them. But I think we have supply until February 2007.

You were a teacher. Did you have other previous business experience?
Graef: My experience most relevant to building a business in Second Life came from two sources: One is my experience in other virtual worlds as a nation leader and a role-play business person. The second source obviously is (my husband) Guni, who is very smart with all things business and technology.