In 2007-2008, many brands and companies flocked to Second Life to build a virtual presence, which spiked and created a bit of a backlash and ultimately a bit of a retreat in the process. By mid-2009, virtual worlds were realizing a comeback of sorts. In July 2009, virtual worlds consultancy kzero.co.uk reported that membership of virtual worlds grew by 39% in the second quarter of 2009 to an estimated 579 million. World of Warcraft, Entropia Universe, Habbo Hotel, Club Penguin and Second Life are respectively posting profits powered by those who were intent on getting a “second” life.

According to the study, it is the youth demographic that drove the bulk of the 39% growth. Kzero reported that poptropica.com, which targets 5 to 10-year-olds, boasts over 76 million registered users. As the ages increase, so do the numbers of users. For example in the range of 10 to 15-year-olds, Habbo’s virtual world population rivaled some real world countries with 135 million

users. Other networks also accommodate massive citizenry. 54 million inhabit Neopets, 34 million occupy Star Dolls, and 28 million reside in Club Penguin.

Older users seem to take more interest in real life social networks such as Facebook, MySpace and Twitter. Among 15 to 25-year-olds usage appears to diminish – apart from Poptropica, which maintains and active community of 35 million.

However, as existing, younger demographics of virtual worlds mature, their conditioning and expectations for sophisticated and immersive interaction won’t dwindle. Social Networks that cater to older demographics may soon need to integrate virtual features and experiences in order to attract new users over time.

Kzero breaks out the world of virtual words using a visual that resembles a radar screen. In its cartography of the virtual landscape, the company organizes the disparate varieties of communities in 12 categories:

- Soclializing/Chat

- Casual Gaming

- Misc

- Mirror Worlds

- Roleplay/Fantasy/Quests

- Toys/Real World Games

- Music

- Fashion/Lifestyle

- Education/Development

- Sports

- TV/Film/Books

- Content Creation

Virtual Worlds by Sector (Click for Larger Image):

Virtual Worlds Organized by Registered Accounts:

by Robin Wauters on July 2, 2009

Analyst firm Next Up Research has published an extensive report on Linden Lab, the San Francisco company behind virtual world Second Life. The research is based on aggregate data and is available on SharesPost, a site set up to trade shares of privately held companies (if you register, you can download the report for free from that page, or you can find other valuation reports on companies like Facebook and LinkedIn). The report goes rather deep into the valuation of the Linden Lab, which it pegs at somewhere between $658 million and 700 million.

More on that later.

Now that Linden Lab has been around for nearly 10 years, and with its product Second Life celebrating its sixth birthday since launching publicly in June 2003, we thought it would be a good idea to take a close look at the report and see how the company’s doing according to the analysts.

First of all, you may be wondering if anyone is still using Second Life at all. The answer is yes, and users are very active on there. During the past 30 days, one million users logged in, according to Second Life’s own statistics. In average time spent per user per week, Second Life in fact trounces all other MMORPGs, including World of Warcraft and Civilization IV. In another testament to the service’s apparent stickiness, the number of hours users spend on Second Life has been increasing steadily and is currently at historic highs, totaling approximately 124 million hours in the first quarter of this year.

More importantly, Next Up says in-world transactions have recovered after a significant drop in September 2007 – when gambling was banned in the virtual world – and has been steadily increasing ever since December 2007.

Which brings us to the valuation, or at least the estimated value Next Up claims Linden Lab is worth after running a couple of calculations. Using publicly-traded online gaming companies as a proxy, Next Up pegs the median enterprise value (EV)/ Revenue multiple for that group at 7.2x off of 2009 revenues. Subsequently applying this self-proclaimed “conservative” multiple of 7x to the estimated revenue of Linden Lab ($100 million for this year), the current target valuation amounts up to $700 million.

That seems like a stretch. In November 2007, the last time we asked ourselves how much Second Life is worth, we came out somewhere between $500 million and $1 billion. The current estimated enterprise value calculated by Next Up falls pretty much right into the middle of that range.

Next Up defends the 7x multiple variable by referring to a two-year-old M&A deal. When Disney acquired Club Penguin for $350 million in cash back in August 2007, it paid out at least a comparable multiple based on Vlub PEnguin’s projected revenue for the year (between $50 and $65 million), despite the fact that it reaches a narrower demographic profile. But things have changed since then: stocks have tanked, valuations have dropped, the IPO market has pretty much dried up and VC-backed liquidity is at a record low. So that implies a major discount, with a valuation between $300 million to $500 million, which is decent but not spectacular, assuming Next Up’s revenue projection is accurate.

Here’s what else Next Up says could have a negative impact on Second Life’s valuation:

- the aging population of its main target markets (U.S. and Europe) and less of a presence in developing nations where its main target audience (people from 13 to 45) is quickly gaining in size.
- limited amount of premium subscriptions (about 1% or 170,000 users)
- possible taxation on virtual monetary transactions in a variety of countries
- cost and complexity of running the technical infrastructure behind the virtual world

If you’re interested in the virtual worlds or Linden Lab in particular, there’s a ton of information and speculation about the market to be found in the report, even if we focus mostly on the financial side of things. To conclude, here are two charts from the report, one on the estimated valuations based off of different calendar years and one on the post-money valuations after the various funding rounds raised by the company.

Website:	lindenlab.com
Location:	San Francisco, California, United States
Founded:	1999
Funding:	$19M

Linden Lab is the company that created The Second Life Grid platform and hosts the Second Life virtual world.

The Second Life Grid is the technology platform used to power the Second Life virtual world. In 2007, Linden Lab opened the Second Life… Learn More

by Mike Butcher on July 7, 2009

Virtual worlds can be pretty dull when nothing you see there is recognisable as anything remotely real-world, which is perhaps why Twinity has such confident investors. The virtual world which re-creates the world’s cities for real-looking avatars to wander around, has closed another round of financing from existing investors to the tune of 4.5m Euros ($6.26 million).

Twinity’s owner Metaversum, which has taken a totally different tack to the likes of Second Life, won the backing from existing investors Grazia Equity and Balderton Capital, which joined BFB BeteiligungsFonds Brandenburg from InvestitionsBank des Landes Brandenburg, which is managed by BC Brandenburg Capital and KfW. As you can tell the startup is based in Germany. The funding will be used for development and expanding internationally.

Back in April last year Balderton, best known for investing in and exiting from Bebo and MySQL (the former to the tune of $140 million) joined investors in Metaversum.

In Twinity, members use real profiles and realistic-looking avatars. A virtual Berlin is in public beta right now, but a virtual Singapore is set to follow this summer, and London is under construction (much like the real London if you are familiar with its roads).

By Nate Anderson | Published: December 11, 2008 – 11:07AM CT

The idea for a virtual world focused on the Islamic lifestyle began five years ago, when CEO Mohamed El-Fatatry moved from Dubai to Finland in order to attend university. Raised in Dubai, El-Fatatry wanted wider horizons and a chance to see more of life. American universities were generally expensive, so El-Fatatry sat down at his computer, Googled for “media technology studies in Europe,” and found a Finnish university as his third hit. Finland offers free higher education, even for foreigners, so El-Fatatry applied, enrolled, and only then headed to his new country for the first time.

With €300 and an uncertain future, he took a job delivering newspapers to make some extra cash as he studied. The entire journey was a trip into the unknown for El-Fatatry, but after doing it, he found that he now had the “guts” to take more risks. By 2006, he had created the Internet startup Muxlim, a social networking and community site for Western Muslims.

Living in Finland was the first time El-Fatatry had been in a Muslim-minority country, and the experience taught him more about the importance of community. Muxlim tries to reach not “westernized Muslims” who have resettled from Islamic countries, but fully western Muslims in America and the UK, the kind of people who love football and watch Heroes. And, while the site does feature areas to discuss theology, the focus isn’t on religion per se, but the Islamic “lifestyle” that includes food, clothing, and entertainment (like CBC’s Little Mosque on the Prairie, for instance).

After two years of operation, Muxlim now has venture funding, employs 20 people, reaches hundreds of thousands of users, and has 65 to 70 percent of its audience logging in from the US and the UK. Not bad for a Finnish startup with a young CEO.

The specific idea to add a virtual world as a new community feature arose in 2007, and Muxlim hired an artist to do a mockup that was later published on the site. It proved so popular that development was farmed out to a Finnish design house; after six months of work, the beta of “Muxlim Pal” launched to testers this week.

It’s a simple virtual world at this point, one where visitors can drop in on the beach cafe, the arena, Muxlim offices, and more, but the only thing to do at the moment is chat with other people in each area. The world is Flash-based, runs on Amazon’s cloud computing infrastructure, and looks quite slick. El-Fatatry tells us that the current deployment is an extremely beta test of the technology that is nowhere near his vision of the final product, but the company wants feedback from users as it continues to develop Muxlim Pal.

Several things separate Muxlim Pal from other worlds like Second Life. For one thing, it’s family friendly; you won’t see two furries engaging in some extremely intimate behavior here, and the plan is to empower community members to flag offensive speech and actions on their own. After enough complaints, a volunteer moderator will step in and make a decision about the content in question.

A more subtle but also more interesting change is that the character one controls in Muslim Pal isn’t an “avatar” who represents the user; it is more of a virtual friend (as the world’s title suggests) that the user controls. El-Fatatry tells us that some basic Sims-like features are coming soon to the world, including meters for spirituality, health, etc, that change as the character interacts with the world. But demoting the spirituality level of a real person seemed potentially offensive, hence the decision to make the virtual characters into friends.

Apart from some architectural design elements, the world itself isn’t especially Islamic (though characters will be able to do their prayers and wear headscarves). El-Fatatry says the site is open to anyone, and he has no desire to “segregate” Muslims inside their own virtual community center. Muxlim is currently integrating Facebook Connect, for instance, and it encourages members to use any social tools on the web.

Within hours of opening its virtual doors this week, though, Muxlim Pal was already hit by “griefers” of the sort well known to virtual worlds users and online gamers. 10 people “had an intent to disrupt the site” and caused problems for half an hour or so before being booted.

But El-Fatatry says that the biggest problem was popularity; with widespread media coverage of the launch, “thousands upon thousands” of people started logging in, but few were site regulars. Muxlim wants initial feedback from its community members, since the world is meant only as an extention of the site’s community features, not a standalone destination. Feedback from thousands of non-community members would be less helpful in guiding development, so Muxlim now requires users to be a part of its community for at least three weeks before gaining access to Muxlim Pal.

Just like any business, Muxlim needs to make money. Most of the site is blanketed in traditional advertising (“Some insurance policies appear complete… but are they halal?”), but Muxlim Pal also provides a way to purchase “coins” that can be used to upgrade a character’s clothing and possessions. The US Muslim market alone has an estimated $170 billion purchasing power, so El-Fatatry is convinced that he is tapping a lucrative market while providing a valuable community at the same time.

It’s an improbable story, a Finnish company run by an English-speaking, Dubai-born CEO who aims to reach British and American Muslims. But Muxlim has seen terrific success so far in its two-year history, and the attention given to Muxlim Pal suggests that the ride will continue for some time.

In a down economy, that might be an affordable luxury to a teenager or twentysomething hanging out in a virtual world like Gaia Online, which this week will start selling a range of digital accessories depicting the rock legend’s style, including blue suede shoes, a white-rhinestone jumpsuit ($4) and a pompadour ($1.50).

Younger people unfamiliar with Elvis might prefer to shell out $2 for Justin Timberlake’s signature fedora or $3 for a pair of Snoop Dogg Dobermans to raise the cool quotient of their characters, known as avatars.

That is the premise behind Virtual Greats, a start-up in Huntington Beach, Calif., that represents celebrities and brands in the burgeoning American virtual goods business. The one-year-old company acts as a broker between Hollywood and the technologists who run youth-oriented virtual worlds like Gaia, Whyville and WeeWorld.

So far, the deepening recession has not slowed sales of virtual goods, which executives attribute to people spending more time at home. Gaia Online, a youth world with seven million monthly visitors, sells more than $1 million a month of virtual goods and expects a record month in December, said its chief executive, Craig Sherman. One rival, IMVU, has also had a 15 to 20 percent increase in sales since September.

Facebook, the leading social network, allows members to spend real money to send virtual gifts, and it has worked with corporations like Ben & Jerry’s Homemade, which gave away 500,000 virtual ice cream cones in April as part of a Free Cone Day promotion in stores.

Consumers are tightening their belts, but they still want to socialize with peers and express themselves, industry executives say. Virtual goods like Paris Hilton’s pet Chihuahua or Mr. Timberlake’s puffy jacket can offer a cheap way to stand out.

“People are thinking that they’re sacrificing in other areas so I’ll indulge here with a dollar,” said Charlene Li, a social media analyst formerly with Forrester Research. “Is it worth it? It depends on them.”

By most estimates, customers spend about $1.5 billion a year on virtual goods worldwide. Tencent Holdings, a publicly traded Internet media company based in China, is the leader, with hundreds of millions in annual revenue from virtual goods in online games and other applications. Internet companies in the United States are behind the curve.

For celebrities, licensing virtual products is a new way to make a buck and stay hip with a young crowd. Snoop Dogg’s manager, Constance Schwartz, said she did not have a clue about virtual worlds when Virtual Greats approached her this year, so she and her team spent a week exploring Gaia Online.

After seeing that many teenagers were spending their time and allowances there, Ms. Schwartz explained the concept to Snoop Dogg. She said it was an easy sell, given that Snoop Dogg had been one of the first rap musicians to license works for ring tones and voice tones. His only requirement was that all of the goods be “true to himself,” down to the hair braids, house slippers and plates of Roscoe’s chicken and waffles he regularly eats in Los Angeles.

At Elvis Presley Enterprises, virtual worlds are just another drop in the bucket — 250 licensees worldwide sell 5,000 Elvis products and promotions, including talking dolls, Pez dispensers and a Facebook page. “Elvis is everywhere,” said Kevin Kern, a spokesman for the company, which controls the name, image and likeness of the rock star. “Why not the virtual worlds?”

Virtual Greats appeals to partners like Snoop Dogg and Elvis Presley Enterprises because it does the legwork that neither party — rights holder or virtual-world operator — has the desire or time to do. On one end, it courts celebrities and brands, negotiates licenses and aggregates talent; on the other end, it coalesces an otherwise fragmented market of virtual worlds starved for added sources of revenue.

Dan Jansen, former head of the Boston Consulting Group’s global media and entertainment practice, started Virtual Greats in partnership with Millions of Us, a marketing agency in Sausalito, Calif., that builds virtual worlds. The two companies shared the idea that virtual worlds lacked diverse revenue sources and had no presence when it came to celebrity or branded goods. The Omnicom Group, a marketing and advertising firm, and Allen & Company, an investment bank, invested an undisclosed sum in Virtual Greats.

Virtual goods have profit margins of 70 percent to 90 percent because they do not cost much to store, reproduce or distribute. Still, making a profit requires high volume. Next year, Virtual Greats hopes to represent 30 worlds and more than 50 artists.

It is talking with movie studios about licensing rights to characters like Ferris Bueller and with sports leagues for the rights to jerseys. It is also courting luxury brands like Gucci, Prada and Chanel for the rights to represent their goods online.

One challenge for Virtual Greats and its partners is to create legitimacy for the online brands while ensuring that there is not too much supply.

Mr. Sherman says Gaia uses “forced forms of rarity,” or limited editions of items. Over time, those items can command a premium in the secondary market, where members trade their goods for virtual currency. For example, a Gaia golden halo now out of production sold for $6,000 on eBay, he said.

Similarly, Virtual Greats has learned that it underpriced some items, like the Hulk Impact Crater, which originally sold for 50 cents, then went up sixfold in the Gaia aftermarket. In its several months of testing, Virtual Greats has found that people prefer more expensive items with a brand name over cheaper, generic items. And larger items that are easier to see are more popular than small ones.

Licensed virtual goods probably will not be more than a tiny niche business. Generic items are a huge portion of the virtual-goods market, and company-sponsored promotions like the Ben & Jerry’s cones on Facebook will probably grow in importance as marketers try to extend their brands onto social networks.

The economic downturn could make many people reconsider the notion of spending real money to outfit fictional personas with an Elvis pompadour or a Snoop Dogg hoodie.

Still, Mr. Jansen argues that people always crave a bit of brand-name glamour. “Maybe you can’t afford that Louis Vuitton bag, but you could in virtual form,” he said. “They’re an affordable luxury in this difficult economy.”

October 1, 2008 – 5:40 am PDT – by Adam Ostrow 

Oddcast is taking its talking avatars to the next logical place: virtual worlds. The company is launching a new product called AvatarSpace, a Web application that enables custom avatars to talk to one another through voice or text. However, as opposed to massive services like SecondLife or Club Penguin, Oddcast is targeting individual brands, allowing them to launch their own mini-virtual worlds as opposed to either developing their own or buying ad space in an established one.

The features of AvatarSpace aren’t nearly as advanced as those of some of the larger virtual worlds – it’s more of a group chat that utilizes Oddcast’s existing avatar technology. Using your own voice, you can talk to other avatars in a given chat room, or type them a message via text. Users in the room can also watch videos simultaneously. Moving around is simple enough, and can be done either via your computer’s arrow keys or mouse. 

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It’s easy to develop a confusing picture of what goes on inside of multiuser virtual worlds, such as Second Life and World of WarCraft. Some reports suggest that the virtual reality enables people to escape from social interactions they otherwise find difficult; others highlight how users of virtual worlds find them satisfying because of the rich social interactions they enable. Some researchers at Northwestern University looked into just how well real-life social influences translate to the the virtual realm and discovered one that does: racism.

The authors used two different instances of social manipulation that are known to work well in the real world. The first is the “foot in the door” (FITD) approach, in which a small, easily accomplished favor is asked. These tend to make the person who granted the favor happy about their cooperation, and more likely to agree to further requests, even if they require more effort.

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It didn’t take long for Second Life, a leader in 3D Virtual Worlds, to respond to There.com’s announcement of new features.The most compelling new feature There.com revealed was its innovative ThereIM which would allow its members to chat in 3D and 2D worlds at the same time. Not to be out-done by their competition, Second Life has announced their own instant messenger called SLim™ (Second Life Instant Messenger) that will work in the 2D and 3D worlds.

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Most of today’s virtual worlds are set in mythical places, with landmarks that no newcomer would be familiar with. While this may suit most people just fine, it can be unsettling for those who have never been exposed to a virtual world. Today sees the launch of Journeys, a mashup that hopes to appeal to these users by leveraging Flickr and Yahoo Maps APIs to create what it calls a “virtual world based on real Earth”.

Right now, there doesn’t seem to be much of a point to Journeys (though the same could be said of nearly every virtual world). Users can fly around the world to a handful of destinations, including the Louvre, New York’s Central Park, and the Golden Gate Bridge. After landing, they can chat with their friends in front of their favorite landmarks. And, in a somewhat bizarre twist, their avatars will continue to travel the world and meet people while they’re logged off, sending an email digest of its daily activities (I couldn’t see this in action because nobody was logged in when I tested the site, but I can’t imagine it working well).

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