Retailers explore opportunities on the latest virtual frontier

From May 2007

By Susan Reda, Executive Editor

It’s been nearly impossible to ignore the media buzz around Second Life. Over the last six months, the three-dimensional online world created by San Francisco-based Linden Labs has grabbed its share of headlines – and raised its share of eyebrows.

Second Life backers tout this approach to virtual community as the next phase of the Internet’s evolution, and describe the 3-D technology as “game-changing.”

With IBM CEO Sam Palmisano investing $10 million in a project intended to explore the 3-D Internet and additional capital coming from Internet golden boys such as Amazon CEO Jeff Bezos and eBay founder Pierre Omidyar, Second Life has also caught the attention of retailers. Circuit City has taken up residence in Second Life. So have Sears, American Apparel, Dell and Adidas. Companies as different as Nissan, H&R Block and Reuters have embraced the concept, each seeking new ways to connect with customers.

“Second Life is a trial for what may very well be the next big thing in Internet retailing,” says Scott Silverman, executive director of Shop.org, the e-commerce division of NRF. “The 3-D environment is being plugged as the next generation of the Internet and Second Life is the playground for that technology.”

Francoise LeGoues, an IBM vice president and CTO of the distribution sector, believes 3-D virtual worlds like Second Life can help to break down walls between business channels. “Websites are flat and boring,” she says. “A website is not a store, but a 3-D shop feels like a real store.”

Shop.org chairman Elaine Rubin also is bullish on Second Life. “It’s a new way for people to connect with each other and for companies to connect with consumers,” says Rubin, former vice president of Amazon Enterprise Solutions. “Second Life can be a vehicle for retailers and consumer brands to build loyalty and boost brand recognition.”

It’s easy to look at first-generation technology “and dismiss it out of hand,” Rubin says, but “the purpose is not to judge Second Life exclusively by what you see today, but to understand what it will morph into and how it can be integrated into your business.”

Not everyone is sold on the virtual world. Skeptics are quick to point out that the software is hard to use, the platform is buggy, the search function is a work-in-progress and it can be difficult to learn how to navigate and build. Second Life also has its share of pranksters and issues to be resolved around adult content. Still, even industry watchers who take a more tepid view refuse to summarily dismiss it as a passing fad.

“We’re seeing some early adopters jump in, but I don’t think we’ll see mass adoption until the technology has matured,” says Sucharita Mulpuru, senior analyst at Forrester Research. “The company is reporting more than five million residents in Second Life, but most of them bounce off [virtual jargon for ‘don’t return’]. Their retention rate is somewhere around 10 percent. That’s an astounding number for an emerging company, but in terms of leveraging the community as a proxy for mass media, we’re not talking about a big hit.”

Mulpuru feels that companies that establish storefronts early will grab their share of marketing and media and lift their “hip” quotient, but she’s quick to point out the expense involved. “There’s always a cost, plus there’s a need to allocate resources,” she says. “Right now, there are not a lot of retailers who have that luxury.”

The number of Second Life residents, and their demographics, are hard to pin down. One day in early April, the company was reporting 5.5 million total residents: 1.5 million had returned to the virtual world in the last 60 days, and just over 30,000 were logged in at that moment. And some watchers have pointed out that there are individuals with multiple avatars, rendering these counts circumspect.

Linden says users tend to skew young and male. Others say businesses would be surprised to find that about half the users in Second Life are female, and that most are over 30. They can agree on a couple of points, however: Second Life residents tend to be fairly progressive from a tech standpoint, and need to be able to steal a fair amount of time from their “real” life to devote to their virtual one.

Retailers who have taken up residence in Second Life report that using the virtual world as a platform for experimentation was a big part of the draw. Circuit City and Sears chose to partner with IBM on their Second Life shops, and are adjacent to each other on one of IBM’s 24 “islands.”

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