SAN FRANCISCO (Business 2.0 Magazine) - Doppelganger, a San Francisco-based startup is launching a virtual world today that's part nightclub, part billboard.

The steady shift of advertising dollars online has entrepreneurs scrambling to come up with business models that will help them capture part of the bounty. So far, most of the attention has been on the search advertising gold-rush that propelled Google (Research) from puny startup into a behemoth worth $115 billion.

But there are other forms of advertising besides search, and for its virtual world, The Lounge, Doppelganger has settled on a product-placement model popularized by Hollywood, where advertisers pay up to have their products featured in movies and TV shows. Music label Interscope Records has already signed up for a trial to have Doppelganger build a virtual club for its Pussycat Dolls band within The Lounge.

"The Lounge has interesting advertising potential," says Gartner media analyst Mike McGuire. "Doppelganger's effort to tie the real world metaphors to a virtual world is very clever. From the perspective of music labels and bands, it's a very attractive opportunity to engage the MySpace crowd."

Doppelganger is far from the first virtual world to launch. Second Life, There.com, and others have been around for years, and even the mighty Google is believed to be preparing its own virtual world.

But founder Andrew Littlefield, a former engineer at BEA Systems (Research), isn't just trying to attract the MySpace crowd -- he's actively taking some pages from MySpace's playbook.

First, Littlefield is building the service around social networking and instant messaging. Doppelganger users will be able to import their AIM buddy lists into the service, giving them a ready-made set of virtual friends -- and helping Doppelganger recruit new users through existing social connections.

Second, Doppelganger is focusing on music, much as MySpace did in its early years. Like MySpace, which let users sign up to be "friends" of their favorite bands to keep up with CD releases and concert tours, Doppelganger is creating content for music fans. But instead of just Web pages, Doppelganger is building 3-D club environments where a band's music plays and users make their "avatars," or virtual characters, dance and chat.

The two-year-old company has 30 employees and $11 million in venture financing from Draper Fisher Jurvetson and Trident Capital, backers of hits like eBay (Research)-owned Skype and Time Warner's (Research) Mapquest.

According to Littlefield, Doppelganger's testers seem to be hooked. "This is clearly the new instant messaging," says Littlefield. "We have some beta users who log on right after school and stay logged on through the wee hours of the morning."

That kind of attention is particularly alluring to advertisers and marketing folks who have been scrambling to figure out ways to capture the attention of teens who seem to increasingly tune out TV.

The Pussycat Dolls' club is in itself one big advertisement for the band, but there are also opportunities to place ads for other products in the environment. In a demo of The Lounge, a movie trailer for Warner Bros. upcoming Superman film played. Eventually, Doppelganger plans to sell music downloads and other band-related goods directly within The Lounge -- a source of revenues that could supplement product placement.

"Doppelganger has to figure out a quick way for folks to buy physical things," says McGuire.

The big question, as Doppelganger launches The Lounge, is whether they'll draw enough interest to gain a critical mass of users and attract mass-market advertisers.

After all, no one likes to go to an empty nightclub.

Google moves into virtual worlds. Click here.