Second Life still living its first one

Linden Lab CEO Philip Rosedale says that Second Life is thriving.

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NEW YORK (Fortune) -- In our culture of hype, the Second Life virtual world had its day in the sun. Almost a year ago, I contributed to the hubbub with a big story in Fortune about how even IBM CEO Sam Palmisano was calling virtual worlds a major future trend.

More recently, with all the buzz about Facebook and social networking, you may have heard less about Second Life, or even assumed it was waning. But in a recent interview, Philip Rosedale, CEO of Linden Lab, which operates it, insists that both company and service are thriving.

Second Life is a free Internet service that enables you to create and take control of a character representing yourself (called an avatar). You walk or fly around a 3D virtual world, and can speak to others either with text or audio. Other popular virtual worlds include Webkinz and Club Penguin for children, and games like World of Warcraft.

There are two primary reasons why you have probably not heard much lately about Second Life. One is that usage has shifted dramatically outside the United States. Today 75 percent of users are international, says Rosedale.

The other reason is, as Rosedale puts it, that "the diversity and range of non-entertainment use is going up extremely rapidly." Second Life as a form of corporate groupware is not as sexy as, for example, the peculiar virtual sex which remains probably the lion's share of service usage (you can buy a virtual penis at in-world stores), but it's a big deal nonetheless. Sun (JAVA, Fortune 500) and IBM (IBM, Fortune 500), among other companies, continue to be very heavy users.

Rosedale himself said that when working at home , "I'm not really at home because I'm in the Linden Lab headquarters in Second Life, which is where we actually work."

Now over 100 colleges and universities are holding classes inside Second Life, and Rosedale says 4,000 educators are on a special e-mail list Linden Lab maintains.

Much of the hype in early stories focused on companies setting up stores in Second Life. But Rosedale says "Like many of the purely marketing-driven Web presences of 1995 or 1996, there still isn't enough traffic or ability to attract attention to justify most of those expenditures." He says creative companies are going beyond marketing, like IBM or Sun with recruitment centers and locationless employee meetings.

Usage continues to go up. In 2006, total use was 51 million hours, says Rosedale. So far in 2007, users have spent 220 million hours. A year ago, the service hosted about 26,000 at the busiest times. Today, as many as 58,000 people can be on at once. Users this year have transferred about $78 million dollars (US) worth of real currency into or out of the system. And more than three times as many "Linden dollars" have been spent inside Second Life this year as last.

Second Life remains complicated and challenging to use. And even once you know how to move around, it's not at all obvious where you should go to have a good experience - or at least a non-sexual one. (Linden execs recommend indicating in the search box that you only want non-"mature" content. You can also find interesting events at the New World Notes blog.) Part of the problem is Second Life's sheer scale. Rosedale says that content is growing so fast that one person could never see it all. Just about everything is created by members. Tens of thousands of acres of new land are being developed every month, and users have created over a billion unique digital objects - including houses, blimps, ski mountains, beach umbrellas, body parts and "for sale" signs.

Now 98 terabytes of data representing all this stuff resides in Linden Lab's data centers, manipulated by 16,000 servers. Rosedale proudly notes that while World of Warcraft has many more users, the total visible environment there is tiny by comparison - only a few gigabytes.

Rosedale doesn't deny that Second Life is hard to use, nor that user churn remains a problem. He also says that unscheduled downtime has been as much as twice what he thinks it ought to be in some months this year. "We have to stop being a lab and start being a real business that keeps this service up and running," he says contritely, adding that Second Life needs to become "a kind of stable public utility." One key project - opening data centers outside the United States to improve the user experience for non-Americans.

The CEO also says proudly that the move early this year to open-source the "client" software that users download on their computers has resulted in major improvements. When CBS aired a special episode of CSI: New York that took place entirely inside Second Life, it used the open-source software to create its own easy-to-use viewer, available here.

Rosedale says that while the company's main task in 2008 will be stabilizing and improving the user experience of Second Life, he is very excited about one technical improvement - adding HTML Web software. Currently, you have to click back to your browser to see Web content. Soon the Web will work right inside Second Life. A building could have its walls papered with the Web. Multiple avatars could surf the Web together or even share a whiteboard using Flash technology.

The 240-employee Linden Lab is solidly profitable, says Rosedale. There was a minor furor last week when company CTO Cory Ondrejka - a central force in the company's life so far - left in a dispute with Rosedale. But both men wrote conciliatory notes to the Linden Lab staff. I remain excited about the prospects for Second Life and for the company that created it.