The fairyland of Second Life: Virtual social worldsand how to use them

Andreas M. Kaplan *, Michael Haenlein

ESCP Europe, 79 Avenue de la Republique, F-75011 Paris, France

Business Horizons (2009) 52, 563—572

www.elsevier.com/locate/bushor

KEYWORDSSocial media;Virtual worlds;Virtual social worlds;Second Life

Abstract Virtual social worlds, such as the Internet site Second Life, have acquireda high degree of popularity in the popular and business press. In this article we addressthe increasing importance of virtual social worlds, and discuss how companies canmake use of their potential. We first present how virtual social worlds evolvedhistorically, how they fit into the postmodern paradigm of our time, and how theydiffer from other social media, such as content communities (e.g., YouTube), socialnetworking sites and blogs (e.g., Facebook), collaborative projects (e.g., Wikipedia),and virtual game worlds (e.g., World of Warcraft). We subsequently present how firmscan make use of virtual social worlds in the areas of advertising/communication,virtual product sales (v-Commerce), marketing research, human resources, andinternal process management. We also highlight the points companies should payparticular attention to in their activities, the 5Cs of success in virtual social worlds,and the future evolutions that we expect to shape this sector over the next 5—10years: a trend toward standardization and interoperability, improvements in softwareusability, increasing interconnection between reality and virtual worlds, establish-ment of law and order, and the transformation of virtual social worlds to business hubsof the future.# 2009 Kelley School of Business, Indiana University. All rights reserved.

1. A snow crash in the Metaverse

Roughly 15 years ago, in 1992, United States authorNeal Stephenson published a novel titled SnowCrash. In this book Stephenson tells the story of aprotagonist named Hiroaki Protagonist, who physi-cally lives in Los Angeles during the early 21st

* Corresponding author.E-mail addresses: mail@andreaskaplan.eu (A.M. Kaplan),

haenlein@escpeurope.eu (M. Haenlein).

0007-6813/$ — see front matter # 2009 Kelley School of Business, Idoi:10.1016/j.bushor.2009.07.002

century but who mentally spends most of his timein a three-dimensional virtual world called theMetaverse. He, as well as other people, access thisMetaverse using personal computer terminals thatproject pictures of a virtual urban environmentsituated on a virtual artificial planet onto goggles.Within the Metaverse, everyone appears in the formof personalized avatars; that is, pieces of softwarethat are the audiovisual bodies that people use torepresent themselves and communicate with otherpeople in the Metaverse. These avatars, which may

ndiana University. All rights reserved.

564 A.M. Kaplan, M. Haenlein

have any appearance the user desires (except forlimitations of height ‘‘to prevent people from walk-ing around a mile high’’), can perform any activitiesfamiliar from their real life, such as visiting nightclubs, making friends, or consuming virtual drugs,like the pseudo-narcotic snow crash. In the 21st

century the Metaverse is so popular and attractivethat some people even decide to remain continu-ously connected to it by spending their real life instorage units, surrounded only by the technicalequipment necessary to enter the virtual world.

When the novel was published the Metaverse wasconsidered pure fiction, and few readers of SnowCrash would have believed that a world like the onedescribed in the book could indeed ever becomereality. Nevertheless, the underlying idea of virtualworlds fascinated a lot of people, including UnitedStates programmer Ron Britvich, who used it as aninspiration for the creation of Alpha World in 1995(later renamed Active Worlds), the first widely usedvirtual world which allows users–—or, more precisely,their avatars–—to create their own virtual content,such as houses, streets, and gardens using pre-fabricated objects. Since then many other firmshave entered the market using the same principlesand garnering increasing popularity. Examplesinclude the Finnish Habbo, founded in 2000, whichoffers virtual hotel rooms to teenagers that can becustomized using virtual furniture, and then usedfor chatting and content sharing among avatars. InSeptember 2008 Habbo counted 9.5 million uniquevisitors, aged between 13 and 18, per month.

The massively multiplayer online role-playinggame World of Warcraft (MMORPG) can also becounted among this group of applications. World ofWarcraft has approximately 8.5 million subscriberswho pay up to $15 per month after an initial trialperiod to explore the virtual planet of Azeroth whileassuming the form of humans, dwarves, orcs, or nightelves, and to fight monsters or search for treasures.

Amongcurrent trends in the industry is theentry ofmajor companies into themarket of virtual worlds. InJuly 2008 Google introduced its Google Lively prod-uct, a Web-based virtual environment similar toHabbo that runs on Microsoft’s Internet Explorer.Virtual reality helmets, similar to the goggles de-scribed in the SnowCrashnovel, arealready availablein the marketplace, offered by consumer electroniccompanies including Canon and Sony.

2. Postmodernism and the concept ofhyperrealities

The success of virtual worlds can be explained bythe fact that they fit well in the philosophical

foundation of our time, which is often referred toas the postmodern paradigm; see, for example,Cova (1996) for an introduction. According to phi-losophers such as Jean Baudrillard, Michel Foucault,and Umberto Eco, the late 1960s and early 1970srepresented a turning point in modern philosophy(Firat, Sherry, & Venkatesh, 1994; Venkatesh, Sherry,& Firat, 1993). Previously, from the eighteenthcentury onward, the concerted effort of all scien-tific domains was targeted toward the search foruniversal laws and absolute truths. This period,which is best reflected in the philosophy of therationalist Bertrand Russell or the managementprinciples of the engineer Frederick Taylor, is oftenreferred to asmodernism. In the late 1960s, however,more and more people began to question thefoundations of this movement. Evolutions such asnuclear weapons and environmental pollution ledto a revolt against the authority reflected in the rulesof the establishment, and ultimately marked thebeginning of postmodernism.

Postmodernism is characterized by hostilitytoward generalizations and a celebration of skepti-cism. In science it has been reflected in develop-ments such as chaos theory and fractal geometry; inthe arts it can be seen in street art and the ‘‘happen-ings’’ of Christo; and in management it has resultedin the introduction of flexible work practices andmatrix organizations.

Today, the basic conditions of postmodernismcorrespond to the new view many managers haveof their companies, which puts tangible resources,service delivery, and customer-company value co-creation on top of their agenda (Firat & Venkatesh,1993; Vargo & Lusch, 2004). Hence, it is not surpris-ing that postmodern ideas have increasingly spreadinto the business world. One example is the risinguse of hyperrealities, i.e. artificially createdsettings that appear real to the individuals involvedin them, as strategic tools to improve the serviceexperience. Hyperrealities are based on ‘‘the ideathat reality is constructed, and therefore it is possi-ble to construct things that are more real than real’’(Venkatesh et al., 1993, p. 221). They are a keyreflection of the postmodern philosophy becausethey do not assume that everyone shares the samereality, but instead simulate alternative realities inwhich users can perform activities they would beunable or unwilling to do in real life. Places such asDisneyland or Las Vegas were among the first to buildseemingly real environments that induce a dream-like state where consumers tend to spend moneymore generously. Today, the idea has been extendedto other tourist attractions (Grayson & Martinec,2004), reality television shows (Rose &Wood, 2005),and retail settings.

The fairyland of Second Life: Virtual social worlds and how to use them 565

3. A brief story of Second Life

The most well known hyperreality is probably thethree-dimensional virtual world Second Life (SL).Second Life was founded and managed by the SanFrancisco-based company Linden Research, Inc.,and has generated a substantial amount of presscoverage; consider, for example, articles in businesspublications by Enright (2007) and Hemp (2006).Similar to other virtual worlds, Second Life users–—called ‘‘residents’’–—can enter the virtual environ-ment through a downloadable client program in theform of personalized avatars.

Avatars are not a new concept, and they havepreviously been discussed in academic literature,such as Holzwarth, Janiszewski, and Neumann(2006) and Wang, Baker, Wagner, and Wakefield(2007). However, until now the focus of these anal-yses has mainly been on their function as salesagents in business-to-consumer relationships. Whileavatars may also fulfill such a role within Second Life(e.g., when avatars work as sales clerks in virtualstores), their purpose here is to provide a form ofself-presentation within the virtual environment,similar to that which has been discussed in thecontext of users’ motivations to create personalwebsites (Schau & Gilly, 2003). In line with consumerculture theory (Arnould & Thompson, 2005), SecondLife provides users with the possibility of construct-ing an alternative identity that can either be areplication of their real life self, an enhanced ver-sion with improvements along certain attributes, ora completely different self. Compared to othervirtual worlds, users in Second Life face no restric-tions regarding the type of self-presentation thatcan be created, which leads to the situation whereavatars can appear in any possible form and surroundthemselves by any objects of their liking; the sky isthe limit.

Communication between avatars is most oftenconducted in written format, either through chat orinstant messaging, although a voice-chat optionwas introduced in August 2007. To move from onelocation within Second Life to another, avatars canwalk, fly, teleport, or ride vehicles such as cars,submarines, or hot-air balloons. Residents also havethe option to purchase real estate within the virtualworld, ranging from small lots (512 m2) to wholeregions and private islands, where they can buildhouses for their avatar to live in that can subse-quently be equipped with items of furniture andappliances. Avatar interaction within Second Life islargely driven by sub-cultures that mirror eitherreal life settings, such as shopping malls and night-clubs, or fictional or historical situations, like an-cient Rome.

The main difference between Second Life andother virtual worlds is that residents hold the copy-right on all the content they create and are allowedto sell this content to other users in exchange forvirtual money known as Linden Dollars (L$). In orderto obtain such money, avatars can either exchangereal life currencies for Linden Dollars via the SecondLife Exchange at a floating exchange rate that isapproximately stable at L$260 per U.S.$1, or derivevirtual income by managing businesses, working instores, or providing entertainment services. Moneythat has been earned in such a way can either bekept in one of Second Life’s banks (and earn interestpayments), or re-exchanged into real life currency.For some users income earned within Second Lifeeven complements their real life salary.

The increasing popularity and economic impor-tance of Second Life–—in April 2008 a totalof U.S.$8.7 million was exchanged into L$2.3billion–—has also motivated many real life compa-nies to start activities within Second Life. Consumercorporations, including Telecom Italia, Circuit City,and Toyota, maintain Second Life flagship stores tosell virtual (digital) equivalents of their Real Lifeproducts (e.g., communication services, consumerelectronics, cars) that can be used for avatarenhancement. Others, such as Endemol or Dell,organize virtual reality shows or sponsor events ofpublic interest within Second Life.

4. Virtual social worlds in comparisonto other social media

Second Life, or virtual worlds in general, are partof a larger group of Internet-based applicationsknown as social media. This term is used to describeInternet-based applications that help consumersshare opinions, insights, experiences, and perspec-tives. Social media can take many forms, includingcontent communities (e.g., YouTube), social net-working sites or blogs (e.g., Facebook), and collab-orative projects (e.g., Wikipedia). All theseapplications have content that is created, updated,and maintained through them by individual Internetusers and provided to other users, often free ofcharge in an altruistic manner. This makes socialmedia different from traditional web pages, such aswww.amazon.com or www.google.com, which areoften run and managed by companies, frequentlywith a commercial purpose in mind.

Within social media, virtual worlds have threecharacteristics that differentiate them from otherapplications. First, virtual worlds allow users to in-teract with others in real time. While content onpages like YouTube, Facebook, orWikipedia is usually

566 A.M. Kaplan, M. Haenlein

posted and then consumed by others with a timedelay, a conversation within Second Life is identicalto one in real life, with the exception that it is notconducted in a face-to-face format. Second, virtualworlds allow users to create fully customized virtualself-presentations in the form of avatars. Although aYouTube user may be able to create some form of animage within the community by carefully choosingthe types of video messages posted, avatar custom-ization within virtual worlds tends to be far moreflexible. If desired, a Second Life resident can, forexample, create an avatar that very closely resem-bles the real appearance of the associated user, orof a very different person. Finally, while contentcommunities, blogs, and collaborative sites aretwo-dimensional (i.e., focused on content sharing),avatars within virtual worlds have the possibilityof exploring their virtual environment in threedimensions. In many virtual worlds, the basic rulesof physics continue to hold, which makes navigationwithin them very similar to what one is used to in thereal world.

Within the group of virtual worlds, it is againnecessary to differentiate between two differentforms, namely virtual game worlds and virtual socialworlds. In virtual game worlds users are usuallyrequired to follow strict rules that govern theirbehavior. In Sony’s EverQuest world, for example,one needs to be awizard to performmagic or a clericto heal others. No matter how hard the user may try,a wizard avatar will always be a terrible fightercompared to a warrior avatar, for instance. Addi-tionally, virtual game worlds often do not allow oneto engage in economic activities with other userswithin the world, including the sale and purchase ofcontent. Instead, such activities are conducted us-ing means from outside the world, such as the onlineauction house eBay. Nevertheless, virtual gameworlds have also reached the interest of academics;for example, in medical research where they havebeen used to analyze the spread of diseases (Lofgren& Fefferman, 2007).

Virtual social worlds such as Second Life, on theother hand, do not pose any restrictions on the wayavatars can behave or interact. This flexibility, andespecially the resulting ability to conduct businesswith other users, makes virtual social worlds differ-ent from other social media and particularly inter-esting for corporate use.

5. Corporate opportunities withinvirtual social worlds

Based on our research in the area of virtual socialworlds in general and Second Life in particular,

we see five different ways in which companiescan make use of this special form of social media.These are advertising/communication, virtualproduct sales (v-Commerce), marketing research,human resource management, and internal processmanagement. We will now discuss each of theseapplications in more detail.

5.1. Advertising/Communication

Communication is probably the most widely appliedbusiness use of virtual social worlds, and there arefour different ways in which companies can leveragethe advertising potential of applications like SecondLife. First, they can set up virtual flagship stores(similar to real life flagship stores; see Kozinetset al., 2002) to present digital equivalents of theirreal life products. The Japanese automotive com-pany Toyota, for example, runs a store in Second Lifein which it shows virtual editions of the Scion xBmodel.

Second, communication can be conducted bybuying advertising space in virtual malls or radiostations (comparable to online banners; see Man-chanda, Dube, Goh, & Chintagunta, 2006). Compa-nies such as MetaAdverse, the advertising networkon Second Life, rent out virtual billboards to firmsand then track who views those billboards to provideinformation to advertisers, similar to the data ob-tained in the context of traditional TV or onlineadvertising. Canada’s IMAX Corporation used thisapproach by advertising the fifth part of the HarryPotter saga, Harry Potter and the Order of thePhoenix, within Second Life andmanaged to contact15,000 unique visitors. Besides being effective, suchvirtual communication is substantially cheaper thanmore traditional means of online advertising. Abillboard with 200,000 impressions can, for exam-ple, be set up for about 8,000 Linden Dollars (rough-ly U.S.$30), which translates into cost-per-thousandof U.S.$.15, compared to cost between $1 and $8per thousand clicks on Google’s Ad Words, depend-ing on the type of keyword used.

A third way of advertising is the sponsoring ofevents in virtual worlds, as done by the BritishGuardian newspaper together with the semiconduc-tor producer Intel when they supported the SecondFest, a virtual music festival. Finally, companiesshould not forget the positive impact their activitieswithin virtual social worlds can have on real lifepress coverage. Conducting any form of activitywithin Second Life may be the best way to getpositive coverage in the business press these days.

Nevertheless, and despite these possibilities,companies should also not forget that advertisingin virtual social worlds is not without limits.

The fairyland of Second Life: Virtual social worlds and how to use them 567

Since February 2008, Linden Research, for example,has prohibited any advertising that impairs aneighbor’s view. Why? To avoid Second Life residentsencountering a loss in the real estate value of theirvirtual property, of course.

5.2. Virtual product sales (v-Commerce)

Besides advertising, virtual social worlds also offerthe possibility of e-Commerce; or, in this virtualchannel, v-Commerce. One common way of doingso is to sell digital versions of existing real life prod-ucts and services. Telecom Italia, who launched fourdifferent islands in Second Life in July 2007, forexample offers a product called the ‘‘First Life Com-municator,’’ which enables avatars to call each otherand to exchange text messages. Similarly, theDutch media company Endemol expanded its BigBrother reality show into Second Life by inviting 15residents to spend onemonth in a glass-walled virtualhouse.

Another approach is to propose services thatbridge the virtual and the real world. The world’slargest logistics company, Deutsche Post World Net,offers virtual cards to Second Life residents, whichare subsequently delivered as real postcards allaround the world. An alternative approach takenby the United States consumer electronics retailerCircuit City consists of using its Second Life flagshipstore to sell real life items that are subsequentlyshipped to the user’s home. Here, the possibility ofvirtually experiencing products prior to purchase islikely to lead to more favorable attitudes and higherpurchase intentions due to higher object interactiv-ity (Schlosser, 2003, 2006). This specific form ofv-Commerce could therefore overcome someof the disadvantages associated with traditionale-Commerce, such as lack of appropriate productpresentation, especially for fashion and designitems (Keeney, 1999), or insufficient social interac-tion (Wang et al., 2007).

Using Second Life for such a purpose obviouslyrequires setting up an official corporate presencewithin the virtual world. Several cost items must beconsidered in that context. First, the companyneeds to hold a Premium Membership (aboutU.S.$70/year), as free accounts are not allowedto own land within the world. Second, it needs topurchase an island to set up its presence. A privateregion of 65,536 m2 is currently priced atU.S.$1,000 plus a $295 monthly maintenance fee.Third, it needs to build its actual flagship store. Thecost for this task, which is comparable to the pro-gramming of a traditional webpage, heavily dependson the type of layout desired. It can be as low asseveral hundred dollars for a very simple presence,

and increase up to $200,000 for a highly professionaland interactive island.

Firms should be aware that these investments areunlikely to be recovered by actual sales madethrough v-Commerce, at least in the short-term.Although several hundred thousand visitors may visitstores, the actual conversion rate of visitors intobuyers is only around 5%, and the mean transactionvolume is still reasonably low. Based on our analyses,about a third of all residents spent less than 100Linden Dollars per week (about U.S.$.40), and only20% have regular weekly consumption in excess of1,000 Linden Dollars. Besides these monetary as-pects, companies also need to be careful when con-ducting v-Commerce not to artificially raiseexpectations regarding their real life products thatsubsequently may be impossible to fulfill. Offeringvirtual shoes, for example, in 1,000 different colorsmight make consumers believe that the same choicealso exists in the firm’s real life outlets. If this is notthe case, this could also induce feelings of dissatis-faction, disappointment, or even anger. In addition,initial expectations about sales that can be achievedthrough this channel should be reasonably lowbecause the low price levels within Second Life(e.g., approximately L$287 or U.S.$1 for a digitalsuit) make it unlikely that substantial money can beearnedwithin virtualworlds, at least in the short run.

5.3. Marketing research

Another interesting opportunity is to use virtualsocial worlds for marketing research purposes.One way of doing so is to rely on Second Life as atool to conduct standard marketing research proj-ects at a lower cost. According to the French marketresearch firm Reperes, one of the leading providerswithin this domain, the cost for a virtual qualitativefocus group are about 33% lower, and quantitativesurveys can be conducted at half the cost of acomparable real life project.

Another way is to leverage the higher degree ofinteractivity and impressiveness that such mediumsoffer, which leads to possibilities that go far beyondthose known from more traditional approaches ofonline research as, for example, netnography; i.e.the systematic analysis of online communities(Kozinets, 2002). Whenever firms make decisionsabout new product introductions, for example, theyalso face the choice between running a lengthy andexpensive test market analysis and introducing theproduct right away with an increased risk of failure.Test marketing within virtual social worlds mightbe a way to solve this dilemma.When the hospitalitycompany Starwood Hotels & Resorts consideredlaunching a new range of design hotels under the

568 A.M. Kaplan, M. Haenlein

brand name ‘‘Aloft,’’ it decided to first build thehotel virtually within Second Life to obtain a betterunderstanding of which features might be importantfor users. According to Brian McGuinness, a Star-wood VP, this led to several design changes, includ-ing the decision to build radios in the guest rooms’showers.

Other companies take advantage of the opportu-nity to directly leverage the creative potential ofvirtual world residents by involving them in the de-sign and customization process of their products fromthe start, similar to theuseof leadusers in traditionalnew product development projects (Urban & VonHippel, 1988; VonHippel, 1978). Thecitizens of Paris,for example, recently participated through SecondLife in thecreationof a newpark tobeconstructedontop of the Les Halles shopping mall in 2012; theblueprint proposed by the architect charged withproject implementation originally resulted in pro-tests from residents. Note, however, that tastesand preferences in virtual worlds may not be thesame as in a real setting. Avatars in the form ofdangerous dragons, beautiful elves, or creative hip-pies may like some designs that the reticent bankclerkwho stands behind them in real life would neverconsiderbuying.Therefore, eachnew ideageneratedwithin virtual worlds needs to be subject to a thor-ough reality test before actually being implemented.

5.4. Human resource management

Besides the aforementionedmarketing purposes, vir-tual socialworlds canalsobeused in thecontextofHRmanagement and recruiting. Service providers suchas the United States-based TMP Worldwide Advertis-ing & Communications regularly organize recruitingevents for their clients within Second Life. Onaverage, 750 job seekers request interviews at eachevent, 200 of which are actually scheduled and 150finally conducted. For some firms, such as T-Mobile,eBay, or Verizon, recruiting in such media ensuresaccess to particularly creative and technologicallyadvanced candidates. Others, such as L’Oreal or Bain& Company, might decide to be present in the hopethat this leads to a positive image and increasedattractiveness among potential recruits.

Yet in some settings virtual recruiting may not beso beneficial for the company after all. Potentialapplicants with high potential who may not neces-sarily be technology freaks, for example, might pre-fer a company that offers more traditional ways ofgetting in touch with them because using virtualworlds could be perceived as too complicated. Firmscan also never be sure who actually stands behind anavatar. Virtual recruiting can, therefore, only be seenas a complement to existing activities, and not as a

replacement for such. But even if recruiting contin-ues to beconducted in a traditionalway, virtual socialworlds can help to create awareness for offlineevents. The French retailer Auchan, for example,used advertising space in Second Life to promoteits ‘‘Rencontres de Talents’’ program of recruitingvisits to 30 towns and cities across France in 2007.

5.5. Internal process management

Finally, corporations can also make use of virtualsocial worlds by using them as a platform for orga-nizing internal meetings and knowledge exchange.Cisco offers its employees custom avatar creationtools and maintains two corporate islands for inter-nal use, and has established a virtual ‘‘code ofconduct.’’ Similarly IBM, one of the biggest land-owners within Second Life with 24 islands, uses theworld extensively for internal purposes. The CrownePlaza hotel chain, owned by the InterContinentalHotels Group, even allows companies to book virtualmeeting rooms in its Second Life Crowne Plaza in thevery same way as they can rent space in CrownePlaza outlets in the United States, Great Britain, orSwitzerland.

For years companies have hoped to savemoney and time by making more extensive useof video- and phone-conferencing systems, butthe extremely limited ways of interaction offeredby such media have been significant obstacles totheir broad use. However, today it seems thatphysical meetings might soon become obsolete.Why travel 12 hours across the globe if you canmeet your business partner from the comfort ofyour living room within Second Life?

But it must not be forgotten that there are alsochallenges involvedwhenmoving fromreal to virtual.Some of these are of a legal nature. As highlighted byHewlett Packard’s Chief Seer Philip McKinney, forexample, it is far from obvious who owns a productthat has been developed in virtual collaborationwithin someone in another country. Other problemsrevolve around the issues of trust and user friendli-ness. Do you really want your CEO to negotiate themerger of your company with a potential partner inanother country using virtual worlds? In addition,when do you think your assistant will be capable ofnavigating and setting up meetings in Second Lifewith the same ease as using the phone?

6. The 5Cs of success in virtual socialworlds

In one of our first projects in the area of virtualsocial worlds (Kaplan & Haenlein, 2009) we

The fairyland of Second Life: Virtual social worlds and how to use them 569

conducted a series of in-depth interviews withSecond Life residents to better understand thebenefits consumers obtain from using such media.The results show that there are basically four keymotivations for spending time in-world: the desireto build personal relationships, the wish to earnmoney, the search for diversion, and the need tolearn. Additionally, our respondents highlightedthat for them Second Life is not merely a computergame, but an extension of their real life, and thatthey expect companies to understand that and totake them and their Second Life activities seriously.This translates into five points that companiesshould pay particular attention to, which we callthe 5Cs of success in virtual social worlds.

6.1. Catch traffic

For many users Second Life is not an individualisticexperience, but instead a place to get to knowpeople and meet friends. Companies therefore needto ensure a sufficient amount of traffic on theirislands to avoid feeling empty and deserted. Today,the majority of corporate presences within SecondLife seem to suffer from a lack of interest, but thereare several strategies that companies can use tosolve this problem. One is to give away freebies; i.e.free virtual products and services. Usually freebiesare small items like clothing or scripts that addcertain features to your avatar. But companies suchas GM’s Pontiac division gave away free land on theirMotorati island. Another solution is to create apermanent social atmosphere, as done by the TVshow The LWord that maintains ‘‘The LWord DanceClub,’’ or to organize games and contests. At thefoot of the Intel tower Second Life residents have,for example, the opportunity to plant virtualsunflowers, and for each sunflower Intel donatesU.S.$1 to the Conservation International Foundation.

6.2. Compensate presence

Unfortunately, even a second life does not come forfree and, as in real life, one needs money in order tohave fun in a virtual social world. Therefore, thewish to earn sufficient funds is at the top of manyavatars’ list of priorities, and companies should tryto satisfy this desire. One popular way of doing so isto pay Second Life residents for ‘‘camping’’ on yourisland. Set up some virtual benches, offer to payL$2-3 (U.S.$.10) for 10 minutes of sitting on thesebenches, and see how avatars queue up to be pres-ent on your island. This may also help to solve theissue of limited traffic on your corporate presence.

Another solution is to compensate residents fortheir participation in marketing research projects.

Market research companies specialized in SecondLife, such as the French Reperes, pay L$250-10,000(U.S.$1-40) per completed survey. For some avatars,such activities become so lucrative they can usethem to complement their real life income. Accord-ing to Mark D. Kingdon, CEO of Linden Research,there are about 17,000 Second Life residents whogenerate a positive cash flow from their in-worldactivities, and 500 who earn more than U.S.$1,000per month.

6.3. Consider innovativeness

A key motivation for spending time in Second Life isto have fun. Therefore companies need to proposenew and exciting opportunities every day to keepthe interest of avatars because boring and uninven-tive presences risk being severely punished. TheItalian fashion label Armani, for example, nearlyfaced a boycott within Second Life because itsvirtual flagship store, which was essentially a dupli-cate of a real outlet in Milan, was perceived aslacking interactivity and as not adapted to thevirtual world. This is consistent with findingsgenerated in the context of traditional webpagedesign where it has been shown that perceivedinteractivity drives attitude toward the site andusage (Song & Zinkhan, 2008).

Because Second Life is a hyperreal virtual world,avatars expect firms to do things that go beyondreality. Take Coca-Cola, for instance. In August 2007the soft drink giant invited 100 selected Second Liferesidents, including one avatar representing therock star Avril Lavigne, to its virtual Coke cinemafor the premiere of Happiness Factory — The Movie,a virtual complement to the launch of Coke’s new‘‘Happiness Factor’’ advertising campaign in reallife. Given that few Second Life users would everhave the chance to participate in a similar event inreal life, activities like this are likely to be the mostsuccessful.

6.4. Create a learning environment

But virtual social worlds are not only about havingfun and diversion. For many users they are also aplace to learn and have new experiences. The pos-sibilities for companies who would like to providesuch a learning environment are endless. Computermanufacturer Dell recreated a giant computer on itsisland, which avatars can enter to see how such amachine really works. The retail bank Wells Fargobuilt a place called Stagecoach Island, on whichavatars can earn Linden Dollars by answering finan-cial questions, thereby teaching them the basics ofmanaging their real money. Business schools such as

570 A.M. Kaplan, M. Haenlein

Harvard, Stanford, or INSEAD even use Second Lifeto enhance interactivity in their distance learningprograms. And if nothing else really comes to mind,just build a virtual Eiffel Tower and offer avatars theunique experience of parachuting from it right intoyour flagship store.

6.5. Care about avatars

Last but not least, firms need to understand that forits residents Second Life is more than a mere com-puter game–—it is an extension of their real life. Ourresearch clearly shows that with increasing usagefrequency and consumption intensity, Second Lifeavatars show behavior similar to that shown by peo-ple in real life situations. Therefore, companies needto take the virtual world, and their activities withinit, seriously inorder tobe taken seriously themselves.There aremany companies that have failed in SecondLife because they did not respect this simple rule.Firms such as AOL, Mercedes-Benz, American Appar-el, and Sears, all of which are known for their mar-keting success in real life and were among the first toenter Second Life, have since left the virtual socialworld. Most likely they did not succeed because theywere unable to manage and update their virtualpresences at regular intervals. If you consider SecondLife merely as a new temporal advertising outletrather than as an integrated communication channel,avatars will soon realize and punish you accordingly.

7. Future evolutions on the horizon

Virtualworlds are a highly dynamic area, and it seemsthat every day another key player is announcing somekind of breakthrough industry-changing news.However, where the big lines of future developmentare concerned, we see five different directions thatare likely to be particularly important in years tocome, and which we will now discuss in more detail.

7.1. Evolution toward standardization andinteroperability

Social media are all about user participation andinvolvement. Therefore, it is unlikely that virtualworlds will remain as they currently are: managedby a few companies using proprietary software andprotocols. Instead, we expect a evolution similar tothe one that transformed the Internet from a hand-ful of interconnected military computers to theWorld Wide Web: a transition toward open source,standardization, and, ultimately, a connectionbetween all single individual virtual worlds thattransforms them into one big Metaverse.

Several developments going in this direction arealready visible today. In January 2007 Linden Labmade the source code for the Second Life Vieweravailable to everyone, allowing each Internet userto modify and improve the main gateway to thevirtual world. In July 2008, 18 months later, LindenLab and IBM showed that avatars could be trans-ferred from the Second Life grid to an OpenSimvirtual world server. In the future, this will allowthe traveling of avatars from one virtual world toanother, and is likely lead to the fact that peoplewill maintain and customize only one avatar, similarto the use of one main email account today.

7.2. Improvement in software usability

Do you remember how you checked email in theearly 1990s? You had to have an acoustic coupler, adial-in number from a university or governmentorganization, a fairly powerful computer, and ex-tensive technical knowledge to make everythingwork together. Until America OnLine entered themarket with its user-friendly ‘‘connection manag-er,’’ access to the Internet was limited to tech-nology geeks or their friends. Today, such distantmemories reappear when one tries to connect toSecond Life for the first time. In-world navigationis difficult to learn, avatar customization can takehours, and the hardware requirements for an en-joyable game experience are substantial. Yet, aswith all other technological innovations, we ex-pect substantial and rapid improvements in thisarea over time. Ultimately, this will result invirtual worlds becoming an integral part of tomor-row’s life, potentially similar to the importance ofmobile phones in today’s society, although anevolution envisioned in Stephenson’s Snow Crashcan hopefully be avoided. Given the huge poten-tial of three-dimensional virtual worlds comparedto the traditional two-dimensional World WideWeb, some experts even assume that corporatepresences within applications like Second Life willtake over the role of traditional Internet pages in5—10 years’ time.

7.3. Interconnection between reality andvirtual worlds

We expect over the next few years that innovationand creativity will lead to virtual worlds that moreand more resemble what we are used to seeing inreality. Today, the graphical capabilities of worldslike Second Life are still rather limited, andalthough avatars and virtual cities resemble realpeople and locations, they still look very differentcompared to their real life counterparts.

The fairyland of Second Life: Virtual social worlds and how to use them 571

However, the boundaries between virtual andreal are already getting more and more blurred,and this trend is likely to continue in future. Thesearch engine giant Google is, for example, rumoredto be planning to transform its Google Earth productinto a virtual world which offers avatars the possi-bility of walking through a three-dimensional equiv-alent of San Francisco, Tokyo, or Paris. Combine thiswith the idea that avatars can closely resemble reallife people, in the same way that characters inmodern video games are only barely distinguishablefrom actors in Hollywood movies, and it becomes farfrom easy to define the difference between real andvirtual. Or, to put it differently, if a user spends12 hours per day working and meeting friends in avirtual social world, is it still possible to say what isvirtual and what is real?

7.4. Establishment of law and order invirtual worlds

The more important virtual worlds become in eco-nomic terms, the more likely it will be that peoplewill see the need to have them governed by thesame legal rules and ethical norms as their everydaylife. The first steps in this direction are alreadyvisible today. In July 2007 Linden Lab, in reply toan FBI investigation, announced a ban on in-worldgambling, and forbade all wagering on games ofchance or games that rely on the outcome of reallife organized sporting events when they provide apayout in either Linden Dollars or a real life curren-cy. Among others, this ban resulted in the collapse ofa major virtual bank called ‘‘Ginko Financial,’’which led to severe liquidity problems for the restof the virtual banks, and halved the size of SecondLife’s economy.

As a consequence, Linden Lab started to regulatethe virtual banking industry in January 2008, andprohibited the offering of interest or any directreturn on investment by all companies who wereunable to provide proof of an applicable governmentregistration statement or financial institution char-ter. Apparently such legislation does not come with-out problems in an environment that operatesoutside any legal boundaries existing in the realworld. But improvements in law and order will bea necessary step toward improving institutionaltrust, and toward transforming virtual worlds intoa relevant economic channel for corporate use.

7.5. Transformation of virtual socialworlds to business hubs of the future

All these changes combined will transform virtualsocial worlds from exotic forms of diversion into

the business hubs of the future. Whether throughv-Commerce, advertising, or other business func-tions, there is little doubt that the increasing growthof virtual asset tradewithin virtual worlds will evolvebeyond its gaming roots toward being the main con-tact channels for companies.Of course, thereare stillplenty of steps in between before this might reallyhappen. However, there are already several signsvisible that indicate this direction. Linden Lab, forexample, is dropping hints that they might allowenterprise programmers to connect their own virtualworld servers to the official Second Life grid. Thiswould imply that companies would be able to hostandmanage their own islands, but still be part of theSecond Life environment. Technically, this is verysimilar to the way corporate Internet activities aremanaged nowadays.

8. Virtual kills the Internet star?

In 1979, the British New Wave group The Bugglesreleased a song titled Video Killed the Radio Star,telling the story of a famous radio singer whosecareer is cut short by the increasing importanceof television. This song reflected a major changein the media landscape at that time: the addition ofvisuals to audio signals. In the very same spirit, wethink that virtual social worlds add another dimen-sion to the Internet as we know it today. In particu-lar, the future evolutions outlined above are likelyto radically change the World Wide Web we are nowfamiliar with. After all, it has long been shown thathuman beings are more efficient in processing andnavigating three-dimensional spaces than two-dimensional representations. Why limit yourselfand your company to a traditional webpage ifyou can maintain a virtual island within a three-dimensional virtual social world?

Obviously, there are also some factors that mightslow down or even hinder such an evolution. Amongthe most important ones is the massive amount ofenergy consumed by applications like Second Life.The American writer and IT expert Nicholas Carrcalculated, for example, that the average SecondLife resident consumes roughly 1,800 kilowatt hoursof energy per year. This is only 25% less than the2,500 kilowatt hours the average human consumesannually in real life, and about 1.8 times as much asthe 1,000 kilowatt hours consumed by citizens indeveloping countries. In light of rising energy costsand increasing awareness of ecological questionsand environmental sustainability, this might sub-stantially slow the evolution of virtual worlds inthe future. Other problems that add to this issueare the tremendous legal problems involved in

572 A.M. Kaplan, M. Haenlein

regulating a completely new world and the lack ofexperience that firms have in this area, given thatthe requirements for a presence in virtual worldsmight be quite different from those of traditionalweb pages.

In any case, and whatever the importance youyourself give to virtual social worlds, it is certainly awise strategy to be prepared for the increasingimportance of such applications in the future, andto be building sufficient expertise in your organiza-tion today in preparation for tomorrow. If not, yourcompanymay face the same issues as the newspaperindustry today, which has been facing devastatingdeclines in the number of readers and advertisingrevenue for several years in a row due to a lackof preparation for the upcoming importance of theInternet. According to author Philip Meyer, theubiquitous availability of news on the WorldWide Web will lead to the fact that in about 30years’ time (around 2040), the newspaper industrywill disappear from the landscape.

In a worst-case scenario, virtual social worlds arejust another form of media that your company canuse in the short term to reach a segment of highlycreative and technologically advanced users. Butthey may also be the start of a whole new area ofretailing and dealing with your customers.

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