In 2007 the press were tripping all over themselves to get a piece of the action covering Second Life. The boom was underway with the press doing their part in the hype cycle. It went something like this: Second Life was supposed to take over the internet. Second Life was the next big thing. Second Life was bigger than the Beatles. Get your place in Second Life now before it is too late.

Of course by the end of 2007 the hype had ceased, the press coverage regarding Second Life went from hyping the positive to covering the salacious, and we entered Gartner's Trough of Disillusionment cycle. The analyst coverage as well went from positive to negative, with some reports outright claiming that Second Life would fail.

However, as we wrote during the depths of the trough, the collective wisdom was missing the forest for the trees:

While I have my share of complaints about SL, and while I am concerned about its future, I won't go so far as to say that it will not be able to emerge from the Trough of Disillusionment and into the Slope of Enlightenment, because I predict that it will do just that even though the path forward will be rough.

Now fast forward and we have Information Week posting a new article about Second Life, which while cautious, is also a sign that the Slope of Enlightenment is in its early stages. Take a look at this opening salvo:

I first joined Second Life in January 2007, near the peak of the hype cycle. Second Life was supposedly the next technology megatrend. It would transform the face of the Internet and make present-day technology obsolete.

Then the hype cycle burst. Second Life didn't change the Internet much. Journalists quit the service en masse to follow the next big trend.

But I didn't leave Second Life. I stuck around. I cut back my professional involvement to an article or blog every few months. But I still spend a few hours a week in Second Life, just playing and keeping in touch with friends.

And Second Life stuck around too. It's profitable, and it's hanging on to a core of dedicated users. The internal economy of Second Life users exchanging virtual goods and services is growing. And, perhaps most important of all, the unquantifiable creative soup of Second Life continues at a rolling boil, with new businesses and activities and art popping up every day.

What the author describes in these few paragraphs are a textbook example of Gartner's Hype Cycle Model, and more accurately, how we are now moving from the trough into the enlightenment stage.

Now make no mistake, I'm not claiming we are yet solidly in the Slope of Enlightenment stage, however, I am saying that we are in the early stages of it, and I still believe that those who have stuck with Second Life and continue to innovate will be rewarded for their perseverance.

The reasons are echoed in the article:

Going forward, Linden Lab plans to align itself to serve three target markets: Consumers, which is the market the service is best known for today; the enterprise, and education, Kingdon said. Within each market, Linden Lab will identify sub-markets, which Kingdon called "use cases," and focus individual business units on how the company can best serve those use cases. For example, one of the top use cases in the consumer market will be live music, and a top use case in the enterprise will be virtual learning.

The company will develop tools to help each of those use cases make better use of the platform. The company is just now launching an assessment of those markets, to determine their needs and how best to allocate internal resources and Linden Lab to meet those needs.

I found Kingdon's statements about target markets encouraging. Rosedale is prone to messianic statements about brining the whole world into Second Life. Kingdon's comments seemed much more focused and practical.

The money quote in the above excerpt is that Linden Lab seems "more focused and practical." This is almost the same exact wording Gartner uses to define the Slope of Enlightenment:

4. "Slope of Enlightenment"
Although the press may have stopped covering the technology, some businesses continue through the "slope of enlightenment" and experiment to understand the benefits and practical application of the technology.

The truth is that the hype cycle was formed around the core ideas of using Second Life as a platform for advertising and marketing of real world brands. The implosion of that model brought about the disillusionment cycle, and the solution providers who stayed with the platform were the ones who already had the core ideas of enterprise collaboration, education, and selling solutions to the consumer base in the form of virtual items such as clothes and accessories.

Even as the trough was continuing, and Second Life was being bashed by the press and in various blogs, the concurrent user rate continued to grow. It is still continuing to grow, and exceeded 70k concurrent users this weekend. Also after the hype bubble burst, the Second Life economy began a slow and steady upward trend that is continuing to this day absent of all the hype:



The Information Week article goes on to explain this and supports the findings of our research:

Second Life has its own internal economy, integral to its culture. It has its own micropayment system, with a currency called Linden Dollars that can be exchanged easily for American money at an exchange rate that fluctuates between about 260 to 270 Linden Dollars to a single US dollar. Users set up shops to buy and sell clothing, furniture, building, vehicles, "land and avatar accessories like skins, bodies, eyes and hair. Musicians and club employees get paid in Linden Dollars. The economy even has virtual prostitutes, with digital courtesans paid in Linden Dollars.

Linden Lab boasts double-digit growth in user-to-user financial transactions, from an annualized rate of $300 million in the first quarter to $338 million in the second quarter.

Growth continued in July: More than 61,000 avatars earned more Linden Dollars than they spent that month, up 5.7% month-to-month, with over US$9.5 million Linden Dollars traded for US money, up 5.5% from June and new record.

On the other hand, some 54% of Second Life businesses reported sales slowing down in a recent poll on the popular Second Life blog New World Notes.

Another measure of Second Life's growing pains: Concurrency -- the number of users logged in simultaneously -- peaked at 66,429 in March, and failed to break that record for months since. Second Life finally broke its five-month plateau Aug. 24, reaching 67,335 users, and topped 68,000 simultaneous users on Labor Day.

Thus far it's clear that Second Life is far from dead, and despite what its detractors might say, it's thriving. But in Silicon Valley the word of the day is Facebook, which is currently in the hype cycle, but that said, here's a warning shot for Facebook:

But still, Second Life is healthy in one important criterion: Linden Lab is profitable, Kingdon said, although he declined to provide specifics. Au estimates that the annual run rate is $96 million, and $20 million to $30 million of that is profit. That's more than some companies with a much larger cultural impact and user base can claim.

"Silicon Valley is very excited about Facebook, but Facebook is not making any money. It's got a butt-load of users, but how many of them are super-engaged as Second Life users are?" Au said.

Therein lies the gold nugget, Linden Lab is profitable and Second Life is enjoying real business growth sans the hype of the media. The Information Week article hits these key points, and then finally gets to the reason Second Life will succeed:

The passion of the Second Life community, and the variety of experiences available in-world, are the service's secret weapon, Au said.

Although Second Life is much smaller than other online worlds, the tools that allow users to create, buy, and sell content in-world makes it much more interesting than other, much bigger competition, which are tailored for gaming -- like World of Warcraft -- or teen chat, like Habbo.

"To me, what the half million are doing in Second Life is a hundred times more interesting than what the 95 million are doing elsewhere,"

That is the key element: Second Life is a development platform. As we wrote back in July:

The problem it seems is thinking of Second Life as either a game or an application. A much better way to view it is as a platform for Enterprise 2.0 which encompasses many of the collaborative and social capabilities that are inherent in the definition of a "2.0" topology. This cannot be stressed enough, if your enterprise persists in viewing Second Life as a game, you are missing the point. Further, thinking of it in terms of being a marketing tool is also missing the point. It can be used for marketing, but above all, it should be viewed as a collaborative platform.

The questions and answers are all fantasy based. There are no questions about things like education, collaboration, arts/culture, filmmaking, music, etc. It is only when we view SL as a platform that we begin to open up to more possibilities that extend beyond fantasy, and actually touch our everyday lives and businesses. In those terms, SL can be a powerful solution, but it won't happen unless and until we change our mindset.

This remains the core reason why we believe Second Life has an advantage over many other virtual environments. Certainly there are many areas that require improvement, ranging from better SOA integration capabilities on the back end to more robust RIA development capabilities on the front end. Nonetheless, these things are underway and will improve. Although it won't be the only virtual environment on the web, and although it won't replace the web, Second Life is one of the platforms that will succeed and will be a key component of the post Web 2.0 world.



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We've written a few posts about OpenSim, the open source alternative to Second Life technology. OpenSim permits anyone to host create their own grid and virtual world, and with companies such as IBM looking into it, it might have an interesting future. There are a number of new grids in development, but one that is touted as being furthest in development is known as Central Grid.

In a recent thread on the SLexchange forums, someone asked the pertinent question: who are the people behind Central Grid? This is an important question for several reasons, primarily if you are planning on placing a business there.

Now we want to make one thing perfectly clear, we have no opinion about the long term viability of Central Grid at this point in time. We do think that competition for Linden Research is a good thing in general, but the purpose of this report is to determine whether or not we can make recommendations for businesses to utilize Central Grid. We are not looking yet at the technical merits of Central Grid, rather we are looking at whether or not the operators of Central Grid are viable for the long term.

So let's start with some basic facts:

1. According to their website, Central Grid is owned and operated by Spider Advertising, Inc.

2. According to information posted on the SLexchange forum by someone associated with Central Grid, Spider Advertising Inc. is a US based corporation. However it is not listed on Hoovers directory so we cannot confirm this.

3. A google search shows that Spider Adverising, Inc. is located at on the web at www.spideradvertising.com

4. There is no contact information on the Spider Advertising website. However there is a link to the Central Grid website

5. A search for press releases yielded no results

6. There are names listed on the Central Grid website, but it is not clear if any of these are real world contact names:

- BigTonny Goodfellow, Owner and CEO of Central Grid

- Owner Marsha

- Server Operator / Technical Liason Mike Horning

- Application Developer Frank Corsi

Conclusion: at this point we cannot recommend investing business resources into Central Grid. This is not intended to indicate that there is anything wrong with Central Grid; rather, it does mean that there are too many open ended questions to be able to make any assessment of the long term viability of Central Grid at this point in time.

We do recommend that the owners of Central Grid make the real world contact info for the CEO clear, and provide a means for researchers to contact you.

We will update this when new information becomes available.

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This morning the Solutions Provider meeting with Linden Lab was held inside Second Life. If you are not familiar with the Solution Provider program, it is a promising program that allows registered solution providers a set of resources and a forum to meet with representatives of Linden Lab.

It's still a fairly new program, with solution providers basically placed in one of three categories:

1. Full Service Provider
2. Consultants
3. In-House Developer

The first two categories allow providers to be listed in the Linden Lab hosted Solution Provider Directory. BeateNetworks participates in this program as a Full Service Provider.

Each quarter Linden Lab hosts a meeting inside Second Life which is open to anyone who is part of the program. Todays meeting went through the usual market statistics for Second Life, which show some mixed results. While SL itself is growing, businesses which make over $500 usd per month have grown from the period of Jan08 to Jun08, with business which make over $5k usd in positive linden cash flow increasing from 156 total businesses to 188 in that same time period. On the other hand, total transaction volume still is well below 2006-2007 highs:








The trends are good, but SL was obviously hurt by the backlash of the hype cycle which moved from Phase II (Peak of Inflated Expectations) to Phase III (Trough of Disillusionment) in q32007 as the Great Marketing Myth in SL scheme finally burst.. This, combined with the gambling ban set the SL platform back to late 2006 levels, and is just now showing signs of recovery.




One other topic of importance was discussed in the meeting, namely the idea of OpenSim and interoperability. One participant asked if Linden Labs stewardship over Second Life is similar to the old Compuserve model and what can be done to prevent it. Further, it was pointed out that what businesses really want is the ability to host server side code and manage like a intranet capability with secure connectivity to the public grid in a manner similar to how the internet works. While this is exactly what we'd like to see happen, even to the point of open sourcing the server code, Linden Lab is in a difficult position. They would have to find a way to open source the server code while also protecting their business and investments. It's a tough position, but the threat now is visible in the form of OpenSim.

While OpenSim is still in the early stages of development, the forces aligning behind it are growing stronger each day, thus placing pressure on Linden Lab to respond somehow. We are seeing indications that Linden Lab is responding, presently in the form of highlighting the teleporting of avatars from the SL grid to the OpenSim grid, which is being touted as work on "interoperability." That's all well and good, but true interoperability will mean that more will need to be in place than simply teleporting a well coiffed avatar out of SL an into OpenSim as a noobie avatar which happens to bear the same name in both grids, but whose account information, inventory, monies, etc. are all left behind in Second Life.

Nonetheless, it seems clear that Linden Lab is facing reality, and is taking steps to embrace interoperability, however small those initial steps may be. One thing is certain, we will see a true open grid one way or the other. Whether that open grid is based on the SL platform or not remains an open question.

In the meantime, we recommend that businesses keep an eye on both SL and OpenSim.



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Research firm Forrester has issued a report which states that 63% of IT departments say that Web 2.0 will have an impact on them. Interestingly enough, Forrester seems reluctant to use the term Enterprise 2.0, possibly because there are some fundamental differences between Web 2.0 and Enterprise 2.0, as we are starting to document here on the blog. However, clearly the topic of Web 2.0 in the enterprise is part of Enterprise 2.0, so we will categorize this post as Enterprise 2.0.

So let's take a look at some of the numbers coming from Forrester, which are actually quite encouraging. According to their study, which consists of a survey of over 260 IT professionals, 63% expect that social technologies will have an impact on business operations. Further, they believe that the impact will be a positive: 3% of respondents viewed Web 2.0 as a negative development. As we looked at earlier though, right now Web 2.0 in the enterprise is misunderstood and is being used as little more than press releases 2.0. So we still have the chasm to cross in that enterprises still don't fully understand the overall impact, at least if this survey is accurate.

However, when we look at a specific question, we see that IT management is concerned about the effects of "employee driven" technologies. This is a fundamental question because with Enterprise 2.0 comes the issue of IT ceding control to end user departments, and requiring new governance models to be deployed such as the TOGAF framework.




The obvious question is who should be responsible for bringing Web 2.0 (Enterprise 2.0) forward in the enterprise? Forrester finds that most of the budgets exist in IT, although not completely. Be that as it may, what will be required is a cross enterprise governance group, possibly chaired by the CIO or Chief Architect, whose charter it will be to ensure some sort of order to the chaos that the end user applications revolution will bring about:




Enterprise 2.0 will succeed only if organizations recognize that is it not a purely technology driven phenomenon, but rather is largely collaborative. Also recognize that you very likely do not currently have the expertise in house to make the transition possible, so finding resources who are knowledgeable in the Enterprise 2.0 domain is one of the key critical success factors.



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People seem to have a love-hate relationship with Second Life, and the hate part of the relationship comes to the fore whenever a new possible competitor appears on the VR scene. Regardless of the reasons that my lie behind this reaction, the purpose of this article is not to analyze users frustrations with Second Life or Linden Lab. Rather, what we'll do is compare Second Life to some of the primary competition out there, and try to take an objective view on the situation, and project out a couple of years.

VR itself is nothing new, but the idea of VR worlds as part of the Internet actually goes back to the early days of the web. VRML (Virtual Reality Modeling Language) was devised early on as a means of creating 3d worlds primarily via web browsers. Regardless of the merits of VRML, it set the stage for 3d worlds on the network.

What has emerged are two basic models for 3d applications on the network:

1. VR inside of a web browser

2. VR inside of a client application which is itself connects to the Internet and server side software

Delineating further between the two basic models, we can add the following criteria:

1. VR worlds which are based on software provider created content

2. VR worlds which allow some user created content

3. VR worlds which are nearly 100% user created content

The next category in our analysis is platform. One thing that is often not noted is that not all VR worlds are platform (e.g. operating system and browser neutral). So we can add the following criteria:

1. VR worlds which operate solely on Microsoft operating systems or primarily require Internet Explorer

2. VR worlds which operate cross platform (e.g. Windows, OSX, Linux, Firefox, Safari, Opera, etc.)

There are several other categories that we use to analyze virtual worlds. However the list above is a good starting point. We will have further posts coming up over the next week which will examine the primary VR worlds, including Google Lively. The goal will be to offer an objective view and to help you make decisions regarding which worlds to focus on depending on your requirements. The needs to enterprises are going to be different from the needs of mobile gamers as an example, and one solution doesn't necessarily fit all situations. For businesses, the considerations run the gamut from marketing to B2B collaboration, with Enterprise 2.0 being the central theme. For home use, there is everything from building a business to social interaction to role playing. So we'll take a look at the big picture and try to put this all in perspective.

Stay tuned.





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Yesterday we discussed the ad market for "video games" of which Second Life is included. While the numbers offered by the analysts are small when compared to the overall size of the digital advertising market, it's still quite large with estimates ranging between $1.0 to $1.5 billion per year.

We've also been through the hype cycle with Second Life, where it reached a crescendo in mid-2007. At that time it was claimed to almost be the promised land, with real world companies and others rushing in to try to stake a claim and find gold in 'them thar hills," only to be disappointed and feeling cheated by the analysis that told them to build an island, and they will come.

Now we're in mid-2008. Second Life and other virtual worlds remain an interesting business, but are now relegated to corner cases in the enterprise. While they may be on the list of Enterprise 2.0 applications, they are not the main component.

In fact, when considering Enterprise 2.0 components, both online video and social application rank higher in usage than do virtual worlds:




However, one point that seems to remain elusive is that virtual worlds can actually encompass both online video and social applications. As we noted in a previous article regarding Second Life:

1. Second Life is a platform for micro-commerce

2. Second Life is a platform for incubating new business ideas

3. Second Life provides small businesses instant international reach

4. Second Life is a natural extension of a business web presence

5. Second Life is a platform for real time interaction and customer feedback

6. Second Life is a natural platform for for marketing (however, so far companies have been using the wrong techniques to make this point effective)

7. Second Life is a multimedia experience rather than a game

8. Second Life has potential for solutions in both B2C and B2B

9. Second Life can be shaped by its users

10. Second Life is a low cost method of collaboration and is a social networking platform

The problem it seems is thinking of Second Life as either a game or an application. A much better way to view it is as a platform for Enterprise 2.0 which encompasses many of the collaborative and social capabilities that are inherent in the definition of a "2.0" topology. This cannot be stressed enough, if your enterprise persists in viewing Second Life as a game, you are missing the point. Further, thinking of it in terms of being a marketing tool is also missing the point. It can be used for marketing, but above all, it should be viewed as a collaborative platform.

The problem arises when we view SL as simply a game, as these categories indicate:




The questions and answers are all fantasy based. There are no questions about things like education, collaboration, arts/culture, filmmaking, music, etc. It is only when we view SL as a platform that we begin to open up to more possibilities that extend beyond fantasy, and actually touch our everyday lives and businesses. In those terms, SL can be a powerful solution, but it won't happen unless and until we change our mindset.

To paraphrase the old Clinton quote: It's the platform, stupid.

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There has been a recent upswing in discussions around the nascent market sector that is presently labeled Enterprise 2.0. While many of the assumptions are that Enterprise 2.0 is basically Web 2.0 configured for the enterprise, we take a different view on the matter. Specifically, our view is that Enterprise 2.0 is an overall rethinking of a business information architecture, one that spans everything from legacy systems to the latest in collaborative networks and applications. In our view it is far more than simply putting up blogs for management or putting up phpBB forums. Rather, it is a way of making information both liquid and secure. It is not an easy undertaking.

Another aspect of Enterprise 2.0 is in the area of EA governance models. The traditional methods of IT planning will change as a result of Enterprise 2.0, and we will see adoption of governance models such as the TOGAF Framework:





We have recently completed some work doing detailed analysis for the Enterprise 2.0 market space, and for those of you who have an interest in virtual worlds such as Second Life, the good news is that these technologies will play an important part in B2B and B2C collaboration. But virtual worlds are not the only component of Enterprise 2.0 as depicted here:




We'll post more on this subject soon, but some of the key things to keep in mind about Enterprise 2.0 are the following:

1. It is a complete rethinking of the IT information architecture

2. It is far more than adding social applications

3. If new governance models are not part of the plan, you are not doing Enterprise 2.0

4. It will reshape the way we do B2B and B2C

5. You should already be planning. If you are not, you're behind the curve.



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