That is not what we have come to expect from e-commerce. A combination of technical controls, laws, and regulation makes today’s online business fairly safe (or at least as safe as business in the rest of the world), with wrongdoers subject to punishment. “A lot of the legislation over the last 10 years relating to online commercial [transactions] has all been about governments trying to create a level playing field where trust between buyers and sellers is created,” says David Naylor, a partner in the U.K. law firm of Field Fisher Waterhouse, which in April became the first major law firm to establish a presence inside Second Life. As a result, people are now willing to make bank deposits online and enter their credit card numbers to make purchases. “An environment where it is easy and simple to defraud others, with them not having much of a comeback, if any, is not one which is going to lend itself well to significant business development,” he says. “It’s not the only factor, but it is a significant factor in the commercial attractiveness and viability of these environments. If you destroy the trust between a buyer and a seller–which is a fairly tenuous thing to establish in the online environment in the first place, where people lack face-to-face communication–you can quickly and massively impact people’s willingness to transact with each other.”
Although it created and issued the Second Life currency, Linden Lab denies responsibility for transactions, disputes, and losses involving Linden dollars. “People have got to deal with interactions [in virtual worlds] the same way they would deal with them on the Internet generally,” says Ginsu Yoon, Linden’s vice president for business affairs. “Understand what you are doing, understand what the consequences are, use available tools to make sure you are dealing with a trusted party.” The company has now taken steps to identify and suspend accounts where large Linden transfers and cash-outs are taking place–activity that could point to fraud. It’s also advising account holders to engage the services of third parties who provide identify verification. But whether such measures can make virtual economies functional in the absence of real-world prosecution or regulation remains to be seen.
Party Like It’s 1994
Second Life reports more than 10 million subscribers, including inactive or duplicate accounts; about 50,000 are online at any one time. But it is only one booming virtual world among many, including Entropia Universe and There; massively multiplayer online role-playing games like World of Warcraft; and more controlled and narrowly focused sites like the child-oriented Webkinz and Club Penguin, which is owned by Disney. Many corporations have their own virtual worlds–places where they assemble far-flung employees or students to collaborate on projects or attend classes. “Second Life gets a lot of press, but there are hundreds and hundreds of these platforms,” says Sandy Kearney, global director of 3-D Internet and virtual business at IBM. “If you look at all the platforms coming, it feels like 1994, when all of a sudden everybody was building a website.”
In just the past year, reports the trade organization Virtual Worlds Management, companies and venture capitalists have pumped a billion dollars into developing virtual worlds. Many mainstream businesses have presences–simulations, or “sims”–within them. Dell has a sales office in Second Life. Reebok has a store. The studio 20th Century Fox even held a movie premiere there, for X-Men 3: The Last Stand. IBM maintains business centers. In 2006, Sun Microsystems became the first Fortune 500 company to hold a press conference “in-world.” Even the World Bank presented a report in Second Life about business development (20 percent of Second Lifers log on from Latin America, Asia, or Africa). Corporations have taken up residence in other virtual worlds, too; for example, you’ll find Toyota’s Scion brand in There.
With all this blue-chip interest, and continuing increases in processing horsepower and Internet bandwidth, virtual worlds may provide a peek at the future of the Web: instead of jumping from page to page, we could one day navigate 3-D environments to communicate, shop, and do research. Some observers even think that virtual worlds may merge with 3-D representations of the real world, such as Google Earth and Microsoft Live Search Maps (see “Second Earth,” July/August 2007). Many virtual worlds have their own currencies: in addition to Linden dollars, there are Project Entropia dollars, or PEDs (10 to the dollar), in the competing Entropia Universe; Therebucks (1,800 to the dollar) in the teen-focused There; and Webkinz KinzCash that kids use to buy treats for digital Chihuahuas and raccoons.
But big companies like Sun, Reebok, and IBM don’t really do business in virtual worlds; they “tunnel” into them. To close a deal, you need to step out of the “sim” and into the traditional Sun or Reebok or IBM website. These companies deal only in real currency, using established protocols for encryption and authentication. By contrast, people like Stephanie Roberts are actively conducting transactions in virtual worlds, using virtual money to buy virtual clothing, land, animals, surfboards, and art for their avatars. They deposit money in virtual banks and even invest in virtual stocks. And that’s where the problems are arising. The blogosphere is full of complaints about Ginko losses and about deals for land and goods that went wrong. And some fear that these issues will thwart the growth of e-commerce in virtual worlds.