For years, even before the web got “big”, we heard stories about 3D worlds, virtual reality, places that “jacked in” to and interacted with each other in a fantastic computer-rendered environment.

For the most part, these things have arrived. Linden Lab’s Second Life, 3D instant messaging IMVU (lots of CPM ads for this published through Adsense), online role playing game World of Warcraft, and the list goes on.

Recently Shawn Collins wrote a post “Does Second Life Matter to Affiliate Marketers?

Second Life
has a roaring PR machine. Mainstream articles have gone as far as to make it into Harvard Business Review (see Avatar Based Marketing.) Big corporations are spending money promoting themselves in Second Life. TheStreet.com even has a virtual reporter.

As an entrepreneur I feel my most important skill is seperating the hype from the real stuff. As a hobbyist I also happen to have a bit of background in these “virtual worlds.” I am going to tell you what I think the real story here is.

Second Life certainly is remarkable. And some users at the top are doing alright at making a real income from it. Others make a “grey” income running virtual casinos. That being said, Second Life isn’t quite the phenomenon its owners are making it out to be. Clay Shirky points out that the 1.9 million users they claim to have isn’t quite right.. in fact, the number of active users is more like 18,000.

To get to the point, I think these Fortune 500 companies have been had. Second Life consists of a niche audience. Certainly the technology is exciting and the future looks great, this isn’t it.

World of Warcraft, on the other hand, is a bit different. This online game really has millions of users. And guess what, I know there are people who have made millions off of this game. I will avoid details but its safe to say methods are more akin to cyber counterfeiting than legitimate business ventures

Online gaming really is a multi-billion dollar industry. As an entrepreneur there is a ton of money to be made here. However, I don’t think the golden age of the “virtual world” has dawned just yet.

Online games like World of Warcraft have a strong mainstream appeal. The crack-power addictiveness results in great stickiness despite being a big turn-off to potential new players.

The holy grail now is to take the World of Warcraft business model and replicate it on the left out demographic (e.g., the people using Myspace.) Internationally, a few companies have been accomplished this (Habbo Hotel in Europe and Cyworld in Korea.)

Keep your eyes open. Someone is going to get this right in a very big way.

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