In the Shadow of Second Life, Virtual Reality Startups Say This Time It’ll Work. Really.

Ebbe Altberg needs about a paragraph to define human life:

“What humans do is create spaces,” the gregarious 51-year-old executive says, leaning back at a table in a small room on the second floor of Linden Lab’s headquarters in San Francisco. “Some spaces are mobile, like a bus. San Francisco is a space that was created by its users. Whether you go into a pub, a bar, a classroom, a bowling alley, an office, a library … We create spaces and we have people come together in those spaces, and then we communicate and socialize within those spaces.”

Altberg is the CEO of Linden Lab, the company that made Second Life, the eccentric social network that offered users a free avatar in a virtual world, and was once heralded as the next big thing after the Internet. People could talk, shop, party and even go to music concerts put on by bands like Duran Duran. Some said Second Life would come to supplant significant aspects of daily life, but it quickly faded from the scene, peaking at a little more than a million users in a month in the late 2000s.

Linden Lab CEO Ebbe Altberg’s avatar in Second Life

Second Life and other “virtual worlds” never lived up to their real-world-changing hype, but the hardcore fans stuck around, and not only is Second Life still kicking, it’s profitable (though they decline to say by exactly how much). Linden has 215 employees, up from 140 in 2007 when it notched a million active users.

“What humans do is create spaces.”
— Linden Lab CEO Ebbe Altberg

That they’ve been able to hang on means Linden — and several of its competitors — can double down. They’re betting, again, that they can really go mainstream, that people really do want to dive into a virtual world. And this time, they’ll do it in virtual reality.

The Big Idea

There are still a number of challenges facing virtual reality on the eve of its consumer debut, so belief in the potential of these virtual worlds is rooted in two things: A willingness to place far-off bets, and a little bit of science fiction-infused faith.

The promise of virtual reality, or VR, is often summed up by its proponents in the fictional “metaverse,” a digital space that replicates — and in some cases surpasses — the physical world. It’s clearly science fiction (Neal Stephenson coined the term metaverse in his 1992 novel “Snow Crash”), but it has also become a critical touchstone for developers and engineers working in VR today. They have to reach for something.

A perfect metaverse, then, is more than just a video game or an application. Like a Web browser, or an operating system, it would offer users a means to do many things, and likely pay for them in many ways. That’s the Big Idea — that VR would be as transformative to the Internet as the World Wide Web — and it’s why so many companies are testing the waters. If one or more of them can crack it, they would unlock a great deal of virtual reality’s long-term potential.

Emphasis on long-term. Let’s meet the companies and see what they’re up to now.

Ready Players One, Two, Three

For the past year, San Francisco-based has been heads-down and aggressively hiring on a long-awaited follow-up to Second Life, currently codenamed . The company declined to share how much it has invested in the project. Like Second Life, Project Sansar aims to be a lot of things to a lot of people, letting them download a free client for their PCs and visit a diverse array of spaces and experiences — some of which may cost a fee — with their customizable avatars.

Meanwhile, Second Life’s original inventor Philip Rosedale is spearheading , also based in San Francisco. The 20-employee startup has raised $17.5 million to date, with investors including Vulcan Capital, True Ventures and Linden. High Fidelity also plans to use personalized avatars to let people “travel” around a diverse but interconnected virtual world. As its name suggests, it wants to convincingly recreate real-world interactions in VR such as talking, shaking hands and sword fighting (really!).

AltspaceVR avatars, in an eye-tracking demo

Redwood City, Calif.-based has raised $15.7 million to date. Its investors include Tencent, Dolby Family Ventures and Comcast Ventures. With 20 employees, Altspace’s main focus so far has been shared media experiences, such as watching Netflix in the same virtual room as someone else, even though your physical bodies may be far removed from one another; recently, the company has also started testing what it’s like to play games together in virtual spaces, ranging from chess to Flappy Bird to Dungeons and Dragons.

Other companies exploring virtual worlds include, a New York-based startup of four people that has announced $300,000 in seed funding so far; it is focused on avatar-powered social games, which it expects to publicize 2009-Facebook-style based on partnerships with third-party game developers that use its technology. Meanwhile, Silicon Valley-based is devoting 15 percent of its 135-person team toward VR, looking at how to display creations in its existing virtual world with the new tech, something Linden previously tried with Second Life.

These companies are all largely gunning for the same, often nebulously defined idea: That VR will effect changes in our communication habits as profound as those wrought by the PC, or the mobile phone. Each has its own specific focuses, and their current protoypes look more like the chaotic world of Second Life than a utopian sci-fi future.

But there’s an elephant in the room, and its name is . The social networking giant paid $2 billion for last year, and in the process opened the floodgates for the industry to start wagering on the long-term shape of social interactions in VR. Facebook itself, however, has a lot to do in the short term, as it shepherds two virtual reality headsets — the Oculus Rift and the Samsung Gear VR — to their first consumer markets. So let’s start there.

In the Short Run

Oculus VR co-founder Palmer Luckey has been one of virtual reality’s most visible and ebullient evangelists since he first duct-taped together an early prototype of the Oculus Rift headset. In an interview with , though, he cautioned that the day of a perfect virtual world is a decade or more away.

Eric Johnson for Re/code Oculus VR co-founder Palmer Luckey shows off Oculus Touch at a press event in June.

“I think at this point the term ‘metaverse’ is a bit undefined,” he said. “For any one company to say, ‘We are building the metaverse’ is pretty hyperbolic. Building all the pieces is going to be hard, and the way you imagine things in sci-fi doesn’t always translate over to the way things will be in the real world.”

In a previous interview, Luckey had said he expected Facebook to build a metaverse one day. But in the meantime, Oculus is focusing on the hardware that will make the first versions of such virtual worlds possible: VR head-mounted displays, or HMDs, such as the Rift; and handheld controllers called Oculus Touch that let users see and use their hands.

For the short-term, Luckey suggested that specific, purposeful VR apps will give people a taste of what interacting in a metaverse would feel like. For the consumer world, Oculus plans to update its movie-watching app, Oculus Cinema, so that two or more people can watch a movie at the same time and react to it together. Meanwhile, it is widely expected that the enterprise world will start to see VR telepresence applications.

Sketchfab / Immersio A 3-D scan of Oculus VR co-founder Palmer Luckey, made by Immersio

“We have multiple offices at Oculus,” Luckey said. “Imagine how useful it would be if we could all sit down and have a teleconference meeting, but bring in examples of factory equipment that we’re having issues with. We could pass around 3-D models of the equipment and inspect it up close and discuss.”

Those are both specific things that people might be willing to pay for. But to really grasp the scope of building a metaverse, you have to talk to Philip Rosedale.

In the Long Run

Rosedale’s startup High Fidelity is trying to lay the groundwork of a full metaverse. That means building the technical backbone to host virtual worlds and figuring out how to solve deceptively simple-sounding challenges, like what to do when two avatars want to touch one another.

“How do we do things like shaking hands?” Rosedale asked. “As designers, we’ve never had to deal with an environment where the motion of your avatar was both under your control and potentially under somebody else’s control, because, for example, they grabbed you.”

High Fidelity hopes to make money in two ways. First, it wants to charge people and brands a fee to own virtual spaces in a VR world, the way a Domain Name System sells Web addresses. Second, it wants to make possible engaging experiences on all of those worlds, some of which people might pay for.

High Fidelity CEO Philip Rosedale’s avatar in a recreation of High Fidelity’s office

“How do we do things like shaking hands?”
— High Fidelity CEO Philip Rosedale

Rosedale said he and his team are big believers that kids will one day go to school through a VR headset.

“If you’re a teacher and you’re able to move your course material and yourself into a virtual area that’s quieter, and you have everybody’s attention, and you can tell when they’re paying attention to you, and you can talk to them … why would we not teach like that?” he asked.

Courtesy High Fidelity A 3-D model of a living cell, made for students inside of High Fidelity

For Rosedale, the metaverse will live or die based on how easy it is to get from virtual space to virtual space. He advocates Metcalfe’s Law, which says that networks get more valuable the more interlinked they are; free and easy connections among virtual spaces, he explained, allowed businesses like Yahoo and Google to surpass less link-friendly siloed platforms like AOL in the early days of the Web.

Tease out that metaphor a bit and you’ll start to get at the real promise of virtual worlds, at least in the eyes of their creators: At a certain scale, they might play host to everything from businesses to social destinations to next-generation video games — again, the way a Web browser gives you access to innumerable places to spend your money online.

If consumer virtual reality succeeds, then that’s a massive prize, waiting to be claimed.

Admit One

Second Life’s profitable business is a common reference point for all the players in this space. So, it’s worth taking a closer look at that model.

Pixar / “Toy Story”

Second Life is free to start, but it costs money to really enjoy it. Its users have avatars, virtual characters that represent themselves. They can buy (with real money) virtual currency called Linden Dollars, and spend those Linden Dollars on things for their avatars, like clothes, accessories and property.

Linden leases out the property: It costs $295 per month for a 700,000 square-foot island, but Altberg said some users have become “land barons,” divvying up and leasing out pieces of virtual land to other users who don’t want to pay the full amount.

Meanwhile, things made by Second Life’s users compose the rest of the economy. In other words, a power user might design a dress for your avatar to wear, and you pay her (say, 1000 Linden Dollars) to buy it. She can then convert those Linden Dollars back into real money (approximately $4, because $1 is about 250 Linden Dollars).

Linden Lab An avatar shops for clothes in Second Life.

The exchange rate changes over time and is administered via a compliance system built by Linden. Last year, the company says its users cashed out more than $60 million USD; a company spokesperson said $100 million worth of Linden Dollars are sold annually, and that the current Second Life economy has about $22 million in virtual currency floating around.

Got all that? In one form or another, almost every company sniffing around the metaverse space is looking at Second Life’s model.

And several of them, including Linden, think they can build more on top of that.

Designing a dress that someone will want to buy requires knowledge of 3-D modeling software, which leaves out most people. But Linden, High Fidelity and AltspaceVR all suggested the idea of letting users host exclusive virtual events in their digital spaces, and encouraging those users to charge an admission fee to get in.

( 2025, anybody?)

Composite image by Re/code AltspaceVR CEO Eric Romo with his Altspace avatar

“We see ourselves as providing that base layer of communication that would more than likely always be free for people,” AltspaceVR CEO Eric Romo said. “But if you can listen to a comedian or go to a music concert, you might be willing to pay for that sort of thing, because it’s an experience.”

“You’d never say that watching a video of a TEDtalk is the same thing as being at the TED conference,” he added. “We think going to a conference in Altspace is more like the real thing. Even if you’re not talking to the people next to you, you’re surrounded by all these people, and you get the same emotional reactions that you do when you’re in the audience.”

That’s all well and good, but who will be in that audience? And would you want to talk to them?

Dude, You’re (Statistically More Likely to Be) Getting a Rift

A recent survey on /r/Oculus, a popular forum for VR enthusiasts on Reddit, found its users are 97.5 percent male and 85 percent white. Homogeneity may be great for group cohesion, but it’s a potential risk factor for companies that, in essence, want to build businesses that can compete with the entire Internet.

“The challenge for companies like us is, what do you do about that,” Romo said of the survey. “We believe really strongly that you’ll find people of all genders, all walks of life.”

Eric Johnson Source: /r/Oculus survey by user /u/highvemind, June 2015

To get there, Romo said AltspaceVR wants to build and/or showcase examples of things to do in its virtual world that appeal to different groups of people. However, he added that he expected VR hardware OEMs like Facebook and HTC will have to do a lot of the heavy lifting, finding ways to market VR to lots of different audiences.

“Virtual reality will make it a lot harder to be a total dick to somebody.”
— Oculus VR co-founder Palmer Luckey

And what happens if the conversation turns toxic? For whatever it’s worth, the men in charge of early metaverse companies say they have encountered no problems, and think VR will make people behave better than they do elsewhere online.

“Virtual reality will make it a lot harder to be a total dick to somebody [online],” Luckey said. “When was the last time you saw a hundred people show up together and yell at somebody in real life? It would be a lot more uncomfortable to have people shouting at you in real life than on a message board, but you don’t see that happen.”

“The more synchronous, the more real-time you force the interaction to be, the better everyone behaves,” Rosedale said. “In VR, it’s much harder to be a bully or be abusive if you’re doing it face to face. Harder — not impossible — but it’s harder.”

Linden’s Project Sansar already has a plan for dealing with online abuse, which it is lifting from its older brother Second Life: People who make spaces in the metaverse will be able to scale those spaces’ privacy up or down, not unlike adjusting your Facebook settings.

“The creator of an experience in Sansar might say, I will only allow my friends to come in here, or only people who have been on the service for x days,” Altberg said.

The real world is a messy, divisive place, so policies like that will be important as virtual worlds seek to imitate it. Everything — good and bad — will theoretically have a place in the metaverse. The road ahead of them is littered with pitfalls and hurdles, but if these companies find what they’re looking for, they might radically change how we work, play and talk.

“We’re trying to build out the technologies that allow people to bring themselves into the virtual world and communicate in a perfect way,” Luckey said, pausing for a beat.

“‘Perfect’ sounds ridiculous,” he acknowledged. “But I do think for VR, where the goal is to replicate being human … that’s the right word.”

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