One Disruptive Growth Company

Shell-shocked investors can be forgiven for ignoring virtual worlds. They're rarely reflective of real life, as demonstrated by a recent poll of 491 Second Life residents in which Barack Obama led John McCain by nearly 25 points, well above the 12-point margin that professional pollster Zogby is tracking. Who do I believe? Zogby, obviously.

And yet after sitting down last week with Philip Rosedale -- the man behind Linden Lab, creator of Second Life -- I've come to believe that virtual worlds are a lot more real, and a lot more relevant, than we'd care to think.

"A very disruptive medium"
Why? Cash. Lots of cold, hard moola is making its way into the ether. Media companies and venture capital firms have pumped $493 million into Second Life wannabes during 2008, according to a report by Virtual Worlds Management.

Of that total, 12 firms received $148.5 million during the third quarter, VWM reports. Notably absent from its list is Google (Nasdaq: GOOG  ) , whose Lively virtual world debuted in July. That's understandable; we've no idea how much Google invested internally to create Lively.

Second Life, meanwhile, is growing and on track to be translated into 10 other languages. Four worlds -- for German, French, Korean, and Japanese residents -- are being built now and are expected to be ready within a month. Worlds for speakers of Spanish, Chinese, Danish, and Portuguese are in the works. 

For Rosedale, these and other efforts are reflective of his belief that Second Life can enhance real-world experiences. His favorite big idea seems to be using the platform for web conferencing, as he himself did earlier this year when announcing an executive appointment from London. The company meeting was hosted in Second Life.

Linden isn't alone. IBM (NYSE: IBM  ) has a business center in Second Life where it allows customers to tour data centers and experience its newest green technologies. Coca-Cola (NYSE: KO  ) is promoting its Nestea brand in Second Life. Toyota (NYSE: TM  ) built a following for the Scion brand in Second Life. And Accenture (NYSE: ACN  ) attracts recruits via a careers island in Second Life.

"It's a very disruptive medium," Rosedale said during our lunch meeting in downtown San Francisco, near Linden's edgy, avant-garde headquarters, and within walking distance of the shore. The technology tells me he's right. Linden has had voice in Second Life since 2005 and is working to render expressions captured via webcam in avatars.

This is your brain on Second Life
Rosedale's argument is fascinating -- that traditional teleconferencing, or even Web conferencing from the likes of Cisco's (Nasdaq: CSCO  ) WebEx or Citrix's (Nasdaq: CTXS  ) GoToMeeting, can cook your brain because it expects to see a person rather than a speakerphone or a clunky video when it processes voice. That, he says, is why we so often stare at the handset when participating on a conference call, or imagine the face of the person we're speaking with.

Rosedale makes a similar argument for distance learning. I see his point. A presentation and a webcam might not engage the senses the way Second Life can. "What's the best way to learn a language? Immersion, right?" Right. And in Second Life, Rosedale says, residents can find instant immersion via its diverse population; it's easy to find a cafe where the primary clientele (and thereby language) is French.

But all this goodness comes with a dark side. Fears of a pyramid scheme led to a banking clampdown in January. And recent comments from Professor George Stein, director of the U.S. Air Force's Cyberspace and Information Operations Study Center, suggest that he thinks spying on avatars is not only ethical, but a legitimate strategy for covert action.

"Since these avatars aren't real people, the courts can't have too much of a problem with us spying on them," Stein said. "The sites also offer long-term opportunities for covert influencing activities." Talk about creepy.

I'll second that ...
Still, of the 18 companies and influencers my teammates and I at Motley Fool Rule Breakers visited in Silicon Valley, I'd vote Linden Lab as the most Foolish. Not only have Rosedale and his team built a high-growth, well-positioned business, but they've done it in a way that celebrates innovation and rewards risk-tasking. We're better investors for having made the visit.

Want a full report of what we learned from Rosedale and the others that we interviewed? The list includes venture capitalist guru Guy Kawasaki, Intel Chief Financial Officer Stacy Smith, and a start-up that has a legitimate chance to connect one billion people to the Web within the next few years. Sign up here and you'll receive all of our dispatches, free.

Fool contributor Tim Beyers had positions in IBM and Google shares and Google's 2010 LEAPs at the time of publication. Google is a Rule Breakers recommendation. Accenture, Coca-Cola, and Intel are Inside Value picks. The Fool's disclosure policy wonders: If cats had a virtual world, would it be called Tenth Life?


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 25, 2008, at 6:03 PM, TMFMileHigh wrote:

    Hi OctoberFaith. Thanks for writing. My apologies for confusing you. Mind if I ask where I went wrong in the article? Thanks, Tim (TMFMileHigh)

  • Report this Comment On October 26, 2008, at 11:41 AM, MorphixEnigma wrote:

    The issue I would take with this article is that the companies you mentioned that have set up shop in second life are doing so because they're afraid - afraid that this is an avenue they're going to miss out on. But they don't really understand what worlds like second life mean, or how to efficiently use them. And those corporate presences are DESPISED by the residents of the world. Vandalism of such entities is commonplace. Disruptive, maybe, but I'm not convinced that Linden Labs has figured out what to do with it.

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