Alternate Universe

Back in 1998, Rosedale simply hoped to create a vivid three-dimensional landscape in which graphic designers could create likenesses of their real-world ambitions—houses, cars, forests, anything one might find in a virtual game like EverQuest or World of Warcraft. Except Rosedale's creation wouldn't be a game: Second Life had no rules, no levels, no dragons to slay. It was open-ended, a digital landscape without regulations (much like the Internet in its early days). It was created on software that operates across multiple servers—a grid system that could easily grow to accommodate a large, far-flung community. A user in Germany could easily partner with a peer in Mexico to form their own mini-community inside Second Life, based on common interests—architectural designs, whatever. "It's basically Tom Friedman's flat world," says Philip Evans, an economist at Boston Consulting Group who studies the industry. "It's the globalization of the virtual world."

At first, it was a world with no rules. Rosedale's company, Linden Lab, oversaw the allotments of server space, which translates into virtual real estate, but imposed no controls over what went on inside the Garden of Eden it had created. A user's representation in Second Life—his avatar—would be bound by no social constraints. And anything could be built, as long as you could write good enough code. The first pioneers—graphic designers, for the most part—simply set up display spaces for their technological projects. Then small communities with common ideas and visions—much like an artistic community, say, in the real world—sprang up. Since then, cities have grown, with urban amenities from stores to clubs. Upon arrival, users are given the PC commands that enable them to move around (walk, run, fly), dress their avatar and communicate with others.

Newcomers agree to a list of several do's and don'ts, but within the communities they form, residents can impose their own codes of conduct. That laissez-faire attitude seems unsustainable—as Second Life expands, eventually Linden Lab will have to figure out a way to deal with the darker elements. In one of the first troublesome incidents, residents reported last year that "gangs" were forcing avatars out of public spaces. Rosedale declined to intervene, saying his hope was that residents would organize to police their own communities. They are currently doing so successfully, with rare exceptions like the recent alleged child-abuse incident.

For the moment, the social freedom is one of Second Life's big draws. One can teleport to a nightclub like Dublin, find a pristine beach on which to relax or start looking for business opportunities right away. Crowded urban streets are lined with clothing stores, car lots, supermarkets and nightclubs. Real estate is the hot moneymaking market, with "islands"— private invitation-only plots of Second Life land—selling for as much as $1,650.

Real-world entrepreneurs and businesses sense the opportunity. With its large, densely settled population, which allows for division of labor, and citizens universally armed with ownership rights and the tools to produce just about anything, Second Life is in some ways the ideal free market. Consider 40-year-old Peter Lokke. Toiling away as a department manager at a Pathmark supermarket, the New York native had dreamed of opening his own design business, but "never pushed myself to get into it professionally." Two and a half years ago, a friend urged him to chase his goals in Second Life. So Lokke paid $230 to Linden Lab to buy a 375-square-meter plot of Second Life land, and opened up his own clothing shop.

Today his avatar—a woman, incidentally—earns nearly $300 a day selling clothing he designs for users to drag and drop onto their avatars—twice what Lokke earned at the supermarket. As for the clothes, he can make "infinite copies of anything." Once he's designed a T shirt, he can make millions of replicas at no additional cost. "My supply is limitless," he says. "There's no bottom line. The costs are only what I pay Linden Lab."

Linden Lab's "no control" policy allows for any income made inside Second Life (the virtual world's currency is the Linden dollar) to be cashed out through the company into U.S. dollars—even deposited directly into your checking account (at an exchange that has remained fairly stable at about 270 Linden dollars per U.S. dollar). A product created in Second Life can also be sold outside it—on eBay, for example, a private island was recently listed for $1,395.

And unlike, say, Sony, which owns the rights to anything created in EverQuest, Linden Lab has relinquished all intellectual-property rights to creations in its world, spurring entrepreneurship. Roughly 90 percent of Second Life's content is created by the users themselves—Linden Lab built the basic architecture, like "Orientation Island," where users first create their avatar and learn about Second Life. Indeed, the barriers to entry and to commerce are so low, it is hard to imagine a more ideal business environment for entrepreneurs, which may prove to be the biggest driver of Second Life's growth. Lokke is so hooked, he says, "I'd rather panhandle on the street than leave Second Life."