Participants at the "Web 2.0 to Web 3-D" panel at South by Southwest on Monday talked quite a lot about how Web 2.0 is participatory, but virtual worlds like World of Warcraft or Second Life are immersive. That sounds like a lot of marketing baloney unless you've actually been active in a virtual world. Sure, it's engaging to be involved in a Web 2.0 site like Twitter or Digg. But, when you're active on a virtual world, your attention is fully consumed in the experience, and the real world just falls away.

The world doesn't have to be three-dimensional, said a couple of panelists, which is ironic, given the name of the panel. "I probably never had a more immersive experience than when I was playing text-based MUDs," said panelist Susan Wu, of venture capital firm Charles River Ventures. Wu is former chief marketing officer of the Apache Software Foundation. MUDs, or Multi-User Dungeons, are virtual worlds where users write text descriptions of their avatars and surroundings. They peaked in popularity in the very early '90s, before the Web hit. Wu displayed a slide of a screen capture of a MUD--it was ridiculously crude compared with the Web, just white letters on the black background of a command-line user interface. And yet the text was enough to pull the user into the world, said Wu.

Indeed, a three-dimensional interface adds complications compared with 2-D, said Robin Hunicke, a lead designer for Electronic Arts who was a developer for MySims, a brand-new virtual world developed for the Nintendo Wii and Nintendo DS. 3-D worlds can add clutter to the user interface, compared with the relative simplicty of two-dimensional interfaces--and real life, she said.

Three-dimensional interfaces can be powerful, but there are other means of creating presence awareness, Hunicke said. Popular two-dimensional virtual worlds like Runescape, Club Penguin, and Webkinz boast millions of regular users.

Panelist Wagner James Au, who writes a blog about Second Life called New World Notes, described several virtual worlds springing up to combine Web 2.0 sites, like MySpace, with virtual worlds like World of Warcraft and Second Life. Rupture.com allows users to create MySpace-like pages linked to their World of Warcraft avatars, and then link to other Rupture pages for the people they know in WoW. Cyworld, in South Korea, boasts 18 million users, with 90% of the South Korean under-30 population logging in on a daily basis. SLateIt provides a Digg-like interface to help users find interesting areas in Second Life. And the Twitter blogging tool is taking Second Life (and South by Southwest) by storm, Au said.

Virtual worlds are easy to underestimate because they're currently in the early stages of geometric growth, said panelist Robert Scoble,, a blogger and executive at PodTech, a podcasting and videoblogging vendor. "If I could sell you a magic penny for a million dollars that doubled every day for a month, would you buy it?" he said. "You should, because at the end of the month it would be worth more than $5 million. But at the beginning of the month, when the penny goes from one penny to two pennies to four pennies to eight pennies, people think it's stupid." Likewise, Second Life is still relatively small, with only 200,000 or so regular users, but it's growing fast.

Second Life benefits from a business environment which allows users to modify the world extensively, and keep, and profit from, their virtual property, Scoble said. Many users are driven away from Second Life at first, because it's hard to learn to use. "I think what will drag them back is the business model," he said.

Hunicke agreed, saying games are strongest when the player is the designer, less so when the player builds everything. MySims will allow users to build objects and homes out of in-world building blocks.

Scalability is another strength to Second Life, Scoble said. Each "island" runs on a Linux blade server, which lets the service grow outward easily, by adding more servers to add more islands. However, it doesn't scale up so well--each island is limited to about 50 simultaneous users, which restricts many of the possible compelling experiencs requiring big virtual crowds. But Outback Online, a new virtual world being developed in Australia, has the potential to beat Second Life at vertical scalability, with a peer-to-peer architecture that vendor Yoick claims will support up to 10,000 users on each island.