Is There A Business In The Virtual World?

Much has been made of the premature obituaries for Second Life, but while the virtual world manufactured by Linden Labs has prevailed long beyond its presumed expiration date, the business model seems too arcane and forbidding to inspire many imitators.After all, a business that depends on writing dauntingly complex code running on giant server farms to lure users to a bandwidth-hogging digitized playscape where they can flirt or do business -- all in the hopes that they will purchase so-called "in-world" Linden Dollars using actual American dollars for the privilege of purchasing pink see-through blouses and imaginary islands -- is a little bit daunting to say the least.

Then there's IMVU. The idea is similar -- create a destination where users can create virtual doppelgangers of themselves, interact with other strangers in digital costumes and purchase virtual goods from each other.

But IMVU also features a number of differences: its virtual world is less rich and therefore less demanding for users to navigate (and less resource-hungry) than other virtual worlds. It's also a lot smaller. The site, which also caters to young, predominantly female adults, has 40 million registered users and approximately 6 million unique visitors per month. But while tiny compared to Second Life or World of Warcraft, it dominates the young adult (15-25 year old) market with more than 40 percent share, said Cary Rosenzweig, the company's CEO.

The company has raised $30 million in venture capital. Rosenzweig, told me that the company has a $25 million annualized run rate and is profitable. But maybe the surest sign that the idea is working, according to Rosenzweig: "we have a broad and active community of developers" who have contributed to the catalog of some 3 million virtual items for sale, which are paid for using credits that customers purchase, either from IMVU itself, or from some of the developers. In fact, selling credits to users is the only way developers get income from the site.

IMVU sells its customers credits for approximately $1 per thousand, but customers can also buy them more cheaply from the developers, who sell them virtual goods like eyelashes, cummerbunds and flowers. (Somewhere between a quarter and a third of all purchases are for virtual gifts. Aw!)

Rosenzweig told me that dozens of developers are making a living through the sale of virtual goods. "We're like eBay in that we introduce buyers and sellers of virtual goods," he said.

Like eBay? Well, not quite. But one thing is clear: the most recent baby boomlet means there will be a steady stream of fresh young adults looking for virtual escapism; as long as IMVU maintains its strict privacy guidelines (which Rosenzweig swears it will) and unblemished safety record, I see many more 3D strappy sandals in its future.