A penguin has been showing up at Cisco's public events lately. Attentive and civil, it never causes a disturbance, but sits quietly on a seat and listens courteously to the presentation on routers, or optical networking, or IOS software, or whatever the topic of the day happens to be. Although the only one of its species in the room -- everyone else is human, although some are rather eccentrically dressed -- no one gives it a second look.

Welcome to Cisco's headquarters on Second Life, the immersive technology platform that is the ultimate enabler of personal fantasy. Originally the stomping ground of gamers and technical hipsters, the four-year-old 3-D virtual world has lately taken on some of the blander characteristics of the Mall of America. Companies from Toyota to Dell, Sears, Adidas, IBM and Circuit City have all established bulkheads there. And depending on your point of view, you could consider this influx of brands the exciting precursor of how we'll be conducting business in coming decades -- or the ultimate exercise in corporate flat-footed dunderheadedness.

"What the useful application will be for business is the million dollar question," says Bob Moore, a member of the research staff at the Computing Science Laboratory at Xerox Palo Alto Research Center (PARC), who studies virtual worlds. "A lot of it is just plain hype. We see corporations are excited about it -- just as we were excited when we first discovered it -- but the jury is still out about the real business value."

"There's been a lot of breathless virtual-dog-bites-virtual-man coverage in the media," says Edward Castronova, a professor at Indiana University, and head of the school's Synthetic Worlds Initiative. "However, once we get past that kind of hype, then things could start getting really interesting."

Grand Plans, Negligible Results
If you've read the press releases of the companies that have entered Second Life, you'll have already heard the rather grandiose predictions how some of the biggest design, marketing and sales challenges in the real world are about to be solved by the virtual one.

Having trouble understanding what your customers really want in a pair of jeans? Let them design them personally! Ditto a car. Or a new kitchen. Want to increase brand awareness? Open a storefront where shoppers can virtually browse your products, "engage" with them, and become more loyal! Hope to convert browsing into real dollars? Enable a link that sends them to your Web site where they can hand over their credit cards!

It sounds good. The problem is that none of this is happening. The virtual stores are empty. The design simulations are kludgy -- and represent the ultimate exercise in pointless boredom for users who want to indulge their ultimate fantasies, not decide between olive green and stainless steel for a new refrigerator.

And about designing those clothes -- or shoes, or cars, or furniture -- that can then be translated into real world products and sold: this is an unlikely prospect in a world where people are not particularly interested in creating faithful representations of their real lives.

"It remains to be seen if boring convention will take over from escapism, and whether the two can coexist, much less result in real-world results," says Steve Prentice, distinguished analyst and chief of research for the Gartner Group.

"It's definitely not yet a mature commercial environment," says Joel Greenberg, senior planner with advertising agency GSD&M, which handles major accounts for AT&T, Chili's, Southwestern Airlines and Norwegian Cruise Lines. "Your ROI isn't going to be based upon sales, but on other factors." Indeed, although personally a strong believer in the business possibilities of Second Life, Greenberg has yet to interest any of GSD&M's major accounts in establishing Second Life sites. "They are both confused and resistant," Greenberg admits. "There's the fact that they simply don't know what it is. Then they don't like the relatively small audience -- they're used to being mass advertisers, not marketers to limited communities -- and there's a fundamental difference in that approach."

Nothing New Under The Purple Sun
The earliest computer-generated virtual worlds were little more than Web chat rooms where communities of like-minded individuals could gather and interact according to mutually agreed-upon rules. And despite all the coverage in the mainstream press about the "newness" of these environments, Lucasfilm Games' Habitat -- generally credited with being the pioneer of online virtual worlds -- appeared on the scene more than 20 years ago for the Commodore 64.

Indeed, virtual worlds have been around too long for the Gartner Group to conventionally track them according to its hype cycle, says Prentice. Ordinarily, Gartner classifies the lifecycle of emerging technologies as they progress from the over-the-top enthusiasm and subsequent disappointment phases toward a "plateau of productivity" where they are finally relevant for mainstream business.

Still, "the buzz about Second Life and other virtual worlds is rising up toward a peak of sorts," says Prentice. And although there might be some backlash after that peak is attained, "I truly believe that eventually the technology will find its footing in the business world," he says.

Disquieting Emptiness
It's 3 p.m. Pacific time on a Saturday afternoon, and the Toyota car showroom is deserted. Not a customer -- or salesperson -- in sight. At a time when auto dealerships in the real world would be hopping, no one has bothered to show up to take a virtual Scion for a spin.

At the Reebok store, there's much the same disquieting emptiness. Neat stacks of shoeboxes are displayed in the center of the football field-sized room. Oversized posters that scream the Reebok brand line the walls. But aside from a horned creature who flies in for a moment, looks around, flicks his long tail and leaves, this hall of virtual commerce is devoid of activity.

Indeed, Linden Lab's own traffic counter shows abysmal records for the corporate sites. Reebok's total traffic is just 741. The Sears store created in partnership with IBM: 964. The Toyota showroom tops the corporate destinations at 1,955. By contrast, Second Life's Elements Lounge -- one of the more popular sites -- has seen traffic of 133,217.

Although by the end of January 2007 nearly 3 million "residents" had registered for Second Life, the blogosphere hotly debated the relevance of that number, as one person can create multiple avatars. At any given time only between 10,000 to 25,000 avatars are in the world. And of all the people who sign up for Second Life, only about 10 percent bother to return to become permanent members of the community, according to the world's creator, Linden Lab.

"Compare these numbers to popular multi-player games like World of Warcraft, where between 33 percent to 40 percent of its 8 million users are online at any given time, and you start to get a sense of how sparsely populated Second Life is," says Castronova. "If you applied the benchmarks of other multi-user role-playing games to Second Life, then more than 800,000 residents should be online at any given time. There's nothing near that happening."

"It's a big space, and there aren't a lot of people there at once. It can be a very lonely experience," agrees Nicholas Ducheneaut, a researcher into virtual worlds at Xerox PARC. "And you really have to wonder whether these big companies are putting the cart before the horse: they're hoping to get attention, and perhaps even sell their products, yet their stores are empty."

A major challenge is figuring out a way to adequately measure success in virtual worlds. Simply measuring foot -- or flight -- traffic alone isn't adequate. After all, a conventional Web site can benefit from the "long tail" phenomenon: although not getting a lot of traffic at any given time, the total number of hits eventually adds up to significant numbers.

"That's simply not a useful metric in Second Life," says Giff Constable, vice president of the Electric Sheep Company, which developed the Reuters and Starwood Hotels virtual properties. Since an essential aspect of the Second Life experience is the interactivity -- both with objects in the world, and with other users -- simply recording how many avatars showed up for a look and then teleported away is meaningless.

Traffic would have to go far beyond just the number of people who came to your site, but include how long they spent there, what they do, what they look at and who they interact with. Some measure of the community aspect of the experience will have to be measured as well, says Constable. "The Web is a solo experience. Second Life is a shared one, and the metrics have to reflect that."

What We Have Here Is An Attempt To Communicate
Echoing virtual retail halls notwithstanding, initial attempts to use Second Life as a communication and collaboration platform look promising.

Cisco, which entered Second Life in December 2006, is testing the waters by doing executive briefings, technical support and product training in its virtual campus there. "We're basically extending our use of existing technologies for interacting with customers into Second Life," says Christian Renaud, senior manager of business development for the Cisco Tech Center, which is the firm's technology scouting and incubator research group. "We're finding it extremely useful for communicating and collaborating in a way that you simply couldn't do over the telephone, or using the Web, or through a combination of the two."

A case in point: Renaud is based in rural Iowa. One day in mid-January, when an ice storm had shut down the physical region, Renaud went for an early morning walk in the Cisco Second Life campus. Recognizing him by the oversized name tag that hangs above the head of all Second Life avatars, two customers stopped him and quizzed him about a recent Cisco announcement. "We had a very productive 'serendipitous' chat, just as you would around a real water cooler," says Renaud, who says such a meeting would be very difficult even in the real world. "If I were walking across our San Jose campus, they wouldn't have known who I was," he says. "And we would have missed an opportunity to get some valuable feedback."

Sun is in it for similar reasons. And according to Chris Mellisinos, CTO and chief gaming officer, Second Life does something critical that other technology communication platforms simply can't: it puts information in context.

"If I enter a Web chat room, I know that there are 45 people there, and I can read what they are saying and try to get a sense of what's going on," says Mellisinos. "But in Second Life, I can immediately see that there are three people at one end of the room, and 42 engrossed in conversation around an object at the other end. This gives me a great deal more information."

Melissinos agrees that the companies putting up virtual replicas of real-world stores are missing the point. "After my initial visit to a shoe store, how many virtual pairs of tennis shoes am I going to buy? How many times am I likely to come back? What's the chance I'll click through to the Web site and actually buy something in the real world? It seems that the opportunities lie in a different direction."

One thing that won't be resolved for some time: how to manage the relationship between the fantastic elements of virtual worlds and conventional business behavior, strategies and goals. Penguins show up at press conferences. Meetings are interrupted by virtual bombs or flying phalluses. People are in the world to indulge their fantasies, and indulge them they do.

Mellisinos' official Sun avatar is dressed like a character from Firefly, a western-themed sci-fi television show (now canceled). His costume comes complete with cowboy hat and gun holster. Is this a problem for his employer? Not one bit. "If I had a blue dress suit and tie on, I wouldn't be viewed very favorably by the Second Life community," says Mellisinos. "If you try and paint on that corporate face, you devalue your message, and basically announce that you are just using the space for PR. And the community doesn't like that."

Melissinos is an avid proponent of keeping the fantasy element in Second Life vibrant and alive. What happens if Sun implements an avatar dress code and takes his gun away? "I'm outta there," he says.

But some companies simply don't want to risk what could be a volatile mixture of corporate values and an anything-goes culture. They prefer to establish their virtual presences in safer environments.

There.com is such a safe virtual harbor. It is designed for a younger audience than Second Life; nearly 70 percent of its 600,000 registered users are between the ages of 13 and 26. The creator of the site, Makena Technologies, screens all content before it is allowed into the world, says Michael Wilson, CEO of Makena. "We're looking for two things: whether the content passes our 'fig leaf' test; and whether it infringes on anyone's intellectual property," says Wilson. "We have a lot of young kids coming into our world, and we don't want them panicked by anything they see."

This more structured approach to a fantasy world appealed to MTV, which established virtual versions of its popular Laguna Beach and The Hills television shows on There.com. "For many mainstream brands, it's very important that they not show up next to flying appendages," says Wilson. "They wouldn't like that at all."

sWells Fargo, which launched its Stagecoach Island virtual world in September 2005, is also concerned about presenting a safe and suitable environment, says Gina Fung, vice president of experiential marketing at Wells Fargo. Because Stagecoach Island targets younger people -- high school and college students -- "we have to be really thoughtful about providing an appropriate platform," she says.

Many believe that codes of behavior will develop naturally, where you will see communities forming just like in the real world: some safe and others more risqué.

"I was trained as a biologist, and most of what we're seeing behaviorally in Second Life is exactly what you would see in a closed isolated environment in real life," says Gartner's Prentice. "As the virtual world develops, there will be cultural stresses and strains and battles over resources, and the society will have to come to terms with how to regulate itself."

Community Spirit
On one point everyone agrees: any real-world business wanting to see any measure of success in Second Life is going to have to become part of -- and give freely to -- the community.

"Companies need to investigate before they jump in; put on their anthropologists' hats, try to understand what the community values, and how to give it to them," says Garrett French, a partner with Bold Interactive, a community marketing incubator. The first thing businesses must do: give up control, he says.

"You have to think of yourself as providing a kind of brand play dough, giving users the ability to manipulate your products and services according to how they fit within the community," says French. This idea can be very frightening for major brands that are used to tightly controlling their messaging, he says. "But it's the prerequisite for success."

"The question is, what utility are you adding for users that they can't get from a traditional Web site?" asks Greg Lastowka, a professor at the Rutgers School of Law, in Camden, N.J., who studies the legal and cultural relationships between virtual worlds and real life. "I don't see anything wrong with putting up virtual billboards or opening a virtual store in Second Life, but it comes down to -- just as it does on the Web, or in real life -- how do you want to spend your overall marketing and advertising dollars, and what's the payoff? If the Second Life community simply ignores your billboards, or your store, what's the point?"

"It's not just a case of build it and they will come," agrees Ben James, strategy director at Rivers Run Red, a virtual design firm. "You have to treat people as you would in the real world. Tease them, excite them, keep a dialogue with them and keep them interested. That doesn't mean simply building something and walking away -- the community doesn't like that."

Indeed, one of the most disconcerting aspects of wandering through the beautiful but vacant commercial spaces of Second Life is that none of the major companies has bothered to "staff" their virtual spaces. There are no avatars to greet you, show you around, answer your questions. Although theoretically these halls will eventually hum with users who will share their experiences with, say, a certain model car, or recommend a good book to read, right now the social part of the shopping experience -- which is supposedly what Second Life offers over the Web -- is completely lacking.

Hiring and training employees to act as avatars to greet and guide visitors is a logical next step for real-world businesses to take in their Second Life initiatives, says PARC's Ducheneaut. "But a major change of mindset is involved. To do this right, it will be extremely labor intensive," he says. "You need these spaces to be warm and welcoming; this means there have to be avatars there at all times, and real human beings behind those avatars. This will require a tremendous commitment of resources."

About the weirdly echoing halls of the virtual Sun Pavilion when there isn't an event happening, Melissinos did a nudge-nudge-wink-wink "no comment." "Let's just say it hasn't gone unnoticed," he says.

Back to that penguin. As it turns out, it is a prominent Second Life blogger who goes by the name of Nobody Fugazi. In real life he's a programmer -- hence his genuine interest in Cisco products. "He's very cool, very funny and we welcome him to our events," says Renaud. "He just likes representing himself as a penguin."

In spite of the state of uncertainty for companies in Second World, the risk of not getting into Second Life is much greater than the risk of jumping into it too soon, says Renaud. "We need to identify the hurdles as well as the opportunities, and start working on them now," he says.