Eight questions to ask before doing business in a virtual world

Most companies haven’t developed a good virtual world strategy

IBM has a sales center in Second Life, Toyota uses virtual worlds targeted at children to influence their future car-buying decisions, and many other companies throughout the real world are asking if virtual worlds are right for them.

Yet few organizations actually have good strategies for dealing with virtual worlds, which present both new opportunities and risks.

"Virtual worlds are emerging fast on the business landscape, but few companies have developed a strategy to deal with them," says a recent report from the Conference Board, a research group known for the Consumer Confidence Index.

Gartner has warned that use of virtual worlds raises new IT-related security risks and potential confidentiality problems. IBM employees who work in Second Life and other virtual online worlds have reportedly been issued instructions not to discriminate or harass others, or share intellectual property with people who aren't supposed to see it. IBM has also told its employees that "avatars" -- the images that represent users online -- should have appropriate appearances for doing business.

IBM and Linden Lab, creator of Second Life, are beginning to develop open-standards based technologies and methodologies to make virtual worlds more business-friendly.

In the meantime, there are eight questions any business manager should ask before deciding to use a virtual world, according to the Conference Board report, written by council manager Edward M. Roche. Here are Roche's key questions to ask:

1. What is your entry strategy? The key is to complete a competitive analysis focusing on what your rivals are up to. There are a few reasons companies are entering virtual worlds today: to get the first-mover advantage, similar to how eBay has dominated the online auction market; out of competitive necessity; for research and development experimentation; and to achieve 24/7 operations.

2. What is the corporate purpose? Most early corporate implementations are mostly about staking out a claim to show that the business has a presence in the virtual world. After that it can be used for a number of purposes from advertising and virtual commerce to customer service and collaboration.

3. Do you plan to offer virtual products? Virtual worlds offer an opportunity to completely rethink your product and service offerings. You can use virtual worlds to promote and sell existing products, or develop completely new "virtual" offerings. Virtual products and services thriving today include entertainment, virtual "objects" like clothing or effects for avatars, and rental of virtual property.

4. Who is in charge? The Reuters news service has a Second Life Bureau Chief. It's unlikely your company will have a virtual worlds department or vice president, but someone should take the lead. This could be an interdepartmental committee, the sales and marketing team or the group running your corporate Web site.

5. Which virtual worlds will you use? You might choose Second Life because it's the most popular virtual world, or take a portfolio approach by developing in several virtual worlds at once. Things to think about are whether you want a public or private world; visitor demographics; and the rules of each world, such as whether it uses currency.

6. How much will it cost? The major expenses include determining design and functional requirements; building and maintenance; hosting; and systems integration.

7. What is your revenue model? Figuring out how to recoup one's investment in a virtual world is difficult today. But there are many ways to justify the expense: It could come out of the budgets for advertising, sales and marketing, customer and market research, or research and development. Virtual worlds can also be used for internal training (pay for it out of the human resources budget). If you're selling new products and services, consider the virtual world a factor in manufacturing and provisioning expenses.

8. Is IT up to the job? IT can sometimes be resistant to change, and with virtual worlds they'll have to face numerous challenges, such as lack of personnel, security and linkages to production databases. "Ultimately, IT can be counted on to get the job done," Roche writes. "Just budget the money and get out of the way."

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