Entrepreneur Tackles Virtual Wild West

By Brain Brus

The Journal Record

Norman computer-tech entrepreneur Kyle Machulis slowly pedaled his sleek gray car to the front of his office. After he works the bugs out, he hopes to sell the pedal-driven technology to thousands of others so they can travel anywhere in the world by bike, car, plane and jet pack, he said.

"It would work for treadmills, too," he said, clicking on the car and putting it back in his inventory directory. "It's just a matter of adjusting some connections. … I'm working on making the speed representational of your pedaling effort as well, because right now you move at a consistent crawl."

Machulis is an entrepreneur in the virtual Wild West, looking to exchange his computer savvy for real cash in a newly developing economy that exists somewhere between the keyboard and his wallet.

He has been working for several months on an alternative movement interface for use in the Second Life online environment where tens of thousands of people regularly log in to chat with each other, and more: By way of avatars - three-dimensional representations of physical bodies - they build and rent virtual apartments, buy fancy outfits for virtual dates at avatar-run dance clubs, and barter for a wide variety of in-world resources. Some users, like Machulis, invest a lot of energy in creating new applications to sell to other users' avatars.

In other online game environments similar transactions are taking place for swords, platinum coins, jet packs, armor and even pure adventuring experience. Hundreds of dollars at a time, millions per year.

Although the environment may only exist in the electron interplay of the Internet, the money exchanging hands has tangible value.

Money for nothing?

At the beginning of the business day on Oct. 24, a single U.S. dollar was worth 177 Second Life dollars, or Lindens, on the LindeX exchange operated by San Francisco-based Linden Lab. At the Internet Gaming Entertainment Ltd. Web site, a third-party exchange registered out of Hong Kong, a trader could sell a minimum of L$5,000 for U.S.$18.50. At AnsheChung.com, named for the Second Life land baroness who lives in real-world Germany, the trade rate was L$5,000 for U.S.$20.99.

So if Machulis were to put his product on the Second Life open market and sell it for, say, L$500 per application, he might be able to turn it around for U.S. $2.60 - minus transaction fees.

The secret is in mass consumerism. The annual Gross Domestic Product in SL is worth more than U.S. $2 million, said Linden Lab spokeswoman Catherine Smith. Chung herself could sell off all her SL holdings and cash out for a total of about U.S. $80,000. A popular Oregon SL clothing designer known by the online alias of Munchflower Zaius puts in about 40 hours a week of real-world work to earn a high five-figure real cash income through the SL environment.

"When Linden Lab created Second Life, the idea was to create a world or place where people could create their own destiny," Smith said. "An economy, based on Linden dollars, was part of that concept. We began to see people taking off with their ideas and at one point, near the end of 2003, we gave users the intellectual property rights to own their own content. Whatever they created was theirs. We thought that if we gave people ownership, they'd be more involved and invested in the world and innovate."

That's exactly what happened in the case of an SL user who goes by the name Kermitt Quirk out of Australia. By working within the computer code that makes SL possible, he developed a game for avatars to play called Tringo. The game proved so popular in SL - other player/avatars were buying copies at L$15,000 each to host tournaments and make their own profits - that Quirk took the concept to a real-world media company, Donner Wood. It was then licensed as a GameBoy Advance gaming system and is expected to be released later this year.

Machulis, who operates out of Nonpolynomial Labs in both Norman and a representational office in SL, hasn't yet figured out his marketing strategy or sale price for his pedaling product. By attaching a standard exercise bicycle data output to a computer keyboard, Machulis can move his avatar or avie-driven vehicle across the SL virtual terrain - over digitally rendered mountains, rivers, sand dunes. Similar products are already sold for other game or exercise systems, so he knows it's marketable. Machulis was mesmerized by the SL potential.

"You really can do almost anything you want here," he said, pointing at his gravity-defying SL lab on the computer screen. "Sooner or later, someone's going to do this. It might as well be me."

Sweat it out

In a dark room in The Village, warriors are swinging blood-stained swords and dodging magic spells. If Mike Fernandez's character survives the current onslaught - and he probably will, given Fernandez's gaming experience at the keyboard - he could probably sell it on e-Bay for a few hundred dollars.

"I've been able to sell some of my stuff for cash every so often. I sold an Everquest character for $670," the Oklahoma City Community College student said as he checked on a friend's progress at another terminal at the Cyber Quest center on N. May Avenue. "Sometimes it gets to the point where the monetary value isn't worth as much, because the prices fluctuate. I think right now the WoW (World of Warcraft) exchange rate is $10 for 100 gold. It goes up and down a lot. If there's too much on a server, the prices will drop. There is an actual market for it.

"It's there, sort of like gas prices going up and down, and you deal with it," he said.

Fernandez is a regular customer at Cyber Quest, a LAN gaming center owned and operated by Mike Lewis. Fernandez plays for hours a day, often forming teams with other highly skilled gamers in what Lewis called "one of the highest-quality centers in the Southwest."

Fernandez has no desire to turn his hobby into a profit-making venture - "Sometimes it's fun and sometimes it's really boring, kind of like work. … You could do it professionally, but I wouldn't rely on it. It would take too much effort."

Lewis has done his own share of gaming, and he holds some disdain for professional sword-hackers who are only online to "farm" easy monsters for experience and gold coins. Unlike Second Life, most massively multiplayer online role-playing games, or MMORPGs, have a combat goal involving character advancement and increasingly difficult challenges. To reach the most interesting parts of a game, a character has to be pretty powerful. And that takes hundreds of hours of time others are willing to pay for.

For example, one U.S.-based company, Gamersloot.net, has dozens of workers in Romania playing online games 10 hours a day for low wages, The Observer recently reported. Other industry insiders said virtual sweatshops have been established in China and other parts of the world.

On IGE's exchange or e-Bay's auction sites, a fully developed superhero in City of Heroes can sell for as much as $799; likewise for a World of Warcraft paladin or Star Wars Galaxies Jedi knight.

Lewis is reluctant to go pro for other reasons, however.

"Sure, you could get away with it, but you run the risk of having your shop shut down," he said. "Because you have to deal with tax issues. … I have to report anything I sell, and honestly, I'm not sure how that would work out.

"And then you've got the issue of how the gaming industry will try to clamp down on that sort of behavior, because right now they want to collect as many licensing fees as they can." Lewis waved his hand at the dozens of computer terminals in his shop. "Counterstrike is the most popular game in the world, and last year I bought 30 licenses so we could play it here. … You've got to be very careful that you don't give them an excuse to tap into other revenue streams."

Cyber-future

Pedaling across Second Life's landscape, a user's avatar will find countless opportunities to spend Linden dollars on intricately designed jewelry, tracts of virtual land, and furniture and art for their abodes, all designed by other users, some with big entrepreneurial dreams.

They can also buy short programs called scripts that cause avatars to act in a certain way, vehicles that envelope an avatar and allow quirky movement modes, and objects called pose balls that allow avatar-to-avatar body interaction. That last class of computer code product includes many sexual animations - made even more graphic by the purchase of virtual genitals that can be worn by avatars. Then there are other users selling their own services through avatar representation, usually referring to themselves as "escorts" for the most personal service or simply chatting for tips while performing suggestively on a virtual stage with dance scripts.

Second Life has rules about "mature" areas and aggressive play, and even a virtual police blotter that shows the results of investigations from user complaints. But in many ways, "it's like the Wild West; it can be almost anything you want it to be," Linden spokeswoman Smith said.

In one of the tamer SL zones, Connie Mableson set up shop of another type to address another aspect of the virtual frontier. The Phoenix attorney has arranged a Greek forum-like resource center to help other Second Lifers understand their rights to intellectual properties on the Internet. One of her pavilions will include a gallery of SL brands and logos for review by other entrepreneurs.

"The biggest issue in the virtual world is going to be the definition of what is property," Mableson said in a telephone interview. "Some would argue that in dealing with intellectual property, which protects what a mind can create, there should be an expanded class of property rights. Obviously, real-world objects like your car are property. Should that concept be extended to how you manipulate the digital world? If you design or buy a virtual couch, should you have rights to that couch as property?"

Mableson was working on issues of cyber-law before the Internet had spawned the World Wide Web. The clients who kicked off her career are infamous, even if most people don't recognize their names: Martha Siegel and Lawrence Cantor, the world's first e-mail spammers. In 1994, Siegel and Cantor, who are attorneys as well, sent out a message to about 6,000 newsgroups on the fledgling Internet offering assistance in obtaining U.S. green cards for anyone who replied. Although Cantor and Siegel got plenty of business from the solicitation, to the point of being kicked off their Internet service provider, they also received thousands of angry e-mails. Other entrepreneurs soon followed in their footsteps.

"The Internet was supposed to be about the free flow of information, not commercialization," Mableson said. "The profit motive was very limited.

"There was really no legal advice to give at the time, because no one knew what to do about the issue. I helped them with the aftereffects, and I ended up representing them shortly thereafter on a matter of Internet trademark infringement," she said.

Mableson said that ethically she cannot give legal advice in the virtual world; her SL site is for information purposes only.

She also mentioned another SL user who is trying to establish a "stock market" to track and invest in companies operating out of SL. Mableson has been discussing SEC issues with the man because technically everything in SL is a security: an investment of money in a common enterprise for the expectation of profit derived by the effort of another. The user in question, who she asked to not identify, has already been in contact with securities attorneys about potential liabilities, she said.

"The thinking there is that this is a game or amusement. … He's saying there are no real securities being sold; we're dealing in funny-money Lindens. If you're playing Monopoly, for example, and you want more money, you go out and buy a pack of Monopoly dollars."

But usually that Monopoly money can't be sold back for real cash, she said. The casino concept might be a closer fit, because players can cash-out their tokens at the end of the day.

"There are no cases on this, nothing not even close to this. … It will be interesting to see how this plays out," she said. "It's mind-boggling."

Brian Brus reports on metro area government, finance, agriculture and other issues. You may reach him by phone at 278-2837 or by e-mail, brian.brus@journalrecord.com.