Digital Suburbia
by Reena Jana and Aili McConnon

Kaneva aims to bring social networking to a relatively cautious, upscale crowd more interested in making real-world connection than in building fantasies online

One recent evening, Amanda Rains, a mother of two college-age boys and the owner of 9mm Books, a small publishing company in San Francisco, was watching a streaming video of a Fox News (NWS) report on her computer. She was mesmerized by an interview with Christopher Klaus, who was talking about his new company, Kaneva. The concept behind Kaneva, Klaus told the interviewer, is a 3D virtual world that parallels reality and provides a social-networking tool for establishing real-world relationships.

Kaneva is part of a new crop of user-friendly virtual worlds. These digital communities, created by such companies as Multiverse, There.com, and Sony PlayStation Home (SNE) (due in the fall), are threatening to challenge Second Life's dominance of the category. Think of Kaneva as Second Life meets MySpace, with a dash of Match.com thrown in—aimed not at tech-savvy teens but at a mainstream audience. Like Amanda Rains.

Networking for Grown-Ups

The interview inspired Rains, who had never visited a virtual world or heard of Second Life, to create an art gallery within Klaus's 3D environment. (Klaus has been offering free accounts for beta testers since March, 2007.)

Rains hoped to build a national, even global, audience for her small business. So she set up a virtual storefront to point visitors toward the real-world Web site for her publishing company, which specializes in artists' books, and its affiliate, an exhibition space called Shooting Gallery.

On Apr. 6, Rains' digital gallery opened for business, showcasing images from the work of Niagara, an artist she publishes. The real-life paintings go for between $1,800 and $4,500. Rains hosted small crowds of avatars—or virtual alter egos—including potential art collectors from Oregon, New Jersey, and even Belgium, just as digital doppelgangers socialize and sell goods within Second Life.

Rains hasn't sold any paintings yet, but her desire to build awareness for her small business has been fulfilled. She has a list of friends she met in Kaneva and keeps up with them via the site—as users do on MySpace. She even has an "e-boyfriend," as she calls her online companion, whom she met in Kaneva, Match.com-style.

Rains is just the type of customer that Klaus hopes to lure—a newbie who has never played online games or visited a virtual world. He wants to attract large, mainstream audiences via easy-to-use, avatar- and environment-design tools, graphics that load quickly, and safety features to keep out cybercriminals who lurk in Second Life, such as stalkers and vandals. In real estate terms, Kaneva is the suburbs to Second Life's more urban sensibilities.

And people are starting to move in. Rains is among 150,000-plus beta users. That's up from 115,000 in March, 2006, and nearly double the 80,000 users in December, 2005. Klaus won't say when Kaneva will officially launch.

Kaneva is generating some early buzz thanks to its focus on social networking and security. Like MySpace, Kaneva allows for friend requests, comments, e-mail among members, and profiles. And as in Second Life, Kaneva offers animated characters that users design and manipulate through onscreen environments in real time.

Users can also upload music, images, and video and play streaming media within virtual environments. A YouTube-like feature will be added too, once video capabilities are built in, says Klaus.

Kaneva is a world with lots of adult supervision The entire environment is aesthetically controlled by Kaneva's software—users can't design their own buildings, clothing, or vehicles from scratch or hire a developer to design virtual products.

In Kaneva, people choose an existing design for their virtual apartment and human avatars. In Second Life, residents can buy islands and create wacky avatars with, say, a rabbit's head and exaggerated anatomy who only wears tutus and gets around in a boat with wings.

A Stable Backdrop for Branding

"In Second Life, you're encouraged to explore an alternative universe," says Klaus. "We're trying to keep within human boundaries, and get you into that world where 'first life' isn't separate from 'second life.'"

In Klaus' virtual world, dragons, aliens, and castles are not allowed. The idea is to create a Norman Rockwell setting that is seen as stable and safe by big-brand companies that want to promote their products without worrying that the medium may be too uncontrollable or chaotic.

How will Kaneva make money? Klaus says brand sponsorship of digital products is one potential source of revenue. The company may charge users who want to upgrade the free apartments, furniture, and avatar clothes that Kaneva offers.

And then there's a licensing opportunity. Currently, Kaneva gives away its software to companies that want to build customized virtual worlds. To date there have been 40,000 downloads of the software. Klaus won't disclose what companies are using it.

It's no surprise that Klaus would want Kaneva to offer a secure environment. After all, he founded Internet Security Systems in 1994, while a student at Georgia Tech. IBM (IBM) bought the computer security company for $1.3 billion last year, providing Klaus, the largest shareholder, with plenty of seed capital for Kaneva. (Klaus donated $15 million to his alma mater.)

A lifelong gamer, Klaus says playing Pac-Man as a kid inspired him to study computer science. Now he's applying his knowledge of online security to his first game creation. For example, users will be able to block unwanted avatars from their virtual apartment.

Another safety measure is built into the underlying infrastructure of the world. When a user signs on, his or her apartment apans want restrictions. Edward Castronova, a telecommunications professor pears onscreen. When the user sign off, the apartment disappears, so others can't wander through or hack into it. This feature also puts less strain on the server—a dilemma that causes Second Life sporadically to freeze.

Virtual Worlds for Every Taste

Of course, not all virtual-world fat Indiana University and author of Synthetic Worlds: The Business and Culture of Online Games believes such a sterile environment can dampen the fun and creativity of virtual worlds. Castronova, who regularly visits these online parallel universes, opted for Multiverse over Kaneva because it provides the software tools for users to create their own 3D digital environments.

Castronova is creating a Shakespearean world called Arden, where users can wander around in 17th century regalia and learn about Shakespeare and medieval history. "There is a lot of latent human desire to build little things for people to visit, like kids playing with cardboard boxes," Castronova says. "Think of the 1920s film world, when only a big movie company could make a film. Now anyone can make a home video or Web video. The same thing will happen increasingly with virtual worlds."

Nor is Kaneva the first to company offer an alternative to Second Life that merges social networking with a 3D online universe. There's Cyworld, which originated in Korea but now has an American version—although its graphics are more cartoonish than Kaneva or Second Life.

And Linden Lab, the company behind Second Life, is constantly launching new applications to keep fans loyal to the virtual world—and attract more residents. For example, Linden Lab recently introduced a sound feature that allows residents' voices to be heard within the virtual world, with the intriguing detail of fading out at a distance or growing louder as an avatar moves closer.

Kaneva is a work in progress. Although the 3D avatars look eerily similar to those in Second Life, some of the animation isn't quite as sophisticated.

For example, avatars can't sit in a chair in the current beta version—although most users add chairs and sofas within their free virtual apartments. But Klaus says Kaneva should be finished with an animation system upgrade by early May.

Expect more stores like Amanda Rains's online gallery to pop up, too. Right now, Kaneva manages all the stores on its site. Klaus plans to let more users start their own retail outlets.

But don't expect Klaus to let people build whatever they feel like. "We will have boundaries on that," he says. "We're like a zoning board."

Jana is a writer with BusinessWeek.com in New York. McConnon is a correspondent for BusinessWeek in New York.