Virtual reality as China commerce goes online

China is taking on the virtual online world of Second Life with its own creation, the China Cyber Recreation District, and the more tightly controlled virtual world may tempt many businesses, along with the 150 million estimated users by 2010. Haydn Shaughnessyreports

The virtual world of Second Life may be all the rage for now, but China has its own plans, backed by some serious business leaders, such as Rupert Murdoch.

By the time the crew of the Entropia Universe finished their whirlwind tour of the world's cyber discussion hotspots, the future of online commerce had substantially altered.

In Beijing, however, Entropia (owned by a Swedish company MindArk), Paynova, a Swedish online payments system, and the China Cyber Recreation District (CRD) presented the most ambitious project yet in the fast-developing area of virtual worlds.

The audience included the elite of global commerce, not least Rupert Murdoch, owner of enough media across the world to get their message out.

Their message is that China has arrived on the global internet scene and in a big way. Eschewing the plain old internet of websites, or the voguish internet of Web 2.0, China has gone straight for the virtual world as the environment of choice for trading with the rest of the real world and for opening up its own domestic markets.

"It could be quite, quite mind-blowing," says Sasha Frieze, who runs the Virtual Worlds Forum, a new think-tank analysing the impact of virtual worlds on society and commerce.

"It is potentially a world-changing project. China, along with Brazil, Russia and India, are developing faster than any other economy and this is a way of capitalising on that growth."

Between now and the end of 2010, the CRD, with the help of partners MindArk and Paynova, intends to bring 150 million middle-class Chinese people and companies into the virtual internet.

"That's a kind of conservative estimate," says Robert Lai, chief scientist at the CRD. Will it change the world of commerce? "We want not to say too much about that," he says. "We want to be humble, but the word virtual in English is an interesting one. The virtual is also real. It will change the world of commerce but for now people don't want to accept this or to believe China can do this in such a short time."

To understand the CRD project and its potential impact requires a brief diversion. At present there is one very well known virtual world. It is called Second Life, it has 10 million members and, apart from some rudimentary commercial transactions, it is used mostly as a meeting place.

Many of the developed world's largest companies currently use Second Life. These include Diageo, BMW, IBM and many more blue-chip names.

"We're fundamentally looking at it as an extension of the office," says Dele Atande, global digital marketing business partner at Diageo. "The real story is collaboration and new ways of working." That is something of a mantra among the large western companies. Enter China with a plan to turn virtual worlds into transactional markets.

Alongside the well-known Second Life, there are between 13 and 15 other virtual worlds, depending on when you count.

One of the best established is CRD's partner Entropia Universe. Entropia has only 600,000 members after four years of existence, compared with Second Life's 10 million. It has the distinction, though, of only doing commerce. Although owner MindArk built Entropia as an online gaming universe, it has gradually migrated it towards broader commercial applications.

In contrast to Second Life, it is a highly regulated world which bans gambling, pornography, even virtual sex. The freedom to build offices, shops and arcades is also highly restricted. This is in stark contrast to Second Life which provides a platform for virtual enthusiasts but doesn't set many rules to govern what they do there.

"To me," says David Simmons, business development director at MindArk, "if you just think of the real world, when there are no rules there is chaos and anarchy." MindArk has avoided chaos and has landed the contract to supply the platform for 150 million Chinese users.

By the end of last month, Second Life began suffering what might be seen in retrospect as the beginnings of a backlash. Sky Television News uncovered a group of users who had set up a paedophile playground. MindArk's control fetish began to look like very good business.

The second strand in what Lai believes will be a new era in global commerce is the transformation of our collective attitude towards the Chinese economy and its current status as a supplier of low-cost goods to the west.

China wants more of the margin that currently goes into the bottom line of Western companies. "This is exactly what we are targeting," says Lai. "A shirt is $1 when we make it in China. When it goes into a department store in Europe or the USA it will be $20. If we can get more of that $20, and we need to get $4 or $5, then China will be up there with developed countries. We know that $19 goes on design, marketing, advertising, but virtual worlds change that."

The CRD project is both real and virtual. An office development on a brown-field site in old Beijing, it will also provide a level of infrastructure that will ensure 150 million users can happily transact in a fail-safe environment.

It is the sheer numbers that will alter the way we view the online world and particularly the virtual 3D internet.

While Lai talks about 150 million, he also talks about speeding up the process of encouraging the majority of Chinese people to enter the virtual commercial space, as part of a larger project to bring China in line with the developed world.

"In the virtual world, population counts for more than in the real world," says Lai. "You see the size of China. We will convert the whole nation to virtual commerce so they can be in line with developed countries."

CRD is willing to accept that the market must be reciprocal, benefiting western consumers as well as Chinese.

"China sees it gains a real benefit from selling direct to the West," says Karl Alberts, marketing director at Paynova, the payments systems company with which CRD has partnered to make the commerce work, "but it is also really opening up, inviting companies and welcoming them to work with them and see what business is to be done."

Lai echoes these sentiments. "People talk about China growing, China growing, but I want people to know they can make money. China already has a good size middle class so we are ready to open the door for people to sell goods to that population and to make money. As long as all is fair."

How realistic is the project? Willie Golden, director of the Centre for Innovation and Structural Change at NUI Galway, is sceptical.

"If you look at commerce on the net," he argues, "trust is a huge issue. How do they overcome this and why does it make sense to do this in a virtual world? Virtual worlds and social networks like Facebook and MySpace are communities first. If they are going into this with a transactional basis - build it and they will come . . . well we've seen that has not yet happened on the internet."

Either way the virtual world may soon seem less out of this world than we currently like to think.