'Second Life' Inventors Expanding Gaming Universe

In August, the Second Life community learned the company that created their virtual world was planning to expand its universe.

During his keynote speech at the Second Life Community Convention, Linden Lab CEO Rod Humble mentioned that his company was working on a new mobile product separate from its pioneering virtual world, Second Life.

Back then, he was vague on details. Now we know more.

According to sources familiar with the plans, the new gaming platform (which some inside Linden Lab refer to as 2D) has already received the green light, and efforts are under way to develop the first version. The new product is being designed as a mobile gaming platform that would allow users to create or generate games on Apple's (AAPL) iPad or other iOS devices. More specifically, this browser-based design aims to allow users to create text adventure games, a type of genre that incorporates puzzle solving and exploration into a storyline, according to a source familiar with the plans.

Linden Lab declined to comment, other than to note it is working on a new mobile product featuring digital entertainment for a variety of platforms. The company hopes to announce more details in the next month or two.

A Second Life for Linden Lab

For privately held Linden Lab, the move may help spur revenues. The company says 2011 is on track to be the most profitable year in the company's history, but it's not clear whether the profits are coming from cost cutting or strong revenue growth. (Last year, the company slashed 30% of its workforce as part of a major restructuring.)

One source said the company has seen a decline in the number of hobbyists and small businesses willing to pay a monthly subscription fee to rent server space to host their virtual world on the site.

Meanwhile, Lewis Ward, research manager of gaming service for IDC, says, "The popularity of Second Life has been leveling off, so it's not odd that they would want to grow another source of revenue."

Humble's Beginnings

Since being named CEO last December, Humble -- a former Electronics Arts (ERTS) executive vice president -- has been pushing the company toward more of a game focus, aligning its resources accordingly, sources say.

Sponsored Links

Given Humble's gaming experience and close ties to Electronic Arts -- where he headed the EA Play label, which included popular PC game The Sims -- the 12-year-old privately held Linden Lab could make an interesting addition to the game publisher titan EA. (EA recently announced a large acquisition, PopCap Games, that carried a value of at least $750 million.)

That said, IDC's Ward notes that for such an acquisition to possibly work, Linden Lab would need to have a large user base for its gaming platform and demonstrate strong forward momentum.

Gartner analyst Brian Blau says that it's unlikely that EA will want to pin its hopes on an unproven gaming platform. However, he notes that if Linden Lab gets into the user-generated games business -- turning Second Life players into game makers -- it would set the company apart, in that he has never seen that type of offering before.

Gaming with the Big Boys

By getting into the gaming business, Linden Lab will be going up against not only industry giant EA, but other adversaries like Activision Blizzard (ATVI) and Take-Two Interactive (TTWO).

"Linden Lab can be a contender, but a lot of game developers have tried hard to kill EA, from Activision to Take-Two to Facebook. So it's hard to believe Second Life will be able to do that. It's a big uphill road," Blau says.

And whether something like a user-generated gaming platform would be a financial success is a question mark. But Second Life does have the advantage of having experience in charging virtual world creators for renting server space and taking a cut of virtual transactions and may find a way to apply it to game creators.

Let the games begin!

Motley Fool contributor Dawn Kawamoto does not own stocks in any of the companies listed in this article. But she has been known to play video games.