Over the next 12 months, there will several dozen new 2D/3D social virtual worlds launching, all vying to take Second Life’s crown as the leader in the non-gaming space. They want to be the "YouTube of 3D content," the "Real 3D MySpace," the "FaceBook of 3D UGC" (User-Generated Content).

Obviously, most of them will not be huge. Most of them will actually disappear almost as quickly as they arrive, once the people come and go and the funding dries up. But some will stick around, either merged into bigger entities or grown to independence. What will make one succeed and another fail? That’s the billion dollar question.

I’m going to be careful not to name names here, except for a few notables, because most of these haven’t quite launched, some information is based on indirect knowledge, and sometimes my own experience causes me to be a little extra critical about a company’s designs and business models. I do that with the intent of making them better, not discouraging people from trying. In fact, smart companies pay $$$ for similar (but more targeted) critiques.

Okay, so the newcomers fall roughly into four categories:

1. 3D Authoring Tools, now with Social Networking
2. FaceBook or MySpace, now with 3D Faces & Spaces.
3. Virtual YouTube, or Avatars in a Box
4. Virtual Worlds that believe they can be more scalable, serious, easy, open, or fun than Second Life

In the first category, the focus is on collecting 3D objects (some of them sponsored) and placing them in a customizable 3D scene. Scenes can be connected to form an ad-hoc network of spaces. But there is often lack of clarity about what the social network part is good for (apart from the buzz & funding angle), with the most obvious but overlooked answer being ‘topology’ — to get from person A to C, you have to go through mutual friend B’s  space. In other words, the network is the place. You’d be surprised how many people don’t get that. Just putting two avatars into a room does not make it more "social" or "networked" than good old 3D chat, which has been successfully unprofitable for over a decade.

Letting people drag and drop objects into the world similarly does not make it truly user-generated content, not any more than a word processor that only supports cut and paste. To be real UGC, it needs to let people do much more than souped up interior decorating (cool for some as that may be) — it needs to allow people to create something new and get cachet (or even cash) for doing so. And it’s a good start to let people aggregate and rate each other’s 3D content, but it’s just not enough to create a thriving social 3D world, which involves all kinds of people, creators, consumers, and apparently furries too. Again, the obvious but overlooked answer is collaboration, whether parallel or serial (e.g., I can build and improve on your stuff and vice versa).

The newcomers in the second category are more like the first than different, but here "3D" is more of what’s searching for a reason to be. At least with above 3D authoring tools, the 3D part is fairly obvious. Will 3D "HomeSpaces" be any less cluttered or tacky than 2D ones? Any more navigable? Will severely-limited drag and drop (think: pre-generated rooms & objects) solve that? (ans: no)  Now, MySpace managed to be a huge hit without ever being applauded for its innovation or aesthetic sense — as I mentioned the other day, it’s more like a teenagers bedroom than an adult’s living room. In that sense, any one of the newcomers could do well if it captures that certain defiantly tacky quality that sometimes catches on. But I’m not sure I’d base a business on winning the lottery or guessing the next teenage fad, not without a shotgun approach anyway.

The third category is somewhat more interesting. YouTube didn’t need social networking to succeed, though it didn’t hurt. What it did best was offer free hosting and streaming for your (or someone else’s) video content, and in a way anyone could embed into their own web pages. Anyone now hoping to apply YouTube’s success to 3D should not skimp on the servers or try to use someone else’s (e.g., Google’s) 3D content aggregation. But YouTube was also significantly enabled by Flash and its video playback functionality. There still is no universal 3D content plugin (except Flash, unfortunately) that has that level of penetration into browsers.

In fact, looking back, one can say that YouTube’s success was a confluence of pent up demand for ubiquitous video service enabled by a simple plugin and a business model built on free (even for content that wasn’t technically free). It’s not clear that any of the dozen or so 3D plugins floating around have what it takes to become that on their own. It may wait for Flash to again break the jam. And that means waiting for hardware accelerated 3D on all platforms (otherwise, the worlds must be so lightweight as to be insignificant and non-scalable — Java still has great potential for 3D, but startup time and other annoying limits are still hampering its usefulness here.)

What a real Virtual YouTube needs, of course, is the analog to video and the video camera, ideally with some interactivity. And that’s the really hard part to get right. There are plenty of 3D formats and players with enough animation support to be candidates for this — MPEG4, in fact, understands even compressed 3D facial animation. The "camera" part is harder to get right. For set-building, drag and drop is still the standard approach, as above. Sliders for avatars or real-life scans of your face get you your actors. But can someone bring it all together in a way that is better than, say, The Movies, a game by Lionhead Studios that met with some success but didn’t turn into a mega hit? There’s a lot more to making good videos than pointing a camera at people and objects. And if 3D videos can’t be any more expressive than my home camcorder filming me in front of a white sheet, then why bother with the virtual stuff except to be cute or anonymous? It has to really let loose people’s creativity, and that will take new kinds of authoring tools I have yet to see anyone even attempt (if you want to try, call me).

The fourth category is by far the most interesting of all, though it suffers the same problems as Second Life with mainstream adoption (whereas a 2D MySpace page is still much easier for many people to find and use). While the first three categories attempt to jam a small 3D window into a standard Web 2.0 space, full-on virtual worlds understand that the 2D stuff is really just a subset of a fuller 3D experience. This category says goodbye to browsers that don’t yet understand 3D in favor of their own custom clients, which of course slows adoption. Ideally, someone would come up with a whole new web browser that really understands 3D as well as 2D. But I haven’t seen it.

As for scalability, well, good luck. I think everyone is aware of the current limits of Second Life. But in truth, many of the choices they made gave them more scalability than is apparent — especially if the world is completely modifiable, streamed just-in-time-to-see, and physically simulated to the Nth degree. Drop any of those requirements and scalability becomes much easier. And so, with the next generation of really big (some might say, Ridiculously Multiplayer Online), million-participant worlds, something’s gotta give. Either they’ll throw a mountain of servers at the problem, or they’ll simplify the interactions or remove some key assumptions necessary for true user-generated content and a living marketplace of designs. And I guess I’d point out that There already took that approach and now they’re called something else.

The best newcomers will combine more than one or two of those categories. Those are the ones to watch. Because the way this is likely to play out is that the companies with the most money and users (FaceBook, MySpace, Google) will attempt to acquire the best new chess pieces individually, and then hire some genius to try and make it all work together. The most successful new company, however, the one that can rival or supplant any of those current leaders, is the one to tackle all of the above challenges and make it work.

The race is on, because Virtual Worlds already went through one big bubble in the 90s. How long do this crop of companies have to prove themselves worthy? It’s variable, perhaps another year or two. But once a significant number begin to run out of funds without showing profit, that’s when investors start getting nervous and pushing for a way out, even at pennies on the dollar.