[I decided to move this update from the previous post to its own post, since most of you come here via RSS and might not see those edits]

I got a few emails and saw lots of comments on various blogs essentially saying "WTF?" about why Google is releasing this virtual world. Seems nuts, right? It’s not search. It’s not organizing the world’s information. Some people are thinking about whether this will hurt Second Life or not (my take: Second Life doesn’t need any assistance in the positive or negative sense — it’s up to them to succeed or fail since they’re still very unique).

Here’s the deal, and why this is a smart move for Google (not that I’m always going to defend them). First, their game is to sell advertising. They do talk about "organizing the world’s information." And this fits — if you count advertising as information that needs to be organized…

Recall, they went from clever and minimalistic "contextual" advertising to more useful "behaviorial," increasing their CPMs and market share. The next step is to have complete virtual versions of you (behavioral models,and ones that you directly control) that they can exploit to help advertisers sell you stuff.

The most basic form of that is what SceneCaster, Vivaty, and IMVU try to do already — product marketing — offering virtual versions of real-world objects you can buy, e.g., a Lay-z-boy couch or a Ray-ban pair of sunglasses (Big Stage was doing that too) or entire sets designed to sell you some brand identity. It’s not particularly smart in a computer-science way — people simply self-select the content they like and that’s that. But the bigger step is to have enough of an active user base to be able to extract trends and behavior on a personal, network (social), and aggregate level, which Google can then use to better target ads at each individual user and make more money.

For example, they could track the adoption of some cool, new virtual accessory through their worlds and see who are the trend setters and who are the sheep — perhaps even tracking what you look at on your computer screen (and for how long) against what you buy. Imagine what you could do with that information.

There’s a reason Google unilaterally keeps your personally identifyable data for 18 months when they shouldn’t be keeping it at all as far as I’m concerned. It’s their bread and butter, though it sucks for us (for reasons that should now be obvious, given the Viacom suit).

Anyway, lots of people have thought about how to monetize free virtual worlds. But no one has the secret sauce to making non-game virtual worlds fun (for everyone), not even Linden Lab, and they’ve been at this almost as long as ActiveWorlds now. Google has an opportunity, a big sandbox, to figure out what to do next. But I’m still skeptical — trying to make compelling virtual worlds today is like trying to read a book through a straw — interface is still going to limit everything.

Still, the more they integrate this product with their other "free" services, like chat, mail, and apps, social networking, the more likely they are to figure it out.

Update: more on why behavioral advertising is important to your future life here.