The (Second) Life of Philip Rosedale

"In virtual worlds you may be able to fly, but the laws of economic gravity still apply," notes The Economist. In the midst of the real-life financial panic, Second Life, the "much-ballyhooed" online 3D world, experienced its first bank run, with panicked citizens withdrawing so much cash from the local bank that it was forced to cease operations. Still, this probably isn't a long-term crisis for Second Life, in which real financial institutions are still rare and the economy remains dominated by land speculation, porn, gambling and the sale of digital body parts to avatars (as the site's electronic inhabitants are known).

That said, there's no doubt that Second Life is in the grip of some irrational exuberance. Ever since a new audience discovered the site last autumn attracted by tales of people who'd become real-life millionaires there, or simply by the chance of reinventing themselves new users have been signing up at a rate of nearly a million a month. Scores of real-life firms have followed suit; ditto political parties. Last year, the Second Life headquarters of the French Far Right leader, Jean-Marie Le Pen, was attacked with an exploding pig a story closely reported by Second Life's dedicated Reuters' bureau.

The next time you visit this digital world, watch out for a spikey-haired man, dressed "in rainbow trousers and leather chaps" who goes by the name of Philip Linden, says The Sunday Times. He looks like a 1980s German rock star, but, if you meet him, you're in the presence of Second Life's founder, law-giver and "reigning deity". In the flesh, Philip Rosedale is more attractive than his avatar he is 38 years old, with a wife and two children. There's no doubting the scale of his ambition: his real-life business card has a picture of God on the back, and it's only half a joke. Rosedale compares his firm, Linden Lab, to Microsoft and Google. Yet his pretensions are far greater than theirs. "So far, Google and Microsoft have been happy conquering the known universe; Rosedale wants to create a new one." He says he's not building a game but "a new country". Guess who's president?

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Rosedale has been fascinated by the idea of creating new worlds since he was in his teens. Raised in San Diego, the eldest son of a navy pilot, he built his first computer at the age of ten and went on to study physics at the University of California. An early pioneer of "streaming media", the technology behind moving images on the internet, he made his first fortune in 1996 selling a video-conferencing firm. When he launched Second Life in 2001, it was an empty, open-ended, digital landscape without regulations, says Newsweek. "Anything could be built." Small communities soon grew into whole cities. But what singled it out from other online worlds was its economy, based on the Linden dollar, which can be exchanged for real money on LindeX. Rapid growth (GDP was reckoned to be $500m in May) has taken even Rosedale aback and led to trouble as rioting users try to found a democracy. Rosedale insists his dictatorship and site are benign. But he also admits Second Life is far from the final frontier: his goal is to liberate avatars to wander the entire net, opening up a universe of interconnected worlds. "Technology-wise, it's only about 18 months away," he says. "If you're open and you're dominant, you win forever."

Can Second Life survive its first flush?

Second Life is free to join and unlike, say, Sony's EverQuest, Linden Lab has relinquished intellectual-property rights in a bid to spur entrepreneurship: residents own everything they build. Most of the firm's income comes from leasing land and charging owners usage fees. The digital territory, said to be growing at 8% a month, is now about eight times the size of Manhattan, says The Economist. The economy is also "tightly managed". Linden Lab works to ensure the Linden dollar doesn't stray too widely from an exchange rate of L$270 to the dollar. Even so, it's hard to see how the firm can make a profit. Odds are it's still "burning through its investment phase", says The Sunday Times.

And it may not get beyond that phase. "Reality is catching up with Second Life," says Time. The Feds, suspecting tax evasion, money-laundering and other unsavoury activities, have been on its case for months. Disgruntled users, including one man booted off the site for questionable property deals, are suing for confiscated property. Worse, most users quickly discover that it's not the goldmine they had hoped for and corporate departures, including American Apparel, have shaken confidence. "Fans love the site as a way to meet people and experiment in self-expression" (there have been real-life engagements). But ultimately people discover the "experience" is not all it's cracked up to be. Users might rhapsodise about the freedom to teleport themselves from tropical beach to winter wonderland, says the Sunday Times, but there's one fundamental truth they can never escape. Try as they might to pretend otherwise, "that's not snow, it's pixels".