Wave Issue 9713 6/6/97 Article 7-01

***Online VR Industry Assessment
by Jonathan Sunberg

Since Worlds Inc's inception in 1995, investors (Worlds estimated worth
was ~$100 million in 1996) flocked to the concept of 3D environments on
the web. But recent reports claimed that the reality of limited authoring
tools and limited bandwidth, slow modems, and a lack of compelling
content caught up to the industry. April may have marked the point where,
as John Chiplin CEO of Superscape, stated, "people drop out of the early
adoption stage and (the industry) ends up with 3 or 4 players." But, as
Andrew de Vries, PR Manager of Oz Interactive, claimed, the recent shake-
up "dealt more with poor management and over-zealous marketing
expenditures" than a lack of strong technology.

Worlds which had partnerships with numerous companies such as Intel
Corp., IBM Corp., and Sprint Communications Co., was acquired by a group
of private investors based in New York and DataStream, a Boston software
developer. Worlds had spent $16 million in capital and had to borrow $4
million from creditors in order to survive by March 5th, when Regent
Pacific Management Corp. was hired to sell all its assets.

The rest of the industry has begun to cut back as well: Superscape Inc.
had to let go 40 employees from its staff of 101; Black Sun Interactive
Inc. fired 10 of its 50 workers and now appears as though they have
closed their San Francisco offices; and Paragraph Int'l. Corp. was
acquired by SGI.

Mr. Chiplin views the industry shake-up as a natural one that occurs
throughout most industries' early adoption stages. Although Superscape
has cut more than 1/3 of their staff, Mr. Chiplin still feels their
"position is business as usual, with the long-term potential still very
promising." In April Superscape reported a 20% increase in sales over the
six months, but showed a loss of L3.1 million. The company continues to
show a strong balance sheet however, with cash balances of L6.06 million
as of January 31st.

So what will it take for companies in the Virtual Community market to
survive, when at one time sales were estimated to reach $1 billion by
1998 and are now only expected to attain $.5 billion by 2000? Superscape
believes they will need to appeal to a larger market, evident in their
announcement that their new VRT tools will incorporate VRML 2.0 and a
rumored future announcement of consumer VR editing tools.

Mr. de Vries feels that the reason Oz continues to be successful is their
strategic partnerships. Instead of going after the consumer mass market
and spending millions on promotion, Oz "has focused on strategic
partnerships" which can allow large marketing leverage. Oz differentiates
itself from shrink-wrap tool companies, like Paragraph, because as Mr. De
Vries put it, "its not that big a market."

On the future of VRML there have been mixed reactions. Superscape whom
traditionally had not supported VRML has turned to the language because
of the larger market potential. However, Oz shows support for VRML, but
like Superscape, uses proprietary technology for greater support in
multi-user applications.

Ultimately the fate of Virtual Communities will lie in the worlds. The
worlds must be compelling enough to grab people's attention and create a
desire for them to come back. Mr. de Vries feels this will happen when 3D
worlds are connected to 2D sites. By connecting a normal 2D site to the
audio or textual aspects of the 3D world, users may be enticed to
actually enter the 3D world. But once inside this 3D world, there has to
be enough compelling content. Mr. de Vries sees this occurring through
what he calls the "channel metaphor," where events would be programmed
for each world throughout the day.

Thus, the state of Virtual Communities is right now in a transition
stage. The poorly managed companies will quickly be weeded out and the
companies with strong management and corporate backing will remain.