Two recent news items got me thinking about “virtual theft” and other crimes that either take place inside virtual worlds or involve virtual goods. I don’t know why exactly, but this kind of thing fascinates me. Maybe it’s because it’s another example of online behaviour clashing with real-world laws and principles, much like music or movie downloading is. The two stories involve a woman who was jailed in Tokyo for “killing” her virtual husband, and two Dutch teens who were convicted of stealing a Runescape amulet and mask from a fellow teen. These aren’t the only such cases, of course: a Dutch teenager was arrested last year for stealing $6,000 worth of furniture from the online kids’ game/world called Habbo Hotel.

Does it make sense to charge people for “crimes” that are committed inside virtual worlds? Mike Masnick at Techdirt argues that it doesn’t really, and that the Dutch kids who “stole” the Runescape amulet and mask from another teen at knifepoint should properly have been charged with assault rather than theft. The Dutch court, however, argues that virtual goods are just as worthy of protection as real-world goods, and so theft is the proper charge. This is an issue that some have been thinking about for awhile now, and one Wagner James Au has argued should be a concern for plenty of Web 2.0 companies as well, since they effectively deal in “virtual goods” such as reputation, etc. and user-generated content.

The fascinating thing with virtual theft and other “crimes,” of course, is that there are so many different ways of stealing money and property and engaging in all sorts of other bad behaviour inside Second Life or some other virtual world. You can hack the game to generate money or credits, you can run scripts that copy artefacts and property (which you can then sell inside the game), and you can sell the money you got illegally to noobs and then virtually mug them to take it back inside the game. The possibilities are endless. Should they all be real-world crimes too?

From the Los Angeles Times (via a post at Wired) comes the news that a little-known “newspaper” called the Club Penguin Times apparently has almost 7 million subscribers, many of whom read the paper at least once a week. And where is this newspaper published? Inside Club Penguin, the virtual world for kids that was developed by a trio of parents from the tiny town of Kelowna, B.C. and bought by Disney last year in a deal worth as much as $750-million. As the L.A. Times notes, that readership makes the Club Penguin paper bigger than either the New York Daily News or the Chicago Tribune, among others.

Obviously, there are differences between an online journal published for kids between 6 and 14 and traditional newspapers in the real world, but that’s still a huge number. The Club Penguin “paper” gets about 30,000 submissions a day from readers for its poetry contests, its “Aunt Arctic” advice column and other features (much of the content in the newspaper is created by users). And best of all, the Penguin Times doesn’t have to worry about advertising — it doesn’t carry any.

Lane Merrifield, the CEO of Club Penguin and an extremely nice guy, was one of our keynote speakers at mesh 2008 last May. There’s some video of his talk with Stuart MacDonald at mDialog.

So it seems that Coca-Cola is still trying to find the magic combination of virtual world and aggressive marketing that will produce the magic results it seeks. The New York Times has a story about how the carbonated sugar-water behemoth has launched an abomination marketing effort called Coke Island in the virtual world known as There Inc. (a competitor of Second Life, but without all the flying penises).

As PaidContent points out, Coca-Cola has been down many a virtual marketing road — including the launch of its own world, known as Coke Studios, about five years ago. Although it claims to have attracted millions of members, it can’t be doing that well, since the company is effectively transporting (or teleporting) the entire shebang into There.com. Customers will apparently be able to use virtual Coke coupons to buy merchandise for their avatars and that sort of thing.

From the look of the screenshots on Mashable, you can wander around the island — shaped like a giant Coke bottle — and sit on giant Coke-logo benches and so on. I just have one question: who in their right mind thinks anyone is actually going to want to do this? Is there some kind of Kool Aid that gets passed around at the meetings where they come up with this kind of idiocy?

It reminds me of the scene in the movie Big — the one where Tom Hanks makes a wish as a young boy and is turned into an adult for a few months, and finds work at a toy company. A rival at the company is trying to compete with Tom’s brilliant Transformer-style toys, and says he has one that’s better because it turns into a giant skyscraper, at which point Tom says: “It turns into a building? What’s fun about that?”

Wandering around a giant Coke-shaped island with Coke logo benches and trading in virtual Coke coupons? What’s fun about that?

Lots of commentary out there this weekend on virtual worlds such as Habbo Hotel — which Wagner James Au writes about for GigaOm here — and Second Life, which is the subject of a feature in the New York Times and one in the Globe and Mail as well, by my colleague Erin Anderssen. And then there’s the somewhat ambitious prediction from the CEO of ICANN that virtual worlds are “the future of global commerce.”

That last one might be a bit of a stretch, considering that — as the NYT piece notes — a number of the companies that set up shops in Second Life (such as Adidas) or built their own private islands (such as Wells Fargo) have pulled up stakes and departed for greener pastures. Maybe when the guy who sells superfast rollerblades in Second Life becomes a global enterprise, the ICANN CEO’s prediction will have some merit.

Until then, Second Life seems more interesting to me as a social experiment than a business proposition. The fascinating thing is that even in a world where they can be and do anything they want (which can also cause problems, as Erin notes), people choose avatars that look like supermodels and spend hundreds of dollars on shoes. In an interesting economic twist, people won’t buy things that appear expensive in Linden dollars, even though in “real” money they are extremely cheap.

Habbo Hotel, as Wagner notes, doesn’t get a lot of publicity — perhaps because there are no blue-haired vixens with gravity-defying breasts in Habbo, and no flying pink penises either — but it definitely deserves some, and perhaps more than Second Life. Although it offers only blocky, 1985-style graphics, it has become a hit with young users and generates revenues of about $77-million (likely orders of magnitude more than Second Life).

Wagner says that a recent talk by one of the principals at Sulake — the Finnish company that created the site — made several points about virtual worlds, including the necessity for multiple revenue streams and the high turnover rates that such “games” have (something Second Life has also demonstrated). Gamasutra has more on the address here.

To me, one of the most interesting things about Habbo is that it is what the Sulake founder calls “a gameless game,” in which virtually anything can become a game. When my 12-year-old daughter used to play it a lot, she played something called “falling furni,” in which tiny avatars tried to catch pieces of virtual furniture as they fell from the sky.

Sounds dumb, doesn’t it? But she loved it. Second Life is also a gameless game in many ways — and that is a big part of its appeal. Whether it can ever become a real business still remains to be seen.

It’s rare enough to have an industry-leading Web service that is based in Canada, let alone two of the top 10. But if you define “online virtual worlds aimed at children” as an industry, then that’s what we’ve got with Club Penguin and Webkinz. The former just got acquired by Disney for an eye-popping $700-million, after less than two years in business.

In what is sure to become a legendary Canadian example of bootstrapping a company, the popular social networking/game site was created by three friends in Kelowna, B.C. as a wholesome place for their young children to play and was completely self-funded by credit cards, angel investors and friends (much to the chagrin of several VCs).

Webkinz is a little different from Club Penguin. While the latter is strictly an online phenomenon, Webkinz — which also got its start about two years ago, but in Toronto — is a clever blend of online virtual world and offline toy. The company behind the site, a third-generation toy company called Ganz, came up with the idea of creating a toy that had a virtual doppelganger on a social-networking style website. Webkinz plush animals (which cost $15 each) come with a code that gives their owner access to the Webkinz world. They can then design a “house” for their avatar, and buy toys or furniture with their virtual money, or Kinz Cash. They also have to take care of their virtual pet, and players can chat — but only using stock phrases generated by the site — as well as play games and win Kinz Cash.

Club Penguin and Webkinz are alike in one thing, apart from their appeal for young children and “tweens”: although Ganz (a private company) doesn’t release membership figures, it and Club Penguin appear to have roughly the same number of subscribers — about 4 million or so, according to several estimates. Does that mean Webkinz might be worth $700-million too? After all, Club Penguin reportedly talked to several other companies about an acquisition, including Sony, which was ready to offer $500-million, as well as News Corp. (although Ganz itself has not confirmed any previous talks).

The Webkinz business model is slightly different, however. While both sites have a free section in which kids can play to a limited extent, in order to do anything more elaborate they have to become members — which in Club Penguin’s case costs $5.95 a month or $60 for a year. Webkinz owners can get access to everything by buying a single toy, which only costs $15, although many owners (such as the woman we wrote about in this story) have half a dozen Webkinz or more. But while Club Penguin’s revenues may be higher, Ganz has likely made about $60-million already on its virtual venture.

Whether that is appealing enough for a takeover bid is difficult to say, and it’s also unclear whether Ganz would be willing to sell Webkinz, which is likely a blockbuster cash generator for the company. One (possibly hopeful) venture capitalist blogged recently that he could see a spin-off, acquisition or even an IPO in the company’s future, but Ganz spokesman Susan McVeigh said late Thursday that the toymaker likely wouldn’t be interested. “Ganz is a privately-held family business and is very proud of that,” she said.