Starwood's Second Life

The hotelier debuts its new luxury chain in the virtual world, featuring Ben Folds.
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Imagine walking into a new loft-style hotel during its debut to check out the luxurious surroundings and you bump into an alternative rock musician as his forthcoming release blares in the background.

Well, stop imagining. You can do this now ... or your avatar can, at least.

On Thursday,

Starwood Hotels

(HOT)

is launching its new brand of luxury hotels, with musician Ben Folds playing selections of his new CD to attendees. However, the real-world version of the hotel won't open to the public until 2007.

In fact, construction hasn't even begun yet. Instead, the new aloft Hotel can only be accessed by your online alter ego, or avatar, in the Second Life (SL) virtual world.

Second Life, a massive multiplayer online game (MMOG) created by privately held Linden Labs of San Francisco, is very similar to

Electronic Arts'

(ERTS)

The Sims

. However, Second Life doesn't keep score and there technically isn't a way for users to win the game.

Instead, Linden Labs have created an endless, sprawling 3-D virtual world where subscribers can have their Internet likenesses live, interact, purchase land, set up shop and even (possibly) make money.

While still not a juggernaut like

News Corp.'s

(NWS) - Get Report

MySpace.com or

Google

(GOOG) - Get Report

acquisition YouTube.com, users and businesses alike are flocking to Second Life in droves. Linden Labs has inadvertently created a race between corporate names to stake their claim in the virtual world.

Starwood isn't the only company taking advantage of this advertising boom in the virtual world. Last week

Sun Microsystems

(SUNW) - Get Report

held a press conference in a room at the virtual

CNET Networks

(CNET) - Get Report

headquarters.

Toyota

(TM) - Get Report

is currently offering a virtual version of its Scion xB vehicle.

In addition,

Reebok

(RBK)

allows users in the virtual world to wear replicas of its products, while

American Apparel

has its own virtual branch existing in the SL world.

Instead of selling virtual merchandise, some companies are trying to offer Second Life users something more tangible. Major League Baseball used SL to broadcast its home run derby during the All-Star Game, while

Warner Music Group

(WMG) - Get Report

has promoted its artists by setting up virtual lofts and throwing listening parties for SL users.

Beyond the advertisement opportunity, Starwood is hoping to use the SL world as a test market for architectural designs and furniture choices in a way of aiding the building of the physical hotels.

All of this promotion isn't just for fun. Companies and users pay Linden Labs real U.S. dollars to become a premium member or to purchase land in the virtual realm, while savvy businesses and users actually stand to make money, in the form of the SL "currency."

The linden dollar, or L$, is the accepted currency in SL. Members can use their credit card to exchange U.S. dollars for linden at an exchange rate controlled by Linden Labs. Power users in the SL universe get a weekly stipend as a bonus for a monthly or annual membership charge.

The exchanging of virtual goods for the linden has created a virtual economy in the SL world, which Linden Labs oversees with its LindeX tracker. Every day, the LindeX monitors the best buying and selling rate of its currency in addition to monitoring the volume of L$ moving across the exchange. As of 1:30 p.m. EDT Thursday, more than $460,000 U.S. has been spent over the past 24 hours.