Virtual Worlds Agency Electric Sheep Lays Off 22

Virtual world technology firm The Electric Sheep Company let go nearly a third of its employees yesterday. The move is part of a restructuring to focus the company on larger monetization efforts in 2008, according to CEO Sibley Verbeck.

As part of the reorganization Electric Sheep laid off 22 employees, scaling back its events staff and cancelling several projects, including the creation of an ad network for use within the Second Life virtual world.

“We feel that the time is not right to place more bets on that currently,” said Verbeck of the network. “We felt that large scale advertising to the current Second Life user base by real world companies is not a big opportunity in the short term.”

Although Verbeck said his firm has never had more than half its projects based in Second Life, and he still believes in Linden Lab’s virtual environment, going forward Electric Sheep aims to expand to other adult virtual worlds such as Icarus and Metaplace, as well as children-oriented virtual environments.

“Marketing by outside brands in Second Life is something that is not seeing as much excitement [as there] was nine months ago, and that’s appropriate because the active usage base is not growing rapidly right now in that virtual world,” he said. “We’re seeing a natural shake out of what projects and applications make sense using virtual worlds as a whole and Second Life in particular.”

The company is retaining 54 employees and has agreements with 20 contractors to continue work on projects. Electric Sheep is not in financial difficulty for a startup firm, said Verbeck. The company intends to prioritize larger marketing and technology efforts for its clients in 2008, rather than trying to manage multiple smaller projects. Over the past year, Electric Sheep has landed several large accounts, including an investment from CBS which helped lead to a Second Life crossover event with the CSI: New York television show.

The restructuring didn’t surprise or worry executives from other virtual world-oriented firms who said in such a rapidly moving industry it’s not unusual to increase staff to tackle projects that are quickly discarded.

“People sometimes make the mistake of thinking that startups hatch fully formed, but the truth is that early stage startups do need to sometimes go through some very tough periods of change,” said Greg Verdino, chief strategy officer for Crayon, a marketing consultancy. “Don’t count [Electric Sheep] out just yet,” he continued, adding, “with the Second Life naysayers in the digital advertising space probably rubbing their hands with glee over a Second Life bubble burst… if change wasn’t happening that’s when I would be worried.”