I have recently been exposed to some happenings (in the estimated $2B revenue) virtual world arena. As in just about any market of this size, it is experiencing fragmentation as the communities become more granular.
Second Life is probably the best known property for folk of my generation. With IBM as a visible member of its community, it's just fine for folk like me to 'research' the site.
Here's an analyst report on the still private company prepared by Global Silicon Valley Partners.
While 'researching' Second Life, a young member of my household commented that it was not as much fun as Stardoll. If you have not yet heard, or played with Stardoll, check out the site comparison below:
Per the site " Stardoll is the largest online community for girls who love fashion, shopping, decorating, creativity, and making new friends from around the world. Members create their own MeDoll avatar, go shopping, dress up, decorate their suite, express themselves creatively and socialize with each other."
Though the site clearly does not have the graphic quality, nor depth of SecondLife, it is good enough to build a rabid following of 7-17 year olds and two years ago attracted a $6mm investment from Index Ventures and Sequoia.
In my household, I have seen a steady progression from Webkinz to Club Penguin, followed by Stardoll, which leads to Miss Bimbo.