Weblo is hoping to strike it rich by staking its claim in the cyber gold rush to build and populate virtual worlds and massively multi player online games (MMOG’s). Hoping to cash in on the same trend that has turned Second Life and World of War Craft into the phenomena that they are, Weblo has created a virtual world that is essentially a carbon copy of the real world.

In Weblo, the virtual versions of states, cities, buildings, airports, celebrities and web domains can all be registered and bought. The buyers of states are crowned governors and can then turn around and sell all cities that fall under their territory and the buyers of cities can similarly sell what is in their territory. So for example, the governor of New York State has the right to sell New York City while the Mayor of New York City has he right to sell the Statue of Liberty.

Before you get too excited and start imagining a gorgeously rendered 3D affair, I’ve got to warn you that Weblo is decidedly low tech. It’s basically a series of 2D web pages that represent the various states, cities, etc. sort of like HTML Monopoly property cards. Sound a little bizarre? I thought so too but apparently it’s good enough for $2.5 million in venture capital from Richard Rosenblatt of Myspace fame. So what’s my take on it? Quite frankly the whole thing pretty much seems like a giant pyramid scheme. Basically Weblo virtualizes the whole world and then makes you pay to own it in Weblo. I think I’ll dub this the Al Capone business model, protection money anyone? I mean does it not seem a form of digital extortion to force the real owners of everything on Weblo to register or face their identity being appropriated by some random unknown party?

The Weblo model is also troubling because it is a derivative with no relationship to any of the underlying assets. Derivatives have value because they have some kind of relationship to a real assets. Changes in the value of the underlying asset affect the value of the corresponding derivative. Unlike a user created world such as Second Life where virtual property is created and therefore has intrinsic value as intellectual property, all property in Weblo is simply a poor virtual representation of something real. The only value it has is what the next person thinks it’s worth.

What is the value of owning the Weblonian version of the Empire State Building, of being the mayor of New York? The value is based purely on the speculation that there will always be someone who thinks that the virtual property has value, which is certainly not a forgone conclusion. Basically the whole think strikes me as nothing more than a glorified Wikkipedia with the structure of a pyramid scheme. Only the few who manage to snap up the best virtual properties have any shot at making money. Much a like a gold rush, once all the good claims have been staked, prospectors move elsewhere and with that Weblo implodes as the value of all virtual holdings collapses. Not to say that there is even a gold rush to speak of because as of today, out the last hundred recently closed auctions for Weblo properties, only five went to completion which is hardly indicative of a rush of any sort.

The above scenario of course assumes that Weblo can actually safeguard the franchise of those who register properties and protect their right to exclusivity, which it has thus far failed to do. As of now there are multiple listings for several properties. A cursory search turned up multiple instances of the Statue of Liberty, the Empire State Building and Toronto’s CN Tower. If Weblo can’t even safeguard property rights within its domain contrary to its own promise, then it has a serious problem. The value of owning a virtual copy of a property is already dubious enough, when combined with the fact that one’s ownership in non-exclusive, its value is then zero because why would someone pay for something they can create for free?

One might point to the social aspect of Weblo, but despite its best efforts to bill itself as a social networking site, I’m simply not buying. A social network has to have some dynamic component to it, there must be some vector of change present that makes me want to log in on regular basis. While there would be a kind of euphoria once one acquires a Weblo property, the novelty quickly wears off. Given that the world of Weblo is a series of relatively static pages, it simply does not have the same dynamism that a virtual ecosystem like Facebook has developed. The whole concept very quickly becomes boring. One could liken it to a Monopoly marathon and we all know what happens when a Monopoly game has gone too long, someone gets bored and leaves and before you know it the game is over.

I think the key to success in building virtual worlds will be extensibility as related to what is possible in the non-virtual world. Second Life is highly extensible in that it augments what is possible in the real world. It creates possibilities and a functioning economy predicated on the creation of virtual goods and services, which are also very real in the sense that they are intellectual property. This is the source of Second Life’s competitive advantage and what makes it difficult to replicate. What prevents anyone from creating a competing web property that also mimics the real world? What is Weblo’s competitive advantage?

Eventually there will be a complete blurring between the so-called real and the virtual. To some extent this already taking place as you have product launches, lectures, events, commerce and a whole host of activities occurring in Second Life whose impact extends beyond the virtual world. Virtual worlds are really going to become a part of everyday reality and this is where Weblo completely misses the point. By attempting to be a representation of the real it can only serve as very fuzzy representation at best. Its fundamental strategic error is that aims to represent reality when it should be looking to augment reality. So is it really Monopoly with real money? Hardly, unless you count the $2.5 million in seed capital that Weblo is busy flinging around like Monopoly money.