There’s always someone watching you in the virtual world of There.com.

“It’s an advertiser’s dream. If you’ve bought Pepsi on the site, then we might send a little dog across the screen with a Pepsi drink, asking if you’d like another,” said Michael Pole, chief executive of Santa Monica-based Trilogy Studio, which creates content for the site.

Here in this simulated online community, your avatar or your online alter ego can purchase dune buggies and race with other avatars for prizes, buy virtual real estate and start a business, or go shopping for a new virtual wardrobe.

The line between the real and unreal gets blurry when advertisers step in. Fancy a Samsung Blackjack on an avatar friend? You can get a real one delivered to your doorstep the next day, thanks to AT & T;, a corporate sponsor on the site. Listening to a virtual concert by the Beastie Boys on the Web site? The band’s music can be downloaded through iTunes.

With about 1.5 million registered players, There.com is one of a dozen major virtual worlds in the burgeoning industry capitalizing on people’s penchant for living in pseudo worlds.

There.com’s distinguishing feature is the casual games content, powered by Trilogy Studio. The company also builds content for Pimp My Ride, one of MTV’s new line of virtual world sites based upon its shows.

Pole believes what are called casual massively multiplayer online games or games that are played online and not on game consoles and can support thousands of players at once are the future of the gaming industry.

Pole recently served as senior vice president of video games publisher Electronic Arts Inc.

“Trilogy is unique in that it comes out of the games industry and it’s one of the bigger companies with real experience under its belt,” said Chris Sherman, executive director for Virtual Worlds Management, which is putting on the first annual Virtual Worlds Conference and Expo in the San Jose Convention Center Oct. 10-11. “Most other players are in design development and don’t have the experience to do that kind of build.”

Real money

For those who live only in the real world and the word ‘avatar’ still conjures up images of a Hindu deity rather than an online character, the economy behind virtual worlds may be puzzling.

But it’s become so big that just in Los Angeles, businesses are spinning off products designed to fuel the virtual craze.

Santa Monica-based producer LivePlanet Inc. recently launched Virtual World Productions Inc. to publish online newspapers reporting life in the virtual world. Habbo, a Finnish site where 7 million teenagers hang out, runs its North American operations also out of Santa Monica. GoPets, a South Korean virtual world for people and pets, has made its foray into the U.S. market from its Long Beach office.

Burbank’s Walt Disney Co. took center stage recently when it bought Canada’s Club Penguin, a universe of dancing penguins, in a deal worth $700 million. The company paid $350 million upfront with the rest expected to kick in if Club Penguin meets growth projections.

Club Penguin is already a hit, mostly among children under 14. Children buy $2 hats for their penguin avatars and $3 tables and chairs for their igloos. That quickly adds up when the site has more than 700,000 subscribers who pay about $6 a month and 12 million registered users, mostly in the United States and Canada.

In Habbo, where teens have virtually meetings in cheerfully decorated hotel rooms, most of the revenue comes from sales of knickknacks for avatars to wear and juke boxes and sofas for their virtual rooms. About 2 million Habbo teens are from North America.

Teenagers can only spend up to $10 a week, however, said Teemu Huuhtanen, president of North America Habbo. The parent company Sulake Corp. is located in Finland.

“We make sure they don’t spend more than about what a movie ticket might cost you per week,” Huuhtenanen. “Teens love it because in Habbo, you can be anyone you want. You might not be the quarterback on your high school team, but you can be a superstar on Habbo because you wrote the best music that’s playing in the virtual world.”

An online teen popularity contest is a smidgen of what virtual reality has become as an industry.

Led by Linden Lab Inc.’s 9 million-member “Second Life,” a thriving universe of houses, cars and stores on 33,600 acres of virtual land, these online simulated communities have become so sophisticated that they have their own banks and even independent commodity market run by Mountain View-based Sparter, which dubs itself the New York Stock Exchange for the virtual world.

Then there is Jon Jacobs, who recently became a millionaire through his avatar “Neverdie.” He collects hunting and mining taxes on an asteroid where monsters live in “Entropia,” created by a MindArk, a Swedish company. Entropia has about 600,000 players.

Money is collected in Entropia dollars, pegged at the U.S. dollar 10 to 1, and Jacobs earns about $12,000 a month. There’s even an ATM card where Jacobs can withdraw U.S. dollars from Entropia to take his family of four out to dinner.

“Operating costs are very marginal,” Jacobs said. “I just have to maintain certain herds of wild creatures that appeal to gamers who go hunting on my land.”

To Jacobs, this is just a typical workday, all in front of a computer in his home office.

The number of people exploring at any given time at Entropia, Second Life and Blizzard Entertainment’s “World of Warcraft” with 9 million players, adds up to the size of a small country.

That’s why Virtual Worlds Productions has launched two news outlets for virtual worlds “Grid World News” for Second Life and “Azeroth World News” for World of Warcraft.

“There are more than 30 million people participating in virtual worlds and they’re real people,” said Larry Tanz, chief executive and president of LivePlanet, which also creates and develops traditional media properties and has a production deal with Walt Disney Co.

“We’re running classified ads, syndicated columns about the going-ons in these worlds. Design a fancy shield in World of Warcraft and we may write a story about you.”

About 20 reporters cover the two virtual worlds and the company plans to roll out other publications for Entropia and kid-friendly Club Penguin and adolescent Habbo.

Dirty little secret?

Although millions of people around the globe now frequent these parallel universes, once you’re there, life in the virtual world can be boring, said Pole of Trilogy Studios.

“It’s a dirty little secret. There’s not much to do there except buying stuff and chatting,” he said.

That’s why Trilogy Studios is integrating casual games into the experience. It’s in the process of partnering with a major media company to use a well-known character that will walk up to an avatar to challenge him or her in a game of car racing or a puzzle.

“This is a business model that’s not dependent on a publisher,” Pole said. “It takes the gaming industry back to the basics to creating an extraordinary, out of this world experience.”

Pole’s team of 25 game developers recently received $6 million in funding from Chichen Itza Ventures, a lead investor in Makena Technologies that produces There.com. The company received an additional $3.5 million from private investors in August.

Pole believes that casual massively multiplayer online games are the future of the gaming industry. They are definitely cheaper and less complicated to produce than other video games.

A traditional console game takes up to three years to make and usually costs about $30 million. A virtual world takes six months to build and costs about $3 million. There are also no licensing fees, hardware costs or any expenditure related to retailing the product because it’s all online.

Instead, the free sites rely on revenues from micro-transactions players make to buy virtual items and from corporate sponsorships.

“People ask, ‘How can you just give it away?'” Pole said. “The answer is, because it didn’t cost $30 million to build it and the scalability is infinite.”