How does that rumor go precisely, you know, the one that people just haven’t been able to stop blogging about for the past 48 hours?

Heard an interesting rumor today from an academic who heard through the PhD grapevine…Google is working on turning Google Earth into a virtual world a la SecondLife.

Argh. I read that and thought, that’s how rumors are born — start with a misplaced analogy taken literally, add a dash of academic credibility, then feed it through a blogger’s bullhorn: off to the horizon it races.

But GigaOM has just now added another angle:

Our sources in China say that Google has teamed up with a Chinese company to develop the “virtual people” or avatars, while an internal team develops the virtual world internally.

And another potential piece in the puzzle: the WSJ reporting last week that Google is in talks to acquire AdScape Media, an in-world advertiser.

So that’s all the info to go on. And now I can’t help but blog it. What to make of this?

Although the technology is similar, there is a fundamental difference between virtual worlds like Second Life and Mirror Worlds like Google Earth. SL is limited only by the human imagination; GE attempts to reconstruct the real world as accurately as possible. I don’t think this basic classification will change. I could definitely see more social tools come to Google Earth, and I could also see Google wanting to create a MySpace killer by offering personal customizable 3D spaces which our avatars can frolic in; but such a system of linked personal 3D worlds would be a separate, new product — at least that is my own rampant speculation on what might make sense, based on no insider knowledge whatsoever.

If Google Earth is in for a social overhaul, what might that involve? I think Microsoft’s Bill Gates has already been quite forthcoming with the plans for Virtual Earth, and I think we should expect Google’s aims to be similar: It’s all about virtual shopping. In SL you shop for virtual clothes; in GE, presumably, you will one day be able to navigate the neighborhood you know so well to the store you have in mind, and then either visit its website to order merchandise, or else navigate a chain’s proper 3D store (if the investment has been made), much as you do now in SL, with the crucial difference that the goods you buy are actually delivered to your doorstep. (However: A store on IBM’s SL island is already experimenting with deliveries from Second Life to your doorstep.)

This might not be as efficient as doing a search for a book title on Amazon.com, but it might be more fun if you get to do it with an friend’s avatar, and discuss your imminent purchase.

Another way of putting this is that avatars might be useful as a signal of what you’re paying attention to. Avatars are really just points of view made flesh, and that point of view might be something you want to share with friends. Perhaps you’ll be able to invite a friend to “follow along” as you shop, so that you dictate the general location but not the specific point of view. Or perhaps, as you gather around a particular book on display, you will meet strangers who have the same interest as you at that moment — as good a place as a real bookstore to try your pickup lines.

In another context, we might have a teacher taking a classroom of students at connected Google Earths on a geography trip. The teacher controls the location of the view, but in that local space, students can roam about and do their own exploring.

Or perhaps that’s completely wrong. Perhaps the way forward for avatars in Google Earth is as signals of where you actually are on the globe (or at least your GPS-enabled mobile phone/gadget). Several third party services give us this capability right now, but there is nothing quite like making that a built-in feature in Google Earth for it to acquire ubiquity. Then you can really get all social-like — though this is perhaps most useful on mobile-friendly Google Maps, where a fancy avatar is a waste of space. Something like this already exists — Dodgeball. Google would just have to snap that up. Oh wait, they already did.

[Now go read what Avi has to say about all this. He actually knows what he’s talking about — though I don’t think a fictional layer for Google Earth is a likely scenario. For Google Mars though, yes, now that would be fun. Sign me up for a Fallingwater on the edge of Valles Marineris!]

[Update 17:08 UTC: I think Google Earth CTO Michael Jones’s comment below pretty much lays the Google Earth => Second Life rumor to rest.]

[Update 17:18 UTC: Looks like John Battelle gets it right too.]