Linden Lab, the company behind Second Life, has acquired game development studio LittleTextPeople.
The acquisition will provide Linden Lab with the talent and technology to support the launch of "several new standalone products" in 2012.
"LittleTextPeople brings a depth and breadth of AI and interactive story development expertise that is a great fit for Linden Lab as we launch multiple new products," said Linden Lab CEO Rod Humble.
"The result of this investment will be a new type of digital entertainment that modernises the novel as a shared storytelling experience."
LittleTextPeople was founded by Emily Short and Richard Evans, and developed simulation technology that models individuals and social interactions. Short described this as "an exciting time" in Linden Lab's development as a company.
After a period of great popularity and intense media scrutiny, Linden Lab's Second Life entered a period of decline.
In June 2010, the company was forced to cull 30 per cent of its workforce. Later that month, Mark Kingdon stepped down from his position as CEO, with company founder Philip Rosedale returning to the role for the first time since 2008.
However, in October of that year, Rosedale also stepped down to concentrate on his new company, Love Machine. Linden Lab's current CEO is Rod Humble, a veteran game designer who worked on EverQuest and The Sims.