In an economic environment where a number of companies are stumbling, it’s important to remember that sometimes even Google makes bad decisions. Such would be the case with Lively, a browser-based virtual world environment – and purported Second Life killer – that Google launched this summer to great fanfare.

Now, a little over four months after Lively’s launch, Google has decided to turn the lights out on the alternate reality, announcing that they are discontinuing Lively at the end of this year.

Google tried to be polite about pulling the plug:

“Since Lively’s launch, we have been delighted to see the creative ways you’ve used the product. We enjoyed hanging out in Jen’s coffee house, and checking out the Brasil Party room. We got a kick out of the YouTube videos in a variety of languages telling stories about your avatars. And we’ve been awed by the elaborate rooms that you’ve constructed, using mosaic tiles and photo gadgets in novel ways.”

But ultimately, it decided to shut the whole thing down. Why?

There will be all varieties of speculation as to why Lively failed to remain a viable application for Google. Perhaps the traffic Google expected never materialized? Maybe it was going to be too distracting to take on a well-entrenched Linden Labs and its faithful user base? Was the “Windows only” format a problem? Could it be that, in today’s economic conditions, Google simply couldn’t afford to fund it?

I think we can take Ockham’s Razor to this one. Because I think the answer is quite simple: It seemed like a good idea at the time. But, in actuality, Lively didn’t offer Google any relevant data. And that, ultimately, is what killed Lively.

The world of Google – everything on which Google focuses its time and effort – is built on relevant data. A portion of that world involves making that data searchable. But the far more lucrative portion of that world involves analyzing how users are accessing that data and finding ways to monetize those behaviors.

Example? Think of the silliest Google app that you can. I’ll pick Google Mail Goggles, a Gmail Labs feature that makes you answer math questions before you’re allowed to send an email to prevent you from drunk-emailing your friends. But you could take Gmail emoticons, because – honestly – that’s pretty silly too. Even those seemingly ridiculous apps provide thousands of data points through their use: Which users deem themselves “at risk” for sending unwarranted emails? How good are inebriated people at math? What’s the trend of sad emoticons now that the economy has turned? How many people opt for traditional emoticons versus graphic ones? You could go on and on with the potential data points.

But those examples only make sense because of one thing: users. It’s much more difficult to make that leap with Lively – which didn’t boast anywhere near the traffic of Gmail – and as such, it just simply didn’t fit in to Google’s larger plan. And when traffic started to tank, it wasn’t worth additional investment, because Google likely wasn’t seeing any relevant application for the data as part of its core structure.

Yes, I’m sure other factors came into play, and I’m sure it wasn’t easy to pull the plug on a splashy product that launched mere months earlier. But it’s an important reminder that Google has a larger goal in mind and you’re a big part of it. If you’re not playing, nobody’s paying.