“You mustn’t be afraid to dream a little bit bigger, darling.”
Technology cycles create periods of hype and fizzle. Expectations are enormous … often followed by tempered reality when actual market dynamics are realized. For instance, smartwatches were going to be the greatest thing ever. Until actual smartwatches were released.
Virtual reality is now in its pre-production hype phase. Will it ultimately fizzle? When will we know if virtual reality is truly the next massive consumer technology?
That depends on who you are talking to and what questions you are asking.
Robert Scoble, one of the most recognizable faces in the Silicon Valley technology ecosystem, is a believer. Scoble announced this week that he is leaving cloud provider Rackspace—where he has been an evangelist and futurist for seven years—to join Upload VR, a community for creating virtual reality content, as its new entrepreneur-in-residence.
“It is clear to me that there are new opportunities to build companies in the VR space (duh, just look at the billions of dollars of investment) and the Augmented Reality wave that will follow VR will be even bigger,” Scoble wrote. “I wanted to be in a place where I’d have the freedom to create businesses, or at least be part of a media team that was focused on this future.”
A report by market analyst Digi-Capital said investment in virtual reality and augmented reality had reached $1.1 billion in the first two months of 2016—the first time that investment in the tech had topped more than one billion dollars in a calendar year.
To put that into perspective, a total of $700 million was invested in 2015. Back in January, Digi-Capital said that revenue from the VR/AR sector could be as much as $120 billion by 2020 … a sizable sum when you consider that the most popular VR headset available available now is made of cardboard.
The Market For Virtual Reality Is Not Set
A similar forecast at the start of the year by analysts at SuperData said that virtual reality devices would bring in $5.1 billion in revenue by the end of 2016, VentureBeat reported. SuperData was less bullish in its prediction for 2020 than its colleagues at Digi-Capital—only $40 billion in revenue by 2020, according to a blog post.
For any developer who works in virtual or augmented reality, the sums quoted must seem like manna from heaven. The $3,000 Microsoft HoloLens Developer Edition will be shipped to developers starting March 30, while the annual Game Developer Conference in San Francisco will dedicate the first two days of the event to virtual and augmented reality workshops and demos.
The next few months will see some high-profile devices released, which includes the Oculus Rift and the HTC Vive. These devices are tethered to computers that will run the software, which often requires high degrees of compute power. True mobile (run through a smartphone) virtual reality headsets provide freedom of movement but the processing power is lacking, leading to a deprecated experience.
We’ve been hearing about virtual reality headsets for several years now. People rave about amazing demos at tech conferences around the world. But, as yet, no real consumer-grade virtual reality headset has hit the market and nothing is on the roadmap for the mainstream consumer within the next year or so. So, what’s with this unmitigated optimism in a market and technology that has done little to prove itself?
“VR is that product that brings that immersive-ness,” said Dr. Kevin Curran, a Reader in Computer Science at the University of Ulster and an IEEE technical expert, in an interview with ARC. “That can make social networking real. Where your avatar is literally sitting there with someone else, you’re drinking a can of beer, you’re laughing and joking. You’re feeling and seeing their movements.”
Significant Growth In Actual Public Awareness
Everywhere you turn, virtual reality is heralded as the next big thing—even Happy Meal boxes have doubled up as VR headsets—but while the mainstream media has continued to talk the tech up, the general public is less convinced.
A recent survey of 3,000 American consumers by Horizon Media said that people think that virtual or augmented reality is still several years in the future. Around 33% of people were aware that devices existed, while 36% said that they would buy a device when they became available. Fully 82% of those people said that they thought VR was “exciting” and 81% said that in five years time one in four people would likely have a VR device.
One stumbling block is that people don’t know what virtual or augmented reality would be used for, Horizon said. Watching live sports events or travel was mooted as two possible uses. Horizon said that gamers were the ones talking about virtual reality the most.
“The research helps explain why gaming is the most likely first frontier for virtual reality devices,” said Kirk Olson, Horizon Media’s vice president of Trendsights, in a press release.”Core gamers aren’t a large audience, but they’re passionate about new technology. That makes them much more likely to pay for premium devices like Oculus Rift.”
An analysis of online conversations by Horizon found that 93% of gamers were talking about VR.
“Gaming, obviously, a no brainer. The entertainment will be there,” said Dr. Curran. “The next generation will look back at Call of Duty in 2D and go, what were you thinking?”
Oculus VR founder Palmer Luckey has said that the majority of current PCs and every Apple Mac do not yet have the technical capacity to run the Oculus Rift game graphics, which makes one wonder who Luckey sees as the target market. The Microsoft HoloLens is still some way from being made available to the public and (as yet) there has been no news about how much it could cost.
The Cost Is Still Too High
Virtual reality headsets are not cheap—the Facebook-owned Oculus Rift will cost $600, while the HTC Vive registers at $800. Horizon said that only 25% of people would pay more than $250 for a virtual reality device, which means that lower end options like the $100 Samsung Gear VR and the mass-produced Google Cardboard are more attractive options. At least as of today. Both options use smartphones stuffed into headsets to provide stereoscopic content that approximates, but does not quite replicate, the higher-end virtual reality experiences.
The cost of the premium devices is one reason why the projected revenue numbers don’t add up. Earlier this week, SuperData revised its 2016 revenue prediction for virtual reality from $5.1 billion down to $3.6 billion—a drop of 30%.
The reason for the change in attitude? The 16.8 million mobile VR units that SuperData expects to be sold in 2016 are the cheaper end of the spectrum and not the high-end devices. The Oculus Rift and the HTC Vive may sell around two million devices between them, while the release of Sony’s Playstation VR might get some traction among Playstation 4 owners. The LG 360 VR headset the company announced at Mobile World Congress is promised for release this summer.
People who pre-ordered the Samsung Galaxy S7 or S7 Edge will get a free Samsung Gear VR headset as part of the package. Google Cardboard is an entry-level device, hence the millions of downloads from the Google Play Store.
The average person is not going to shell out significant cash on a device or technology that still has to prove its worth.
“Granny is not going to wear it for a while,” said Dr. Curran. “But I believe it is going to change. Once you experience … when you look to your left and you are in a spaceship. The avatars are there and look at it and are like oh my god.”
We can track expectations for virtuality reality shipments by looking at corollary markets. Tablets started strong before leveling off and are now declining in shipments year-to-year. Wearables have been hyped up for several years and total shipments this year are predicted to reach 111 million units by IDC. The 16 million virtual reality units predicted for 2016 are a promising beginning, but just a first step.
SuperData’s director of research and VR lead Stephanie Llamas said the total number of households who own at least one device will increase by nine-times in the next five years.
Llamas wrote in a blog post:
After conversations with key hardware and software companies, we are confident that our forecasts have been adjusted to more accurately reflect the VR market’s potential. As expected, mobile device adoption will be highest due to accessibility to hardware, lower price points and forced adoption. This will be the key audience for entertainment, the second largest segment, while VR gaming’s $6.9B market in 2020 will mostly center on PC and console.
Five Years To The Virtual Reality Future
The general consensus in the tech industry is that virtual and augmented realities are destined for a bright future. Both environments replicate sensory experiences and put the user into a computer-simulated reality … and that is a good thing.
“It just works,” said Dr. Curran. “It tricks your brain in so many ways.”
Anybody who has watched Microsoft’s demonstrations of how the HoloLens will transform the way we see the world will understand that as more devices become available the more accessible virtual and augmented reality will be. Google has already shipped over five million Google Cardboard units and the app has been downloaded over 25 million times, cited by Reuters.
Facebook would not have invested in Oculus VR if it didn’t see a future in virtual reality. Amazon would not be on the hunt for a “senior development manager for its VR program” with 15-plus years of experience, according to a job posting on Glassdoor.
One of the reason Scoble left Rackspace to focus on the VR ecosystem at this particular time is because he wanted to get on on the ground floor of a market that many believe will materialize in three to five years.
“As a media guy, though, I know that in three years the market window will have closed,” Scoble wrote. “If there will be new brands, and I believe there will be, or new shows, documentaries, conferences, blogs, worlds, whatever you want to call them, they will all be built in the next three years.”
Dr. Curran believes that mainstream adoption of virtual reality will take place in five years. Dr. Curran is such a believer that he thinks most of human interaction will soon move to the digital sphere. Shopping, interacting with friends, traveling … it will all be seen through the lens of virtual reality.
“The high streets of the world will never be as full as they are now. One by one those shops are going to close,” said Dr. Curran. “Once VR comes along … .”
ARC editor-in-chief Dan Rowinski conducted the interview with Dr. Kevin Curran at Mobile World Congress 2016 in Barcelona.