Business Insider proclaimed yesterday that "virtual reality is going to grow like crazy over the next five years" and offered a very bullish forecast. They expect the market to explode from about one-half million units today to over 25 million units by 2020: 100% per year. Should we conclude that virtual reality is the next new, new thing?
The leading tech platform vendors are coming to the party. Facebook famously bought virtual reality ("VR") pioneer Oculus Rift in 2014 for $2 billion.
As early-stage investors, when we hear that a space will be hot, we like to ask: "Why this, why now?" What will make this category happen, and why will it happen soon? Often the hard part is to predict when something will happen, not what what will happen: i.e., Dick Tracy was talking via his watch in the 1930s, and that is just becoming reality now.
Testing the first generation Oculus Rift; Photo from Sergey Galyonkin via Wikipedia, licensed under... [+]
In the case of Virtual Reality, the "why now" question is easy to answer, at least in part. Virtual Reality is driven by the smart phone technology base. Smart phones have made the sensors you need for virtual reality head-gear very cheap. Likewise high quality screens and low-power, rich-graphics CPUs are cheap. And you have highly capable, hyper-competitive companies battling for volume and brand leadership. These are the companies that have jumped into the VR ring, plus Facebook, less (for now) Apple.
In fact, the same forces propel the drone phenomenon. Quad-copter drones are enabled by light/cheap sensor, GPS, and processor chips, and by battery advances, thanks to mobile computing.
I find the "why this" question for VR to be hard, however. Right now almost all of the use of VR is with console games. Although I am not a gamer, the gaming application makes a lot of sense to me. Gaming is all about immersing yourself in a cyber-world, and VR can make that more powerful and natural. Gamers could love this and use it more and more as the cost drops and the quality rises. The original Oculus Rift KickStarter page describes the Rift as "designed for gaming by gamers". But, console gaming is a niche, and probably always will be.
Most of the hugely successful tech products of recent years have been "social": they foster and enable social interaction in new ways. VR tends to be anti-social: it causes us to immerse in an alternate world apart from the people around us. There have been attempts to "socialize" alternate worlds, e.g., Second Life, but none of them have gone mainstream and scaled meaningfully. It's ironic that Facebook, the icon of social networking, is leading the charge into this essentially anti-social technology.
A couple additional hypotheses: maybe the right answer is not VR but rather augmented reality, which brings cyber-enhancement to the real world? And smart phone gaming centers on "game snacking" (quick gaming breaks) versus deeply immersive console gaming. Perhaps VR will enhance that experience? Augmented reality is quite promising, and it may turn out to be the focus of Microsoft's Hololens, but it has been around for a while now, and it was the thrust of the Google Glass experiment that Google recently pulled back. There is no clear momentum, yet. Perhaps we will take breaks in the future by plugging our smart phones into VR headgear and slipping into a cyber-world? I could imagine that, but it's totally speculative.
VR is basically a technology looking for a killer app to take it beyond the limited console gaming market. Bear in mind, however, that the PC was the same thing until Dan Bricklin invented the spreadsheet. And drones looked like toys until movie makers, surveyors, security firms, and then Amazon started to work with them. There's exciting upside here, but it's unproven. I'm eager to meet the entrepreneur, probably a Millennial, who has figures out the killer app for VR.
