The State of Reality: A Virtual and Augmented Future
Now that we’ve seen the current state of VR and MR technologies from a hardware standpoint, let’s discuss whether these technologies can coexist in the future.
If you’re one of the people who purchased a VR headset pre-2018, the biggest headache you encounter before entering your first VR experience will most likely be the mandatory setup process. Both the initial setup -downloading updates, creating accounts, setting up the room sensors and delimiting the area in your space that’s available for VR use- and the mandatory task of re-attaching the headset and wires before every future use are way too complicated for any mainstream consumer to wrap their heads around.
Then along came what I like to call the first ‘mobile VR’ device with a good -but not great- experience for the first-time users, the Oculus Go. With this device Oculus solved the bottom three criteria by which consumers decide to purchase any given product. By setting the price at $200, an amount that can be considered disposable monthly income for middle class individuals, the company all but erased from the brain of potential buyers any anxiety related to functionality, essentially placing a VR device into ‘giftable for holidays’ territory for the first time ever. But where the device really outshines its predecessors is in solving for convenience. All the hardware you need in order to enter a VR experience is a headset and a small controller. That’s it. There are no wires, the device’s setup is quick and painless and also extremely fast since the software of the device has Android foundations. The low price, along with convenience and hardware reliability translated into the Oculus Go selling 191,000 units¹ in Q3 2018, potentially² its weakest sales quarter in the year it was launched. In comparison, Oculus’ established, PC-tethered Oculus Rift product sol 300.000 units over the same period.
After the instant success and obvious potential for the future exhibited by the Go -and probably several dozen market studies-, Oculus decided to test the waters with a device that was more expensive but offered better performance. Launched one year later, the Quest offered improvements in controls, display quality and freedom of movement. These new features, the increase in the number and quality of experiences available in their proprietary store plus, to a lesser extent, the ability to side-load apps onto the device allowed Oculus to make a leap in terms of functionality, thus completing the buying hierarchy pyramid.
Both devices transformed the VR experience from an activity that took the equivalent time of installing a new game, to one that’s as short as turning on your TV and starting up a movie on Netflix. With a time of about 60 seconds from when you grab your headset until your are fully immersed into a VR experience of your choice -provided you don’t forget to charge your device-, these products have no competition right now. Sales data for 2018 reveals that indeed tethered VR devices owned a larger percent of the market compared to mobile VR headsets -44.1% versus 26.6%- but analysts predict that mobile VR devices will have a much more promising growth trend in 2019. Estimations are that mobile VR will grow its share in the VR space by 11.6% compared to the previous year while tethered devices are expected to grow by just 2%. This migration will probably felt the strongest by the PSVR headsets that accounted for most of the sales of tethered VR devices in 2018. This due to the fact that the PS4, the hardware that enabled PSVR to be the the lead the market by units sold, is aging fast and the new devices are starting to look as a viable replacement.
At this point in time Augmented Reality finds itself deep at the bottom of the Through of Disillusionment in the Hype Cycle, along with the Mixed Reality devices it enables.
Currently AR, as a technology, trails behind VR solutions due to the unique technical challenges it faces compared to the latter. As mixed reality devices need to overlap virtual information on top of objects in the physical world, said information needs to adapt and respond accurately to these objects in order to look believable in the user’s eye. Controls are another weak area in these experiences at the moment, one that, given the nature of the AR -i.e. that of interacting with the real world-, has to wait for advances in other technologies like AI and improved computer vision techniques in order to be improved to the point where interaction becomes intuitive.
So who will be crowned victor in this battle of the technological variety? Short answer, You.
First of all, the assumption that there can only be one winner entails that there is significant overlap in the use cases of the two technologies, so let’s take a look at these use cases.
The main use for VR technology is to deliver entertainment content-i.e. video, gaming, sports casts etc.- to its users while making them feel immersed in these experiences and allowing them to interact with them. As VR delivers content that we presently consume through TV screens, it’s easy to see how settling down for a ‘VR session’ entails the same conscious allocation of time in order to be enjoyed at its fullest. Despite advances in reducing complexity and reducing the time needed to access VR experiences, like watching your favorite TV show or movie when they come out on a specific date at a specific time, VR is also a planned affair due to the continuous attention it commands once you engage with it. This is a good thing since sales of TV sets in 2018 hovered around the $100B mark while movies earned $41.7B worldwide in 2018, not accounting for revenue from streaming or Blu-Ray/DVD sales after the initial release. Additionally, as video streaming services go, Netflix alone had a revenue of $15.7B in 2018 and the entire video games industry generated almost $135B during 2018, a 10.7% increase over the previous year.
Smartphones are the closest proxy we have at the moment for Mixed Reality devices powered by Augmented Reality and, to a lesser extent, wearables in the form of smartwatches. These devices are always with us as we go through our daily lives, they connect us to the rest of world, their functions make our lives easier and they track our health levels. They almost become part of us, they augment us. It’s no surprise given our close connection to them that if we take a look at the smartphone market we’ll see the numbers listed above being dwarfed. In 2018 the smartphones alone hit global sales of $522B and, as you’ve probably noticed already in previous links, out of the $135B raked in by the gaming industry, $50B was spent on smartphone products and another $11.4B came from tablet-specific games.
Despite the fact that activities like watching a movie or playing AAA games require your undivided attention, with the average gamer spending around 6h per week playing video games, the average smartphone user will spend 3h PER DAY! filling his dead times by conversing with friends, playing games, checking social media or watching video on their mobile device. Given that we have limited time in a day to interact with these technologies, the technology which is more convenient to access during the day will end up being the most utilized. Seeing this behavior, mobile developers are optimizing their entertainment products for those short bursts of free time that we all have during a day⁴, whether it’s waiting for the subway, waiting in a queue to get lunch or while using a toilet.
Even if in the eventuality that mixed reality devices of the the future can evolve to a point where they can block out reality almost completely, the experience will still be limited by non-immersive sound delivery, less than optimal controls and the little reality seeping in at the corners. It’s thus apparent that the virtual reality ecosystem will be adjacent, and not directly competitive, to the mixed reality one due the very nature of virtual reality: one of isolation as opposed to being additive to our daily lives. That being said, no one in their right mind would claim that the virtual reality market will be a small one, we can just say it will most likely be smaller than the mixed reality space.
Th majority of the talk surrounding VR and MR is around the capabilities of the hardware itself but, like in the case of both video games and smartphones, the aspect of the digital store or marketplace is at the least equally as important. Everyone saying ‘I have no use for a smartphone’ in the years immediately after they were launched had good reason to do so, smartphones were just ‘dumb phones’ with 5x worse battery life and no extra features at that point. It was the launch of the AppStore one year after the iPhone that unleashed the creative force of developers around the world and created an ‘economy within the economy’ that attracted increasing amounts of adopters.
The necessary marketplace for VR would behave in a similar fashion, benefiting the consumer, by providing them with a large library of compatible content, but also the the third party developers and ultimately the creators of said marketplace. The addition of more APPs in the library will attract more users, which in turn will make the platform more attractive for new developers in search of new opportunities of discoverability for their product. These network effects are the not-so-hidden force that enabled platforms like the AppStore or Valve’s SteamStore to grow as big big as they as fast as they did, all while providing major profits by way of commission fees payed by the user for each purchase.
If makers of the next generation of consumer products want to attract a big audience, their devices need to provide value to their users straight out of the box and in order for that to happen, the content ecosystem needs to be up and running before any hardware shipping begins. Both HTC and Oculus have proprietary stores and are trying to win over users early with platform-exclusive titles but, as the incentivized model of attracting developers is sure to run out sooner or later, it’s only a matter of time until developers will follow their consumers. And right now, due to their previous dealings in PC games, it’s Valve’s SteamStore that has a head start in terms of user numbers. If any of the VR and AR headset developers want to build their proprietary platform to a point where that becomes the place to go in the future, they need to be quite aggressive in both initial financial investment and would probably also need to adopt restrictive tactics like blocking access to other marketplaces. All these investments would be worth their while since whoever ends up scaling most first would put themselves in a very defensible position, making any attempts by competitors to break into the market very hard if not impossible.
Looking into the future, it’s impossible to identify the exact point in time when existing technologies will be taken over by the new ones. If we look at the capabilities offered by smartphones right now, we notice that the average consumer is well over-served in terms of performance, signaling that the segment finds itself at a potential inflection point. When technological progress outstrips the needs of the market, said market is usually up for an imminent disruption. This is also valid for TV sets, some incremental changes -’Smart’ capabilities, higher resolution- have made them slightly better but in the past years improvements are winding down. In the end there’s only so much resolution the human eye can distinguish at a certain distance. At this pace, both the TV and smartphone markets are on a two-way road to collision: Either disruption will steal their market or products will lose their profit margins when products cannot differentiate and will become commodities.
While early adopters will buy AR and VR devices for the novelty alone when they will provide experiences of good enough quality, manufacturers will only make their profits once the masses start buying these devices.
There are several emotional and social triggers that lead consumers to replacing a product they are currently using for a new one. First of all, their present situation needs to be pressing them for a change in a significant manner. Most people are adverse to change and/or they have anxiety when it comes to trying something new, in the eventuality that it could be worse, so if their existing product is mildly annoying they will probably not switch. Secondly, the appeal of the new product needs to be fairly strong, the new product needs to solve the consumer’s existing problem better than the product it replaces. The mass consumer will not change their existing behavior just so they can use a new product, they will only switch over if the new product is more effective and convenient at solving the customer’s existing issues.
We don’t yet know who will prevail in each of the two markets -the best we can do is guess- but one thing’s for sure, the stakes are very high. The individual companies that end up controlling virtual and mixed reality will implicitly have a commanding control over a lot of your attention and this is prime real estate for a Digital Advertising industry which has hundreds of billions of dollars to spend.
Here is a look at the current state of things and here you can read about the contenders in the Battle for AR
If you liked this article look into giving us a follow here on Medium and on Twitter
¹ Oculus also had a partnership with Xiaomi, branding the Oculus Go device as ‘Xiaomi Mi VR’ in China with sales of 60.000 units in the same Q3 of 2018.
² Taking from other tech product launches, the quarter a product is launched is the strongest along with Q4 being the holidays period.
³ All mobile games in the Casual genre-and its Hypercasual subcategory- are designed from scratch to be played in a lot of short sessions during the day. This category alone made more than $8B in 2018.
