A Reality Check on Virtual Reality
And why brands should still pay attention to VR developments
Silicon Valley has been trying to make virtual reality a mainstream technology ever since Facebook acquired VR headset maker Oculus for $2 billion in 2014. Now, nearly a decade later, Facebook has rebranded as Meta, and Oculus is still launching new headsets — yet virtual reality is still far from becoming the kind of widely adopted consumer tech that the tech companies hoped for. In fact, if anything, the tepid consumer reaction to VR devices has revealed a huge chasm for the industry to bridge.
The Stunted Growth of VR Hardware
Virtual reality is mostly commonly defined as a technology that immerses a user inside a 360-degree visual environment that they are free to explore in and interact with. While existing VR interfaces span from desktops and mobile devices to fully immersive headsets, most of the reports available today opt to only count sales of head-mounted VR hardware as the one true barometer for VR adoption among consumers. While this approach does leave out the 2D access point for VR-lite experiences that are far more popular, it is nonetheless a useful measurement to judge the consumer adoption of, and interest in, VR.
According to a recent survey conducted by Creative Strategy on the consumer adoption of VR, 46% of U.S. adults have already tried a VR headset experience, yet less than 10% of the U.S. population still owns a VR headset at home. This somewhat dispels the argument that the slow adoption of VR headsets is due to the lack of hands-on experience of what the current generation of VR devices can deliver. In addition, the same survey also found that pricing is not a determining factor: 70% of respondents indicated $500 or less would be their ideal price range to purchase a VR headset should they ever become interested in it, and the two latest Oculus Quest models have been retailing in the $299-$399 price range.
So, despite the relatively affordable pricing plus the widespread awareness and try-on experiences, consumers are simply not finding the value proposition of VR headsets compelling enough. When it comes down to it, the slow adoption of VR can still mostly be attributed to a lack of must-see content for the vast majority of mainstream audience. For what it’s worth, VR gaming has carved out a niche audience, but non-gaming content is still severely lacking for the medium. Over 90% of VR headset users put them on to play games, and no other VR use cases exceeded 30% of users, according to an August 2022 study by Arris Composites. (While I could not find more recent data on VR use cases, empirical evidence suggests that this has not changed much in the past 14 months since that study was published.) And until that changes, VR will remain a niche category for immersive gaming enthusiasts.
The stalled user adoption of VR headsets has made some tech companies lose interest: in 2022, After Google abandoned its Google Daydream platform in 2019, Meta essentially cornered the lower-end of the VR headset market with Oculus Quest headsets. According to the latest data from IDC, Meta is the undisputed market leader in VR headsets with a 50.2% global market share in Q2 2023, while Sony and ByteDance both gained market share in the same quarter, with 27.1% for PlayStation VR and 9.6% for the Pico headsets, respectively. Still, IDC notes that uncertainties in the global economy have curbed demand while the negative impact of a $100 price hike on the Quest 2 headset combined to further stunt growth in the VR market.
A quick side note on the Microsoft Hololens here before we move on from the hardware. Microsoft last updated its fancy “mixed reality” headset in 2019, which was mostly positioned for enterprise and research use cases, while also snagging government and military contracts on the side. Though Microsoft’s mixed reality teams took a hit in 2023 in terms of cost cuts and layoffs, the company is still pushing forward with its HoloLens 2 headset, with plans to integrate it into Windows 11, which signals a potential pivot back to the consumer market, especially if Apple’s Vision Pro headsets take off (more on that later!).
The Yet-To-Materialized Metaverse Dream
Besides being the one dominating the VR headset market today, Meta is also the most vocal proponent of how it plans to implement its software services into VR. When Mark Zuckerberg rebranded his company as Meta to focus on the budding development of the metaverse, the rationale behind that rebranding was that the metaverse will become the next computing platform where all online interactions will take place in, and VR headsets will be the best touch points to access the metaverse and receive the best immersive experience. In other words, the metaverse will theoretically be the killer use case for VR. While that reasoning may still appear to make sense on paper, in practice it has proven to be an erroneous one that has held back Meta from making its metaverse platforms as easily accessible as possible.
Remember Horizon Worlds, Meta’s big bet on 3D social platforms with metaverse ambitions? Chances are, if you’re not a current owner of an Oculus VR headset, you likely don’t recall it, since access to Horizon Worlds had been previously restricted to VR headsets only. In February 2022, Meta reported Horizon Worlds had hit an estimated 300,000 users three months after rolling out to all Oculus users in the U.S. and Canada, but the number quickly dwindled following the initial wave of curiosity; By October 2022, The Wall Street Journal was reporting it having less than 200,000 monthly active users. In August 2023, YouTuber Jarvis Johnson claimed to have spent a month in Horizon Worlds and encountered less than 1,000 English-speaking users.
Now that the hype around the metaverse has calmed down, — search interest in “the metaverse” is down 71% in 2023 compared to last year, per Stocks App data — Meta is coming around to the fact that perhaps hinging its metaverse dream on Oculus headsets is not the shortcut they thought it were. Therefore, it should come as no surprise that, in September, Meta announced that Horizon Worlds will start to roll out on mobile and the web in early access over the next few months. The goal of this expansion, as Meta puts it in its press release, is to allow more users “to hang out with friends, laugh it up at comedy shows, and enjoy free concerts and events” in Horizon Worlds via “any web-connected device.” It’s still too early to tell whether this decision will propel more users to give Horizon Worlds a try, or if it is too little too late for the platform mainly designed for immersive socialization. In any case, it would have to compete with Roblox, a far more accessible and popular gaming platform with metaverse ambition.
Meta’s decision to work with Roblox to bring the popular DIY 3D game platform to its VR headsets is a significant development in the intersection of VR and the metaverse. As of Q2 2023, Roblox had over 65.5 million daily active users worldwide, and over 40% of them are under 13 years old, per the company’s Q2 earnings report. Comparing that young-skewing user base to the aforementioned 200,000 monthly users of Horizon Worlds, Roblox is clearly the more popular metaverse platform that users actually want. Now, how many of those 65.5 million Roblox users would choose to experience it via Oculus VR is an open guess at the moment, but if this VR version of Roblox can offer users an experience that they cannot get when accessing the game on non-VR devices, then there just might tip the scale for Oculus headsets.
It is also important to note that Roblox is, at the moment, a far more advertiser-friendly platform than Horizon Worlds, as the company just launched its own ad network earlier this year. If the metaverse is indeed the true killer user case for consumers to finally embrace VR, then it would take a platform that facilitates creators to not only build out the virtual worlds that people will access via their headsets, but also to monetize their creations through ads and other sponsorship opportunities.
The Apple Factor
Looking ahead to next year, the VR market appears to be due for a reappraisal whose outcome will largely hinge upon how well Apple’s splashy entry into the mixed-reality headset market is received. Unveiled in June at Apple’s annual developer conference, the Vision Pro is an interesting headset that is technically built like a VR headset, but delivers a simulated AR experience via pass-through cameras most of the time. To make the categorization even more complicated, while Vision Pro is primarily positioned to be used as an AR device, it can switch between augmented and full immersive VR experience using a dial on the device. Most tech publications tend to refer to it as either a mixed-reality device or an AR headset, although Apple seems to prefer the term “spatial computing device”.
Whatever the terminology, one thing is for sure — Apple’s upcoming headset has reignited investors’ interests in the mixed reality space. Financial Times reported that following the unveiling of Vision Pro in June, AR, VR and mixed reality (XR) start-ups in the U.S. raised $208 million in VC funding, nearly as much in one month as in the previous three combined, per data from PitchBook. The attention on Apple was helping to “shine a light” on the ways that mixed-reality solutions could make an impact beyond consumer applications.
Retailing at $3,499, Apple is clearly targeting the most premium part of the consumer market with this first edition of Vision Pro. The early adopters will be the hardcore Apple fans and power users who are eager to replace physical screens with virtual ones. In the meantime, software developers will start to explore more consumer-friendly use cases beyond 2D media and work apps, likely in a similar trajectory of the App Store during the early days of the iPhone. This will likely have a trickle-down effect on VR devices and content development as well, in a “rising tides lift all boats” type of way.
While the Vision Pro might not drive significant volumes given its premium price point, it could be a potential catalyst for the AR/VR market. Apple’s focus is clearly to hit a home-run on consumer engagement as opposed to volumes with the first device in what admittedly will be a multi-year journey for the platform. Apple’s entry into the VR market will also increase competition among existing VR headset manufacturers. After years of dominating the VR headset market, Meta now has some serious competition for Oculus, and more market competition is usually good for consumers.
Although Vision Pro won’t become available until early next year, there is still plenty for innovation-minded brands to do in preparation for its arrival. Branded assets need to be upgraded to 3D ones, and existing mixed reality experiences should be converted into compatible formats. In any case, its indirectly positive impact on the VR market should not be overlooked.
