The Arrested Development of Virtual Reality
Why VR is still nowhere near where it should be as a media channel despite the metaverse hype, and it will take to get there
If there were ever a time for virtual reality (VR) technologies to break into the mainstream, the past few years of pandemic-tempered mobility, combined with the resulting demand for escapist content and experience, may have been as perfect circumstances as it gets for VR. Yet, here we are, closing out the first half of 2022 with no qualitative change on how VR is regarded, both as an emerging technology and as a media channel, in sight. Who is to blame for the arrested development of VR? And will all the growing hype around the metaverse help renew consumer interests in VR?
The Meta Quest of Oculus
Six years after the debut of Facebook’s consumer-facing VR headset, Oculus Rift, virtual reality continues to suspend in between awareness and mass adoption. Despite showing incremental growth in audience reach over the years, it has yet to hit the necessary thresholds in terms of both audience size and content diversity to qualify as a legitimate media channel that more developers and media owners would want to invest in. And without further investment from the larger media ecosystem, tech companies, especially Meta, are essentially left as the lone champion for VR developments. This won’t be enough to move the needle, in spite of the halo effect brought on by the incessant metaverse hype.
Since Facebook’s metaverse-rebranding last October, the company’s Reality Labs division has been doubling down on its latest VR hardware, Oculus Quest 2, as well as its VR social platform Horizon Worlds. Per latest data from the IDC, Meta sold 8.7 million units of Quest 2 in 2021, which almost doubled the total number of VR headsets sold worldwide in the previous year. In December, Horizon Worlds was made available to all Oculus Quest users in the U.S. and Canada, marking an important step in Meta’s ambition at connecting its VR capability to its metaverse vision.
Since then, Meta has continued to build out new functions and creator tools for Horizon Worlds. Recognizing the importance of fostering a self-sustaining ecosystem to attract more developers, Meta started letting a select group of users sell virtual items they created in Horizon Worlds in April. Most recently, it added social hangouts to the Quest’s VR home space, hoping to spur more socialization in its VR spaces. The revamped Horizon Home lets people put on their headsets and immediately invite other Quest users to jump into social experiences, including watching VR videos as a group. Other recent improvements include parental control for Quest headsets and built-in voice command for Horizon Worlds.
Although Meta says it currently has no plan to monetize Horitzon Worlds via ads or brand partnership, it has not deterred some adventurous brands to venture into the 3D virtual world. For example, QSR chain Wendy’s opened a virtual location in Horizon Worlds in April, featuring a basketball court where Quest 2 users can play a VR match or two, as part of its March Madness-theme campaign. In the long run, an eventual integration of Horizon Venues, a standalone experience for throwing large virtual events on Oculus’ platform, seems inevitable, pointing to potential entry points for brands down the road.
Arrested Development and Misalignment
Despite Meta’s continuous efforts at expanding the use cases of its Oculus devices, the VR market still faces a retention issue: according to data from our latest Futurecaster survey, 40% of U.S. adults say they have tried using a VR headset, but only 15% say they plan to use one in the next 30 days — indicating that many that had tried it before have lost interest since then.
This finding is corroborated by data from eMarketers, which estimates about only 11.6% of internet users in the U.S. currently use a VR headset. Even the gamers are not all on board with VR, despite gaming being one of the stronger VR use cases today. In 2021, only 2.1% of PC gamers worldwide say they are playing with a VR headset.
It seems that in its metaverse-oriented quest to make Oculus’ VR platform more social, Meta has lost sight of what drives users to socialize on a platform in the first place — and that is content. VR content has been slowly diversifying beyond video games, yet gaming still remains as a dominating genre in VR content. Without compelling content to incentivize more users to get through the onboarding hassles — not to mention to justify the monetary cost of buying a pricey headset — VR is stuck in a vicious cycle of lack of consumer interests and developer attention.
The other thing underpinning VR’s impasse is that the metaverse, in its current stage, is not dependent on VR as the main UI. While it is true that, in its purest form, the concept of a metaverse promises a 3D immersive experience of embodied internet. Yet, until the VR headset technologies align with the value proposition it provides mainstream consumers with, VR is not going to hit the adoption threshold to make its metaverse applications compelling and a must-have for mass consumers, especially when most of the existing proto-verse environments such as Fortnite and Decentraland allow for headset-free interactions.
The Competitive Landscape (or, the Lack Thereof)
The other contributing factor to the arrested development of VR is the lack of competition in the space. As we mentioned, Meta’s Oculus is the biggest player left in the space, accounting for nearly 80% of the market share in VR headsets sold worldwide in 2021, per IDC tracking data. After Meta, the top manufacturers of VR headsets by shipment are rounded out by far smaller competitors that do not have the resources and the market leverage to create a competitive environment to spur breakthrough innovations in VR.
Two Chinese VR makers, DPVR (previously known as Deepoon VR) and ByteDance-owned Pico commands 5.1% and 4.5%, respectively, of the VR headset market share in 2021, per IDC data. That leaves roughly 12.4% of sales split between companies like Valve, Sony, and several other smaller VR companies.
DPVR mostly sells its headsets to enterprise clients, some of which are quite eager to explore new dimensions in corporate training and team-building. In fact, several agencies and marketing firms have reportedly already started exploring the commercial use cases of VR. Some are testing annual summits in VR, while others are shifting meetings from Zoom to VR workspaces like Horizon Workrooms (which is currently in beta testing). If these enterprise use cases continue to gain traction, that may result in increasing market share for DPVR.
Meanwhile, Pico, a fully-owned subsidiary of TikTok’s parent company ByteDance, is focused on the consumer market and has been mostly focusing on the domestic Chinese market so far. However, the firm is reportedly planning to expand its operations abroad. The company’s flagship all-in-one headset, the Pico Neo 3 Link, just launched in Europe in May and costs $472 USD. While Pico still has a lot of ground to cover if it were to enter the U.S. market seriously, ByteDance may just have the resources to give it the push it needs to compete with the handful of mainstream headsets offered by Meta, HTC, Valve, and PlayStation.
Despite being an early pioneer in the VR headset market, HTC has fallen behind in recent years due to stagnant user growth and lack of R&D resources. The current flagship HTC Vive VR system, the whole system, which includes the headset, the controllers, earbuds and the base stations themselves, current sells for about $499, about $200 higher than the Oculus Quest 2, and without the broader VR content and platform support that Oculus has developed with the financial backing of Meta.
For a brief time around 2016 when Sony first introduced PlayStation VR, it looked like PSVR could be a competitor against Oculus, especially considering its roots in console gaming and access to exclusive PS titles. Fast forward to 2022, however, Sony is busy wrestling with supply chain issues to make enough PS5 consoles to meet the demand, let alone releasing a new version of PSVR to compete with Oculus. Although it has teased about potentially launching the next-gen PSVR in early 2023 (around the same time as Apple is rumored to be releasing its first headset), and has recently announced two new Ghostbusters VR projects, PSVR seemed almost an afterthought for the company for the time being.
Overall, it is quite clear that Oculus has become the clear winner of a niche market. Yet, without a dynamic competitive landscape, Meta seems rather directionless in its development of consumer-facing VR. Pushing the metaverse platform to drum up interest in the metaverse make sense on paper, but in practice, the development of the metaverse is not dependent on VR as the main UI, in its current stage.
While it is true that, in its purest form, the concept of a metaverse promises a 3D immersive experience of embodied internet. Yet, until the VR headset technologies align with the value proposition it provides mainstream consumers with, VR is not going to hit the adoption threshold to make its metaverse applications compelling and a must-have, especially when most of the existing proto-verse environments such as Fortnite and Decentraland allow for headset-free interactions.
The Road Ahead
Looking ahead, as AR continues to overtake VR in terms of brand-friendly applications and consumer adoption, it would seem that VR headset’s future may likely be subsumed into mixed reality headsets that are capable of both VR and AR views, especially if that’s what the upcoming Apple headset turns out to be.
That being said, there are some reasons for cautious optimism. Hit online game Among Us is set to release a VR version later this year, which could drum up some interest in the wider audience to give VR another try. In addition, Apple’s long-waited mixed reality headset is expected to be released sometime next year, which could bring an “iPhone moment” to the product category and help normalize owning a headset among mainstream consumers over the next few years.
While the potential for VR to become a mainstream media channel remains untapped, it has not diminished in theory either. Rather, it just may take some unexpected routes through AR and mixed reality, perhaps with a detour through the metaverse buzz, for VR to get there.