VR— the next world eater ?

What a time to be a VC!

Innovation seems to never slow down…on the contrary it´s picking up steam every year and my feeling is that we are only a few years away from fundamental changes driven, mostly, by three “technology clusters” (VR/AR, Blockchain, Drones/Robotics).

Let´s talk VR/AR.

If you want to stay up to date with what is happening in the VR/AR world register for my bi-weekly VR newsletter here

What is VR and AR?

VR = Virtual Reality. A technology that creates an artificial 3-D world where a user can interact with artificially created objects/ environments.

AR = Augmented Reality. A technology that combines elements of the real world with virtual images. A user of an AR device can detect real world elements from those in the virtual world. AR combines aspects of VR but will allow the user to interact with their surroundings.

VR has come a long way to where it stands today

In 2016 3 major VR platforms will officially launch: Facebook (Oculus Rift), Sony (Sony VR) and HTC+Valve (HTC Vive). While Samsung (Gear VR) and Google (Cardboard) already shipped in 2015. At some point in 2016/2017 I expect at least 2 AR platforms to launch: Microsoft (HoloLens) and MagicLeap (with notable fundings from Google, Alibaba and Warner Bros among others). To sum it up, who is working on VR/AR? FB, Sony, HTC, Google, Samsung, Microsoft. Pretty much all the biggest consumer electronics corporations. How did we get here so fast? Well it was not so fast as you might think:

1968 —Ivan Sutherland, Harvard Computer Science professor, creates “The Sword of Damocles" the first VR headset ever — Link

1982 — Computerized flight simulator with headset to train pilots in the US army created by Thomas Furness III— Link

1984 — Jaron Lanier founded VPL Research, one of the first companies in history that developed and sold virtual reality products and a few years later he coined the term “virtual reality” — Link

1994 — Sega introduced its VR glasses, Sega VR-1 motion simulator arcade attraction — Link

1995 — Nintendo produced the Virtual Boy console, the first portable video game console capable of displaying “true 3D graphics” — Link

2012 — Oculus VR crowdfunds USD 2.4m via Kickstarter — Link

2014 — Facebook acquires Oculus VR for reported USD 2bn — Link

2014 — Google announces Cardboard — Link

2014 — Sony announces its VR set for PS4 “Project Morpheus” — Link

2015 — HTC partners with Valve Corp to create VR device “Vive”— Link

2015 — The New York Times partners with Google and distributes more than 1 million Carboards to its subscribers — Link

2016 — Oculus (FB) set to ship to consumers in Q1 2016 — Link

Products Overview

When it comes to available or announced products I think one can visualize the market as it follows:

Here below I picked one product per category to showcase their features.

Prosumers: The Oculus Rift

Resolution: 2160×1200

Refresh rate: 90 Hz

Price: USD 599

Note: A virtual reality headmounted display developed by Oculus. Touch sensors available and sold separately. PC based. Only 5% of worldwide active PCs are powerful enough to be compatible with the Oculus Rift, price for an oculus ready PC starts at ~ USD 900

Mid-market: Samsung Gear VR

Resolution: the one of the mobile phone (for Galaxy S7 2560×1440)

Refresh rate: 60 Hz

Price: USD 99 or for free in budle with Galalxy S7

Note: A mobile device virtual reality enabler developed by Oculus. Works in conjunction with a Samsung mobile device (from Note 5 upwards)

For the masses: Google Cardboard

Resolution: the one of the mobile phone

Refresh rate: depends on the mobile phone

Price: USD 10–20

Note: A cardboard viewing device launched by Google but now available from a number of white label suppliers. It works with VR apps that can be downloaded in the regular app store

Ecosystem Overview — Hardware

Ecosystem Overview — Applications

How quickly can VR hit the main market?

I did some research and looked at adoption data of other consumer technologies such as smartphones, gaming console and computers. I believe that we can expect to see the first 10m units shipped by the end of 2018 or mid 2019.

Source: company data, Statista, Jeremy Reimer

Funding Environment

VC money is financing the VR ecosystem at an increasing pace. Total funds invested (adjusted by excluding Magic Leap giga round) in VR space has increased every quarter in the last 6 quarters.

Source: CB Insight, Niklas — our killer analyst
Source: CrunchBase, Niklas — our killer analyst

The case for an extended environment

Is VR a great accessory for hardcore gamers or is it a mass market product that can serve as platform for a number of applications impacting our everyday life? I will start by saying that video games console is alone a huge market, so if VR turns out to be the next gen console standard it´s still a USD 40bn revenues opportunity so definitely a good outcome for companies like Sony and Microsoft developing their own headsets. But this is not the outcome that excites me as tech lover and as a tech VC. I believe that developers and entrepreneurs can build beautiful things with the new hardware at their disposal. It is safe to safe to say that VR will start with games application but I am seeing already companies developing great tools. After doing some research and thinking I have identified 6 main areas of applications:

1 — Entertainment (Potential: USD trillions). Easy call: games, movies, sport and music events you name it. Have a look at what the NFL is building with the Hololens, Link

2 — Space (Potential: USD billions). Training for astronauts and divulgation of science material. The NASA Mars 2030 project is going to be available on all major VR platforms, Link

3 — Automotive (Potential: USD billions). Prototyping and quality inspection in newly built cars. Ford is already using it, Link

4 — Shopping (Potential: USD trillions). Giving customers the opportunity to see clothes, shoes and furniture can potentially provide an amazing experience for customers and ultimately decrease return rates. ASOS is developing this concept with Trillenium, Link

5—Military (Potential: USD billions). Training for soldiers and testing of stressing situations, Link

6 — Education (Potential: USD billions/trillions). Engaged students learn more, making educational content more real and interactive is a big win for students and teach. Think not only schools but also University research and life-long learning, Link

Cool VR things picking up steam on Product Hunt

What can go wrong? Is this 3D TV all over again ?

I believe 3 major stoppers could prevent VR to become the future of tech hardware:

1 — Nausea and physical disturbance. This is a big one, I have put my hands on Cardboard and Gear VR (a prototype in early 2015) as of today and I have to admit that after 10 minutes I felt the urge to stop watching, it was just not comfortable and my eyes were a bit aching. I had a discussion about this with someone working at Oculus and they told it is something they have worked hard on, increasing the refresh rate can provide easiness for the eyes and producing content with carefully paired audio can avoid the sense of nausea one might experience. Let´s see what happens here once the products hit the market.

2 — A sense of isolation from reality. The idea of a headset transporting you in another reality can sound scary for many and one might think that people are down to a path of isolation and alienation. I don´t think this is the case and I will trust Mark Zuckerberg’s view on this.

3 — Computational power. As of today only a small fraction of PCs can support the graphical and computational requirements of Oculus and we are talking about big tower PCs, forget about portability. One can quickly dismiss the topic thinking that Moore`s law will take care of that and in couple of years CPU will catch up. Well it might be not as easy as you think. Have a read at the article embedded here below, what it is basically saying is that in last 20 years transistors placed on microchips shrinked in size to the point that they are now quickly approaching the size of the atom and this represents a natural boundary. So reaching the computational power needed to do everything we envision in VR is probably not so easy as one might think and could take more time than expected.

To conclude, I am bullish on VR. I do believe that it stands a chance to become a technology that will impact many markets aside of the gaming industry, which is bound to be revolutionized by VR. The absolutely groundbreaking and pervasive potential that can be unleashed through this technology, the great amount of VC money poured in the industry by many amazing funds plus the fact that all the best consumer electronics companies are launching their devices gives me the confidence that this will not be a 3D TV case.

Like this post? Great! Follow me here on Medium or over on Twitter@federicowengi. It would be cool if you hit “Recommend” on this post too. Thanks!

Like what you read? Give Federico Wengi a round of applause.

From a quick cheer to a standing ovation, clap to show how much you enjoyed this story.