Who Will Win The VR Market?
Originally Posted on www.roadlessventured.com
With the much anticipated Oculus Rift launching in 2016 and a number of head-mounted displays, included the Samsung GearVR available for the 2015 holiday season, I want to look at some of the factors that will affect how the VR and AR market develops in the next five years. (For clarity, unless I specifically reference VR and AR separately, I use VR to reference both product sets).
According to a DigiCapital analysis, the AR market is expected to reach $120 billion and the VR market $30 billion by 2020. Even though I am extremely bullish about VR’s potential as a game changer in countless industries, these huge markets depend on a number of factors aligning to allow VR to take off. Facebook’s purchase of Oculus in 2014 may have forced the world to sit up and take VR seriously, but it did not guarantee its short-term success.
Headset Adoption
Though you can watch 360-degree video on Facebook and YouTube for free, to get a true VR experience, you need to have the hardware and head mounted display to support the immersive experience we expect. That hardware is not cheap. A consumer (unless they already have a Samsung phone or a PlayStation 4) can expect to pay close to $1,000, and most likely much more, to acquire all the necessary hardware. To reach the mass market, those prices have to come down, and they will as the technology improves. The hardware systems that have the best chance of converting the consumer market are Samsung’s GearVR and Sony’s PlayStation VR. These systems rely on computing power that consumers already have (a Galaxy phone or a PlayStation 4) to support the head-mounted displays. That brings the cost down to a much more reasonable $300–500. Though Facebook and Oculus put VR back on the map, the incredible expense of the Oculus Rift makes it much more likely Samsung or Sony will win the initial battle for consumers.
Content
The desire to pay even $300 for hardware will depend on the content available on each platform. Take the market for devices that stream video (Chromecast, Apple TV, Amazon Fire TV, etc.): the hardware is useless unless it provides access to the content people want to watch, and those device makers advertise based on that content access. The same will be true of VR head mounted displays. Unless there are games, movies, TV shows, and interactive experiences that engage consumers and keep them coming back, hardware sales will falter.
KZero predicts half of the $30 billion VR market in 2020 will be software, which demonstrates how important the content side of the equation is for VR’s success. But simply having content available will not make the category successful. Premium content from the world’s leading content producers is critical. Some, like Fox, are committed to creating VR experiences (the Wild experience and VR content based on The Martian are only the beginning from Fox) but others, such as EA, are holding off on investing in VR until the consumer market is proven. Without a critical mass of creators like Fox, adoption of hardware and sales of software will be much more gradual than researchers expect.
In addition to having a better shot at selling hardware, Samsung and Sony also will have an easier time getting developers to design experiences for their platforms. Sony has the might of its own studios as well as all the game developers already working on VR content for the PS4. Samsung is capturing brands experimenting with VR’s marketing potential because of how portable the GearVR is (I ran across a Tom’s Shoes VR experience at Nordstrom today that would not have been nearly as accessible with a PC based system). The only risk here is that developers will want to be on Oculus given its perceived premium status.
With the need for affordable hardware and a good ecosystem of content, I think Sony’s system has the greatest chance of breaking through with the average consumer. With an installed base of 20.2 million PS4s and 10 games already VR ready; Sony’s VR system could easily outsell Oculus when it comes out in 2016.
