Eight questions about Virtual Reality in 2016 (and beyond)

by Peter Rojas

Anyone who has spent time with me lately has probably noticed that I can't stop talking about VR. It's the one area of technology that I'm most enthusiastic about these days -- I own a Gear VR and just pre-ordered the Oculus Rift (and will probably pick up the HTC Vive as well). What's especially exciting about all this is that we don't yet know how all this is going to unfold. It feels like we're on the cusp of an entirely new world of immersive computing, but VR as an industry is still completely wide open in a way which more established markets like mobile and desktop computing are not. Here are a few of the questions I have about VR in 2016 (and beyond):

How big will the market for VR be a year from now?

In a way, the size of the VR market a year from now won't matter any more than the size of the smartphone market in 2006 meant about the size of that market now. What we really care about is how big the market can ultimately get and how long it will take to get there. But that said, after plenty of false starts, 2016 is supposed to be the year in which VR finally starts to catch on and become a real thing. So, the number of people who actually start using it will be meaningful, particularly since this will be the first year when regular people (i.e. non-developers) will be able to get their hands on top-notch headsets like the Oculus Rift, HTC Vive, and Sony's PlayStation VR.

As bullish as I am on VR, even if adoption is strong, the number of active VR users at the end of 2016 is still going to be minuscule compared with the number of people using smartphones. My best guess is that we're looking at somewhere around 10 million or so active users. Now, 10 million is not a bad number at all, but it will mean a relatively small addressable market for a lot of the apps, games, and experiences which will be out there. That might be enough if you're selling a game title you're planning on charging $60 for, but if you're building something which is going to make money via advertising, you are going to have a very tough time amassing a sizable enough audience to make any money. There's also the inevitable boom/bust hype cycle which surrounds every new technology, and there will be plenty of VR skeptics out there who will pounce on these relatively low numbers to pronounce that VR has once again flopped.

Will headsets be a commodity or a source of competitive advantage?

Will VR headsets end up being more like dumb glass (like TVs and monitors, which have largely become interchangeable commodities)? Or will they end up more like game consoles (which tightly lock users into an ecosystem of games, apps, and content)? Or somewhere in between? Certainly if you're Oculus, you want value to accrue to you and for there to be enough defensible value in your headset that consumers can't easily substitute it with another. Whereas, if you're Valve, you probably have an interest in there being multiple headset vendors driving the price down as quickly as possible, fueling adoption and expanding the universe of potential customers for their SteamVR platform. I'm ignoring the really low-end of the market, since headsets like Google Cardboard are already essentially a commodity (they're being given away for free, if that's any indication). I don't know how this one will play out, but if history is any guide, VR headsets will end up coming down in price quickly and profits from selling them will be few and far between.

Speaking of hardware, what will the relationship be between high-end and low-end VR?

In 2016 there will be two VR markets: a higher-quality experience which involves a dedicated headset tethered to a PC or game console (i.e. Oculus Rift, PlayStation VR, and HTC Vive) and a lower-quality experience which involves using popping a smartphone into a headset and using that for a display (i.e the Gear VR, Google Cardboard, Zeiss VR One, etc). We talk about VR as this monolithic thing, but anyone who has tried both the HTC Vive and Google Cardboard can tell you that there is a huge gulf between the two in terms of immersiveness and level of realism. Will developers try to build apps, games, and experiences which work across both tethered and mobile VR, or will they end up focusing on one end of the market or the other? Will users get a taste of VR on Google Cardboard and then "graduate" to tethered VR, or will mobile VR remain the domain of casual users for enjoying 360 degree videos and experiences while the higher end of the market appeals primarily to hardcore gamers?

Will regular people create and share VR content? If so, how? 

It stands to reason that people will want to create and share their own 360 photos and videos -- we're starting to see a bit of that already -- but will a new social platform or app emerge for that or will it mainly happen on existing platforms? Facebook and YouTube already support 360 videos, for example, but I have yet to see a truly great "VR-native" experience for sharing and consuming other people's VR creations. Hard to imagine that Facebook or Google aren't working on something, but there could be an opportunity for a startup that's just focused on VR to do something awesome here. 

Will there be an app which drives mainstream adoption?

VR gaming is going to be amazing, but given that most people aren't interested in console gaming there's no reason to believe that adding a VR headset to the mix is going to change things--sales of game consoles and gaming PCs are not especially robust, particularly compared to sales of smartphones. Immersive TV and movies will probably find a wider audience, but no one has any idea whether there will be an app for VR which convinces regular people that they need to go out and get a headset. If you're building something for VR which you think will do that, get in touch.

What will be the user experience paradigms which define VR?

I've written about this one before, but I still don't think we're anywhere close to figuring out what a native UX for VR looks like. I have a few ideas about how it might evolve which I'll post at a later date, but I'd love to hear what others are thinking here.  

What will Microsoft end up doing?

Sony has its VR headset for the PlayStation 4, but as far as I know Microsoft has no plans for a headset of its own for the Xbox One. It's possible they have something in the works, (perhaps that they'll announce at E3) but I haven't heard a single thing about it. So far the extent of their strategy for VR seems primarily to partner with Oculus. Given that Windows 10 will be the platform of choice for most Oculus Rift users, and the Rift will ship with an Xbox One controller, that may not be such a bad plan. However, it doesn't do much for all of the Xbox One owners out there who would be interested in having a VR gaming experience like the one Sony is going to offer with PSVR.

Wait, but doesn't Microsoft have a headset? Yes, they have introduced the HoloLens, but that's an augmented reality headset, not a VR headset. It's tempting to lump AR and VR in together, but they're fundamentally different products offering fundamentally different experiences. AR headsets involve taking a view of what you're actually looking at (i.e. actual reality) and overlaying graphics within that field of view. By comparison VR headsets are fully immersive and completely take over the user's entire sensory experience. While there will definitely be a market for AR gaming, it will pale in comparison with the demand for VR gaming, at least early on. In the meantime, Microsoft's VR strategy is a big question mark.

What will Apple end up doing?

I don't think anyone is holding their breath waiting for an Apple VR headset anytime soon. It's not Apple's style to be part of the first wave of a new, relatively untested new technology. Typically they like to hang back and introduce a product when they feel the market is finally ready. Assuming that Apple does eventually end up doing something -- and they have made a couple of relevant acquisitions -- the question is whether it will be more like the high-end tethered headsets we're seeing from Oculus, HTC, and Sony, or will it be more like the Gear VR and be something you pop your iPhone into? It's easy to see the attraction of the latter -- the installed base of iPhones is enormous, so a headset which piggybacked off of that would probably sell like crazy. However, a tethered headset would also offer a markedly better VR experience, and it's possible that Apple would opt to offer consumers a premium experience (at a premium price, naturally) rather than what it felt would be a second-class offering. Then again, Apple is so oriented around mobile that something akin to the Gear VR seems like a better fit. It's not hard to see smartphones being powerful enough and having high enough pixel density in a few years to offer a VR experience that's not that much worse than what you could get from a tethered headset. Either way, whatever Apple ends up doing will shake up the market and I'm sure execs at Sony, Samsung, HTC, and Oculus feeling like they're going to have to race to establish a foothold before Cupertino jumps in.

What do you think?

I'd love to know what questions you have about where VR is going.