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Is VR Dead or Just Getting Started?
Meta, Virtual Reality

In September, Facebook hosted its 5th annual Oculus Connect conference (OC5), showcasing the latest innovations in virtual reality (VR). Interest in the event and VR more broadly has stalled, but we remain optimistic that over the next five years there will be renewed confidence in VR’s potential for five reasons:

  • Hardware is moving closer to unlocking the power of VR for the masses
  • VR’s killer app, the metaverse
  • VR will be everywhere with enterprise use cases
  • The introduction of mixed reality experiences
  • A sustainable developer ecosystem drives exponential growth

Gartner’s Hype Cycle

Facebook’s purchase of Oculus in 2014 was VR’s “technology trigger.” VR startups quickly raised money creating a “peak of inflated expectations” late in 2016. Consumers were eager to try VR but reluctant to use it, pushing the space into the current “trough of disillusionment.” We believe the following five themes over the next five years will slowly rebuild consumer interest in VR and mark the start of “the slope of enlightenment.”

Xerox’s Alto Moment

At OC5, Michael Abrash, Chief Scientist of the newly renamed Facebook Reality Labs, told a story about Xerox and Steve Jobs that resonated with us.
Image: IT World

It was 1979, and a team at the Xerox Palo Alto Research Center had just compiled years of technological developments into one device called Alto, the first personal computer. Steve Jobs negotiated an early viewing of the Alto; here’s what Jobs said about it:

“And within ten minutes it was obvious to me that all computers would work like this someday. It was obvious. You could argue about how many years it would take. You could argue about who the winners and losers might be. You couldn’t argue the inevitability, it was so obvious.”

Challenge to Bring VR to the Mainstream

Virtual reality hasn’t taken off as fast as we thought it would two years ago. VR hardware, software, and content were not ready. Top tier head mounted displays (HMDs) like the Oculus Rift and HTC Vive were expensive and required consumers to own a high powered gaming PC, another expensive piece of equipment. Affordable and accessible HMDs like GearVR and Daydream lacked engaging experiences and had a difficult time retaining users. There was no middle ground hardware that was easy to set up, no killer app, a small and unsustainable developer ecosystem, untapped and underappreciated enterprise use cases, and some recent game-changing innovations didn’t even exist.

It’s been a challenge to bring VR to the mainstream, but we still believe VR will be a foundational technology of the near and especially the long-term future.  The companies that stayed committed and survived VR’s slow start are positioned to change the world. As Abrash says, “A technology wave like this only comes along every few decades. We are lucky to be here for the beginning of it.” The following are five reasons to be excited for the next five years of VR.

1. Hardware Is Moving Closer to Unlocking the Power of VR for the Masses

We’re going to look back at 2018’s bulky, expensive hardware and laugh like we do at the first mobile phones and personal computers. Tremendous resources continue to be poured into virtual reality R&D, and we are beginning to see the first glimpses of these efforts from years past. Facebook’s Oculus Quest, their first all-in-one, 6DOF headset with positionally tracked controllers, is coming in the spring of 2019. At the surprisingly low price of $399 and with 50+ launch titles, the brand-new system, reminiscent of the first home game consoles, is poised to be a breakout hit with consumers.

One of the most underrated aspects of this standalone device is that for the first time in VR’s history, users can press just one button and step into high-end VR. Oculus announced VR tech innovations at OC5 ranging from updates on hand, eye, and space tracking to non-flashy but critical improvements to spacial audio and 360 cameras. Outside the big players, startups around the world are making strides in hardware that are going to be key to making VR an even more realistic, freeing, and comfortable experience. Haptic gloves, omnidirectional treadmills, and increasingly closer photorealistic displays with wider fields of view are some of the headline innovations. Investment in VR hardware will pay off significantly as the battle for the best VR system plays out.

2. VR’s Killer App, the Metaverse

Everyone is searching for the killer app for VR, the application or experience that will be a system seller like Wii Sports for the Wii or VisiCalc for the Apple II. VR’s killer app, we believe, is already in development and should be ready for mainstream adoption in the next five years.

The Metaverse, a term coined in the 1992 sci-fi classic, Snow Crash, is a virtual universe similar in many ways to reality. Players can be anyone, do anything, or go anywhere, regardless of their real life circumstances. The Metaverse will be a place where all of what VR has to offer branches off from. A place where you can socialize, do business, shop, go on outerworld adventures, watch esports tournaments, and more. The limits lie in the imagination of users and developers who will compete for prime real estate in the Metaverse. We will take an in-depth look into the potential of the Metaverse in a future note, but for now, just picture The Oasis from Ready Player One.

High Fidelity raised $35 million in June, with the goal of bringing VR to a billion people through their new VR world. Linden Labs, maker of the popular online role-playing game, Second Life, is also working on bringing a Metaverse to the mainstream with Project SansarIt remains to be seen who will become the real-life Gregarious Games, but one thing is certain – the Metaverse will play a critical role in the future of VR.

3. VR Will Be Everywhere with Enterprise Use Cases

It’s been clear since the beginning that the impact of VR goes far beyond gaming and entertainment. VR is a tool that allows you to simulate anything. From there, the use cases are limitless. Over the next five years, we will increasingly see enterprises tap into the power of VR to innovate. Real estate agents will give digital property tours, history professors will take their students into the trenches of WWI, and retailers will allow customers to stroll through a virtual store and have everything shipped straight to their door.

STRIVR is a standout example of VR’s opportunity in the enterprise. Walmart just purchased 17,000 Oculus Go headsets to use for staff training in every one of its stores. Facebook has Rifts in conference rooms for employees to host remote meetings. Millions will have the opportunity to try VR for the first time, and this exposure from increased enterprise adoption will continue to drive consumer adoption.

4. The Introduction of Mixed Reality Experiences

Mixed reality (MR) can be defined in a number of ways. For our purposes, MR takes real-world objects and integrates them into virtual reality. Mixed reality enables more seamless experiences for many of the enterprise-based use cases mentioned above. For example, imagine typing on a physical keyboard while in your virtual office with 5 monitors. Andrew Bosworth, Facebook’s VP of AR/VR, mentioned at OC5 that mixed reality will be a “huge part of the next five years of virtual reality.”

MR also has some exciting location-based entertainment opportunities. This video about the future of VR arcades shows the Dead and Buried colocation experience, a highlight at OC5 using existing Oculus Quest headset technology. We envision battling your friends in MR at your local VR arcade could be an emerging Friday night hotspot.

5. A Sustainable Developer Ecosystem Drives Exponential Growth

The chicken or the egg dilemma is topical when talking about whether HMD hardware sales or quality immersive content is needed first to catalyze the industry. Our view is it doesn’t matter which comes first – we need both now to sustain and grow the VR developer ecosystem, which has been waiting for its big moment.

Thankfully, developers will be rewarded. As the developments discussed above play out, HMDs sales will quicken, and the developer ecosystem will flourish. Never before imagined experiences and killer apps will become a reality, large pocketed companies are going to want a piece of the action, and VR’s growth curve will become exponential.

VR Hasn’t Even Begun to Take off Yet

What makes the next five years of VR exciting is understanding that VR hasn’t fallen off – it hasn’t even begun to take off yet. We agree with what Mark Zuckerberg said at OC5; VR is less than 1% there. However small the kernel may be now, there is little doubt that one of the most important technologies for the next 50 years will grow from it, five years at a time.

Disclaimer: We actively write about the themes in which we invest or may invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we may write about companies that are in our portfolio. As managers of the portfolio, we may earn carried interest, management fees or other compensation from such portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making any investment decisions and provided solely for informational purposes. We hold no obligation to update any of our projections and the content on this site should not be relied upon. We express no warranties about any estimates or opinions we make.

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