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VR : The story so far

Everyone agrees that VR is the next big opportunity in the consumer tech industry. Goldman Sachs estimates the market to yield $60 billion by 2025, with almost a 50/50 split between hardware and software.  It is currently a giant land grab, where companies are positioning themselves, launching headsets, cameras, platforms and content. But, as much as the excitement is real, it is still all about the potential rather than the reality. Before the VR year kicks in at full gear, we thought we would stop and take a tour of its current condition and see if there are any useful indicators.

What’s in a name?

First, there seems to be a lot of naming confusion on the marketplace. While everything that can be seen via a pair of specially designed glasses is called VR, it is a misnomer.

VR stands for Virtual Reality. Historically, that means any constructed world (whether a copy of reality or not) generated entirely via code. Second Life (remember them?) is considered VR, although it had nothing to do with wearing Oculus Rifts ( they are now building a version for the Rift). It somewhat replicates reality using software and some of the social and physic laws of the real world.

Also thrown under the “VR” name  today are 360 videos and stills. Those also have been around for a while, using  either Quicktime or Ipix for example, to stitch together  two fish eye visuals.

What changed with today’s gear is:

So what is what we call VR today really VR? No. Rather it’s pretty much anything we need VR headsets to experience fully: Games, 360 videos and 360 stills.

Mobile Vs Desktop.

VR is taking two parallel routes right now, mobile and home-based. Companies like Samsung, Google, and now other players are betting that VR will be a mobile experience first and thus designing headsets for mobile.The mobile slice of the VR sector is forecasted to generate nearly $1 billion in revenues by the end of 2016, according to  Data Researcher. Facebook’s Oculus rift, as well as Sony’s, are betting on the high-end market, one that necessitates hooking up to powerful desktops or gaming devices. Both are probably right.

While mobile instantly reaches  a much wider market, it faces the obstacle of convenience:  Who will be carrying a headset along with their smartphone in order to pull it out when a friend sends an email/text/Snapchat/message with a VR link ?  and even if they do, some places, like an office or the street, will be poor locations  to sink their heads into a headset.  Chances are that even if working on a mobile, headsets will stay at home.

The desktop version, tethered to high-end computing machines, avoids this issue. However, cost and interest  will limit their potential market in the consumer space. They have, however, a large opportunity in the enterprise market, such as healthcare or real estate.

Expect to see companies who have taken one direction today to offer a model for the other. A high-end Samsung Gear, for example, and an Oculus Rift Lite for mobile.


The VR/AR ecosystem and opportunity, according to Goldman Sachs


Searching for The Killer App

All the current talk around hardware leaves aside the most important element: content. The iPod without MP3 files would have never succeeded. Luckily for Apple, there were already there. For VR, all is to be invented. But it’s a bit of a chicken / egg scenario. No gear adoption, no market for content, no content, no gear adoption.

All signals point to Facebook, along with Sony and Microsoft, to launch VR gaming experiences to help the high-end market to develop. Those companies can depend on their existing resources to feed the demand for content while third-party offering truly develops. However, in the mobile space, the landscape is more disparate. 360 content producers are starting to emerge, offering anything from Tourism ( visit your hotel from your sofa) to Real Estate (visit an apartment from your apartment) to journalism ( experience news as if you were there). And games, obviously. Lots of small, not so exciting games.

In all its potential strong growth sectors, real estate, gaming, education, publishing, healthcare, retail, engineering and military, experiences are starting to emerge but they are still very much wide and far. Since no one has committed budgets, producers still have to convince potential buyers of the success of a VR spending. And with no analytics, besides the numbers of views, it is still a hard sell. Without a central marketplace to easily find content, it’s a shot in a vast space.

The iTunes of VR

To truly succeed, VR needs a content marketplace. Already, from gear manufacturers to independent entrepreneurs, platforms are emerging trying to corral viewers and producers into one place. But without specificity and the current limited offering, no one is taking the lead. It will take time, and some ingenious marketing plan ( a la Apple) to take the winner takes all position of VR Content marketplace. It might be different ones per verticals as the consumer market seems to take off faster than education, for example. Or it could be a central, all-encompassing VR iTunes. Needless to say, besides headsets,  this is where one the biggest opportunity lies. And Facebook might be the one building it.

With 5 million Google Cardboard currently on the market and HTC Vive selling out in 10 minutes, there is a clear interest for VR beyond curiosity. Content creators are just starting to figure out how to fulfill this interest and what could lead them to control a sizable part of the market. Not unlike the app store in its early days, we could very well experience another gold rush that could lead to multi-billion businesses. Until then, we will have to pick the right headset and keep exploring.

Photo by Janitors

Author: Paul Melcher

Paul Melcher is the founder of Kaptur and Managing Director of Melcher System, a consultancy for visual technology firms. He is an entrepreneur, advisor, and consultant with a rich background in visual tech, content licensing, business strategy, and technology with more than 20 years experience in developing world-renowned photo-based companies with already two successful exits.

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