GDC is coming up in a couple weeks and virtual reality is sure to be front and center. The Verge also just put out a fantastic primer on VR from a buyer's perspective and the hype is quickly building. In fact, both Oculus and HTC Vive will be officially launching their VR kits in the next month or two. As I'm sure everyone is wondering, how big can VR be? Who are the key constituents who will benefit?
First off, it's important to differentiate between virtual reality (VR) and augmented reality (AR). VR immerses users in a virtual world using some sort of headset (Oculus, Google Cardboard). AR overlays digital imagery onto the real world (HoloLens, Google Glass, Magic Leap) . VR seems to have progressed further than AR from a technology standpoint and currently has a stronger ecosystem, so it will be the focus of this post (that's not to say that AR doesn't have vast potential in its own right).
From a consumer's standpoint, VR hardware today can be split into three segments:
- Low-end - Uses a standard smartphone as a screen. Popularized by Google Cardboard, but there are currently many versions that have a "Works with Google Cardboard" stamp. Many manufacturers use other materials as well such as plastic or aluminum. Pricing is usually in the $15-30 range. These headsets work decently well for short use 360 degree video but that's about it.
- Mid-range - These are slightly more sophisticated than Google Cardboard, often boasting additional tracking sensors, better controls, or their own screens. The most popular is Samsung Gear VR which works with Galaxy smartphones, but there are other similar products. Pricing is in the $100 range.
- High-end - These are the most premium VR experiences that cannot be powered by a mobile phone. The top contenders are Oculus, Valve/HTC's Vive, and Sony PlayStation VR. Pricing will be in the $500-1000 range but it varies since you may also need to buy controllers or even a compatible PC. Both Oculus and the Vive will ship in the next few months but it's unclear when PlayStation VR will ship (rumored to be this fall).
In terms of potential applications and industry sizes, Goldman Sachs recently put out insightful research:
Core Applications for VR/AR (and potential 2025 market sizes per Goldman):
- Total addressable market for AR + VR = $80B ($35B software, $45B hardware)
- Video games - $11.6B, 216M estimated users
- Live events - $4.1B, 91M estimated users
- Video entertainment - $3.2B, 72M estimated users
- Retail - $1.6B, 32M estimated users
- Real estate - $2.6B, 0.3M estimated users
- Education - $0.7B, 15M estimated users
- Healthcare - $5.1B, 3.1M estimated users
- Military - $1.4B, 0.7M estimated users
- Engineering - $4.7B, 3.2M estimated users
- $3.5B in venture dollars invested across 225 VR/AR companies in the past two years
- 2M Google Cardboard displays distributed since June 2014 launch
- 200k Oculus developers as of September 2015
- 100 Oculus games will be available in 2016
- $80B in industry revenue by 2025 per Goldman Sachs estimates ("base case" - $45B hardware, $35B software)
- Components involved aside from AR/VR headset manufacturers include 3D audio, processors, graphics, memory, display, lenses, sensors, cameras, haptics and room trackers
How Long Until VR is Mainstream?
A recent chart put out by The Information shows that while Google Cardboard devices are proliferating, engagement isn't following suit (DAUs not keeping up with MAU growth).
This is just one data point. It's still quite possible that VR will be the next big computing platform. For this to happen, however, VR manufacturers needs to continue improving the user experience while bringing cost down. Use cases need to expand and content and applications need to proliferate in tandem. VR (and AR) have the potential to be as ubiquitous as the smartphone, and perhaps even subsume the functions of the smartphone and PC in the long run, but we are still far from that future.