Segmenting Virtual Reality

When you say virtual reality today, most people think of Oculus VR. They singlehandedly resuscitated the ‘90s flash-in-the-pan that was virtual reality (with no small help from Moore’s Law). But the space is developing quickly and there are multiple segments emerging with very different capabilities, price points and challenges:

  • PC VR – the Oculus Rift DK2 headset famously utilizes mobile display technology but still relies on a PC to do the processing. The fact is it requires a very beefy, high-end PC to deliver the buttery smooth frame rates so important for great VR experiences. So while the headset is only $350, in practice you’re looking at out-of-pocket cost of over $2,000 unless you’ve bought a high-end gaming machine very recently. The Rift actually drove my first new desktop PC purchase in over five years (take note Intel and Microsoft). Ironically, even the latest generation game consoles may not have enough oomph to be competitive with PC-based VR, which explains Sony’s ambivalence around their Project Morpheus VR headset.
  • Smartphone VR – meanwhile the immense volumes of smartphone have driven rapid advances in CPUs and GPUs in addition to displays. The latest smartphones are very capable on the graphics front, though still materially behind PC GPUs (smartphones simply can’t consume the same kind of power). And as is typical of all things smartphone, there is a strong urge to get the PC out of the equation altogether. Google kicked things off with Cardboard. Even with Google Glass going the way of being “Segway for your face” (i.e. the uses are more mundane and commercial than consumer), they could not resist taking a shot at rival Facebook who had recently purchased Oculus for $2 billion. This cheap cardboard kit let you somewhat awkwardly affix an Android smartphone to your face. Suddenly overcoming their previous disdain for mobile VR, Oculus responded by partnering with Samsung (or perhaps found their display supply taken hostage until they agreed to partner) for what became Samsung’s Gear VR, a $199 headset to which you add a Samsung Galaxy Note 4 phablet. Unlike other Samsung spec-driven sprints to be first to market without pausing to entertain so much as a single use case, the Gear VR is actually a surprisingly good product (no doubt due to Oculus’ deep involvement, which also means this is another class of device where Samsung is relying on someone else for the software). It eliminates the wired tether of the PC-based headset but is inferior to the Rift in performance as well as a number of functional dimensions (e.g. no positional head tracking). The big problem is it requires a new (and probably unsubsidized) phone, so it still has close to a four figure price tag. But why require a new and specific model of phone at all? Why not let people use their existing, recent model smartphones (say iPhone 5 and up as well as comparable Android phones, which quickly gets you to hundreds of millions of devices)? I invested in MergeVR which does exactly this, getting the price of smartphone VR down to $99 for a headset and controller that work with your existing phone. The test of this whole category is whether you can you run a “good enough” experience on a smartphone. Because of both the Gear’s 2014 ship date as well as Samsung handing out cash to developers, the center of gravity for VR software development has shifted to the smartphone.
  • Venue VR – while smartphone-based VR solutions are driving down the price by sacrificing quality of experience, there is another trajectory moving up-market to offer the most immersive experience possible. It turns out there are all kinds of industrial applications using vestiges of ‘90s VR technology that are ripe for upgrades. These venue-based experiences tend to use the Oculus headset as well as full motion capture systems (think a dedicated room full of Kinect-like sensors) that track all your movements. With no tether, they allow complete freedom of movement, unlike the headset-only solutions which while immersive for your field of view, suffer from an “arms and legs” problem (it is like you’re sticking your head through a hole into another world while the rest of your body remains awkwardly seated). The team at AtomicVR has built an incredible venue-based system that is far and away the most immersive virtual reality I’ve experienced. The freedom of motion is amazing. You put on the headset and you’re transported into another world (beware: there are drones out to get you…). These venue-based solutions have a wide range of entertainment, commercial and industrial applications and will sell for upwards of hundreds of thousands of dollars.

I am amazed at how fast this market is moving. Oculus, the uncontested leader in VR just a few months ago, backed by billions of Facebook’s dollars, is already in a bit of a strategic quandary. They have acknowledged PC-based headsets are too expensive for a high volume consumer product, while reversing their earlier antipathy to mobile-based VR. The Gear VR partnership with Samsung halves the cost but still requires a phone that very, very few people have (or will have). After years of selling the dream of the “consumer Rift”, Oculus has gotten very vague about when if ever we will see that oft-promised device. I suspect they are seriously contemplating an OEM business model whereby they license their technology to any and every interested manufacturer on the planet as opposed to building their own devices. The division of labor and branding around the Gear VR certainly supports this theory. Oculus has incredible talent and has set an extremely high quality bar for themselves as well as their competitors (they don’t want inferior products ruining the category for everyone). The risk is “good enough” smartphone VR trumps Oculus’ perfectionism.

Thanks to Nat Brown, Mike Lenzi and Franklin Lyons for reviewing a draft of this post.