Fumbling the Future: Virtual Reality Edition?

The Sports Illustrated cover jinx pales in comparison to the curse of the barefoot young techie on the cover of Time

TL;DR Facebook’s Oculus virtual reality play is far from a sure thing.

Fumbling the Future is a great book that plausibly explains why Xerox merely copies and prints, despite having pioneered foundational elements of computing at PARC, including bitmapped displays, local area networking, WYSIWYG document editing, object-oriented programming and built the first GUI computers. More broadly, the authors ask:

“Why do corporations find it so difficult to replicate earlier successes in new and unrelated fields?”

With all their talent, resources, mountains of cash and often dead-on insights into the next big thing, why do leading technology companies almost inevitably fail to translate dominance from one era/area into the next?

There is no shortage of management theories which abstractly analyze such moves, but case studies can be much more edifying. It is too early to assess Hooli’s Google’s Alphabet adventure, which looks to be the mother of all corporate experiments in leaping into multiple new and unrelated fields, all at once, as they seek to build the world’s first advertising/life sciences/automotive/ fashion/space elevator conglomerate. But we have another example unfolding now with virtual reality where the early returns are deviating from the master plan laid out in a Fortune 500 boardroom.

The Next Major Platform

Social networking supremo Facebook decided virtual reality was the next big thing and has made it the company’s first major foray beyond its core. Mark Zuckerberg put the world on notice, repeatedly saying virtual reality is the “next major computing and communication platform.” One assumes the unspoken addendum to this is “…and we intend to dominate it”.

Facebook bought Oculus for $2 billion in March of 2014, and supposedly has committed another $5 billion of additional investment. Oculus gets (and deserves) credit for reviving virtual reality (henceforth VR, to save a few characters) from a long hibernation with its breakthrough 2012 Oculus Rift Kickstarter campaign. With the exception of some embarrassing contemporaneous Hollywood movies, VR’s initial ‘90s incarnation had been forgotten. Less heralded is the assistance Oculus received from Moore’s Law, the vast economies of the smartphone manufacturing complex and a few others who were quietly keeping the VR dream alive.

Oculus arrived at Facebook right at the closing of the “move fast and break things” frontier era. They were going to do VR “right”, as befits a major technology corporation, and set out systematically on multiple fronts. They vacuumed up talent, including luminaries like Michael Abrash from Valve and gaming legend John Carmack. They opened more offices than I can count (three in the Seattle area alone), plus established a research group as well as game and movie studios.

Part of doing VR “right” was to set an incredibly high quality bar, not only for themselves, but for the entire industry. They feared inferior VR could ruin the opportunity for everyone, and so became the industry’s self-appointed quality sheriff. Competitors like Sony were patronizingly chided for perhaps insufficient attention to quality.

Consistent with this high quality bar, the Oculus talking points shifted from the previous North Star of inexorable progress towards shipping the consumer version of the Rift to more philosophical discussions of all the difficult challenges they were so generously working to overcome on behalf of the entire industry. Oculus statements like “input is hard” were offered up so frequently as to become a meme with its own shorthand of “IIH”.

When Platformonomics last looked at VR back in December 2014, some cracks were already visible in the strategy (if I may quote myself):

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.

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.

Big Company Games

As they arrived at Facebook, Oculus got entangled with Samsung, playing the kind of reindeer games that BigCos are obligated to play. Samsung, the world’s foremost practitioners of “ship first, people only care about hardware specs and worry about software later”, decided to do their own VR headset, which crudely speaking, bolted an Android smartphone to your face for a minimalist VR experience, and would be differentiated primarily by its ship date (like the dog who catches the car, it gets tricky for fast followers who find themselves out ahead of their role models).

Oculus was skeptical about VR on a mobile platform. The combination of underpowered hardware vis-a-vis Oculus’s PC-centric approach and Samsung’s software track record set off all of Oculus’ quality alarm bells. They worried Samsung would do their usual crap software job and ruin the pool party for everyone. There is also a question of to what degree Samsung held display panels for Oculus headsets hostage, but whatever the case, Oculus chose to take one for the industry team and partner with Samsung to make sure what became known as the Gear VR would not rely solely on Samsung software.

Into the breach went Oculus CTO John Carmack, who spent months working with Samsung on the Gear VR, noting bluntly along the way that Android development “really does suck”. In the end, the Gear VR, powered by Oculus software, didn’t outright suck, benefiting from Carmack the Magnificent’s efforts (and perhaps the low expectations Samsung brings to anything involving software).

At the same time, Google, congenitally unable to resist toying with their mortal enemy Facebook, kicked off their own big company reindeer game and introduced Cardboard, an eponymously constructed and priced VR headset for Android phones. No doubt their pride hurt by Carmack’s disparaging comments about Android’s graphics architecture, Google soon began to see VR as another front in the battle to retain control over the Android ecosystem. Cardboard added still further impetus to mobile-centric VR even as it risked to lower the quality bar even further, which in turn probably motivated Oculus’ mobile efforts even more.

Surprise Surprise

Ultimately, Oculus made their peace with mobile VR and began to talk about a platform spanning both mobile and PC experiences (even if they were papering over two incompatible efforts). But the Oculus dream of the consumer Rift headset was deferred by the attention required on Samsung and mobile VR.

Oculus went into the Game Developers Conference in March 2015 downplaying the prospect of any news, content to demo the “Crescent Bay” prototypes it had been showing for at least six months. Like everyone else, they were surprised by the bombshell announcement of the Vive headset from HTC, powered by Valve’s VR technology. The industry assumption was Valve’s long time VR efforts had been abandoned after Oculus hired away some key employees post Facebook hookup.

HTC and Valve did a great job of keeping the Vive under wraps – it appears to have been a complete surprise. The Vive product has several attributes important to our discussion. First, it delivers an exceptional VR experience, So good that Valve was willing to make an absolute statement that “zero percent of people get motion sick”, a claim that certainly could not be made about the Oculus. Even when I tried to induce motion sickness with the Vive by jerking my head around wildly, I couldn’t do it. Second, input may be hard, but the Vive comes with a pair of controllers that offer very precise control over objects in VR. The Longbow demo where you shoot a bow and arrow illustrates how capable these controllers are, and makes it easy to imagine manipulating all kinds of sophisticated implements in VR.. Third, the Lighthouse system uses “frickin” lasers (versus Oculus’ optical approach) for exceptionally accurate positional tracking within a roughly 12 x 12 foot space, which means VR no longer has to be a seated activity (though you are still tethered by the headset). And fourth, and maybe most importantly, they promised to ship in 2015.

Simply put, the Vive is great and enables amazing VR experiences. And it beat the prototypes Oculus had been showing with a smoother experience, better positional tracking, better input and an actual ship date. People who have tried both Vive and Oculus invariably give the nod to the Vive.

The Empire Strikes Back, Sort Of

My guess is Oculus convened their first meeting about actually shipping the consumer Rift on March 2, the day after the Vive announcement. Their first decision appears to have been to give themselves the corporate handbook standard of 90 days to pull together a plan and a year to ship their answer to the Vive.

On June 11th (just over 90 days later), Oculus announced the long-awaited consumer Rift would ship in Q1 2016, a hopefully insignificant interval after the Vive’s promised Q4 2015 date. But they had to really scramble to make this announcement and the compromises show.

Input seemingly remains hard for Oculus, as evidenced by their introduction of not one but two controllers. First, they announced the consumer Rift would ship with — wait for it — an Xbox controller. Second, they announced the Oculus Touch, their own controller which appears similar in function to the Vive controllers but with what seems to be more refined ergonomic design.

The Touch is clearly a work in progress, and the mockup plastic may still have been warm at the June announcement. Even in late August, the Touch is still clearly labeled a prototype: “What we’ve shown today in the Touch Half Moon prototypes is not necessarily representative of what the final product will be…” Access to the controllers remains tightly controlled, the first SDK has just shipped and the company continues to do input-related acquisitions.

But the most telling thing about the Touch is it is supposed to ship a quarter after the consumer Rift, a strategy that has been likened to Apple shipping the mouse for the original Macintosh a quarter after the computer.

Meanwhile, despite having at least one and maybe two orders of magnitude more people working on VR than Valve, Oculus has been jettisoning other deliverables left and right. They cut Mac and Linux support and despite the relationship with Microsoft for Xbox controllers, Oculus did not have Windows 10 support when it shipped and were in an awkward position of asking developers to hold off upgrading.

Developers also complain about the poor quality and architectural churn of Oculus’ SDK: some on the record, more off the record. And they report developer support is noxious brew of ambivalence and entitlement, as if Oculus are unaware that they are no longer the only game in town.

Beyond product and schedule, Oculus also has a communications problem. Their strategy seems to be very visible and loud to compensate for their market position, but are talking too much (e.g. the much ridiculed Time magazine cover above), are tripping over themselves with conflicting messages and often come across as tone deaf.

Here are Oculus’ top two people a week apart in the same publication:

Oculus VR CEO Brendan Iribe still thinks that the technology – and the company’s Oculus Rift PC-based HMD – is set to ‘take off very quickly’.

Oculus Rift creator Palmer Luckey doesn’t think that the tech will break into mainstream overnight, recently stating that it’s something that will take ‘a long time’.

Sometimes they seem to be trying to lower expectations for their first product by stressing just how far out their roadmap extends; other times they’re cheerleading version one. A serendipitous juxtaposition in my feed reader gives us this credibility-sapping combination:


But most of all, their June 11th announcement ranks as one of the most awkward product announcements ever. This video clip brutally highlights the vast disconnect between Oculus’ expected reaction and the non-virtual reality (what do you do when the teleprompter says “wait for applause” and there is none?).

Stay Tuned

It is way too early to call this market. The cliché would be we’re not even in the first inning, as neither Oculus nor Vive have shipped, while Sony lurks in the background with the forthcoming Project Morpheus headset for Playstation 4.

But Oculus is far from romping to victory here, as many expected a year ago (including presumably Facebook when they wrote that enormous check). They had and lost the pole position and find themselves behind on both capabilities and schedule. Valve and HTC are deep inside Oculus’ proverbial OODA loop, and by virtue of being forced to react, Oculus has made suboptimal decisions. And more consequences of being back-footed are likely to surface.

For example, Oculus’ business model is unclear. Are they going to make money on headset hardware or sell it at close to cost to create sockets for other businesses? If hardware is an enabler, where is the software revenue? Can they make money from an app store vig when they have made a pretty strong statement that they will allow sideloading and face a deeply established competitor in Valve’s Steam with its over 125 million users? Will they drive material app revenue? Or do they incur mass disdain and end up defaulting to Facebook’s ad-based model? When you’re behind, the desire/pressure to sacrifice margins and/or piggyback on the mothership increase because you just don’t have as many levers at your disposal. Or perhaps they sacrifice further time to transition the hardware to a partner?

The Vive isn’t a sure thing either. I am sure they’re also on a very tight schedule. HTC is financially precarious (although the fact they seem to be betting the company on Vive is good in terms of focus). The Vive lags Oculus in some areas like audio and maybe wirelessly connected controllers (I am not clear on whether they ship wireless controllers with the initial product). And the challenge of scaling manufacturing is already showing up with the statement that while the Vive will ship this year as planned, volumes will be limited, which was no doubt joyous news in Oculus’ many offices.

But returning to our Xerox lede, the expected VR coronation for Facebook/Oculus foretold on magazine covers is in question. Oculus has lost the clear leadership position they had a year ago and. if you are wearing a rose-colored headset, the best you can say is it now is a horse race. But they’re not unique. These kind of “unexpected” underdog outcomes seem to happen with remarkable regularity, much to the frustration of the technology titans and their megalomaniacal machinations. It is part of what makes tech so interesting to watch.

As with any BigCo initiative, Oculus’ execution to date has been impacted by some combination of a lack of strategic clarity, distractions, an inability to completely conceptualize the entire new value chain (vs. just building technology), an abundance of people, a lack of urgency combined with a utopian quality bar and who knows what other factors that always create drift from the strategy slides.

There is one other possible explanation, which is that Facebook’s VR dream suffers not so much from the usual imperfections in BigCo execution, but rather a strategic mistake. Maybe Facebook made a mistake buying a company whose capabilities were not what they seemed. One of the biggest unanswered questions in the history of VR is to what degree Oculus raised venture money and then sold themselves to Facebook based on demonstrations of Valve’s technology rather than their own. Oculus received a lot of help from Valve in its early days and even had their own “Valve room” installation in their offices in Irvine. Why are there pictures of Mark Zuckerberg trying out the Valve headset at Oculus as opposed to the Oculus headset he ponied up billions for?

Thanks to all the developers who shared their VR perspectives – you know who you are even if you don’t want to be named Winking smile

So will Oculus get it together and recapture the lead? Or will someone write a Fumbling the Future-esque book about how they didn’t? Or is this just narrative fallacy run amok?

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.

The Hole in Android and Google’s Double Pony Problem

Android is on fire and Gartner predicts it will be the number two mobile operating system worldwide this year, surpassing Apple and RIMM, but behind the seemingly immortal Symbian.  Google embraced the ubiquity strategy and it is working.  But they’re getting a free pass on whether it makes money on the assumption that Android handset volume will eventually drive material search queries, advertising revenue and pull other attached services.  Unfortunately, there is a big hole in that Android business strategy, shaped roughly like this:China

Google’s self-immolation of its China presence means they won’t see much mobile (or any) search revenue in China, the world’s largest mobile market (and home to the largest number of Internet users).  Google’s mobile search share in China dropped by 30% in the second quarter and they’ve already fallen to third place (bonus points: who is second?).  Android stalwart Motorola is using Baidu and Bing on its phones in China plus there are a variety of efforts by Chinese operators and handset vendors that fork Android.  Forking sidesteps the remaining Android constraints altogether and of course provides complete discretion for what services are integrated.  So you can cut Android’s expected revenue per unit by roughly 20% just based on China.

And where China goes, others may follow in decoupling Android from Google search.  In countries with strong domestic search engines like Russia and South Korea, it may be a simple matter of consumer preference.  The more dirigisme (I’ll just note it is a French word) may not be able to resist the opportunity to play with search defaults.  And in the US, Microsoft is persuading Verizon to use Bing for Android phones with what looks like just cash.  There is a real risk of further decoupling of Google search from Android.

Now Google may be content with not monetizing Android due to its other strategic benefits.  Android pressures Apple and Microsoft, significantly disrupts the traditional operating system business model (which we may soon see extended to tablets and netbooks, which will be really interesting to watch) and raises the capabilities bar for the mobile web.  But settling for non-monetary strategic benefits when the guys you’re outselling are making billions is a little embarrassing (admittedly they’re making it from hardware).  I know Google is monetizing Android on the sly around the edges (it turns out Android is not so open and free if you want the latest version and the Skyhook lawsuit suggests some other tying shenanigans) but it is a rounding error from the standpoint of a $25 billion company.

Google is stuck between two Pony problems.  The One Trick Pony problem and their need to find another material revenue stream beyond search looks more pressing as both their search share and their revenue growth flatten out.  Their heyday window to make hay by building additional businesses while on top of the world seems to be coming to a close (life at the top is getting shorter and shorter – we’ll see how long Facebook lasts in that position.  They could peak even before they become a $10 billion revenue company.  Deferring the IPO for as long as possible makes a lot of sense for them to maximize their window).  Android is one of Google’s better candidates for a revenue stream with lots of zeroes after it, but we are already seeing multiple examples where Google’s revenue link to Android is being severed.  This could be described as the My Little Pony problem (a Sun Microsystems reference for those too lazy to click through and parse the obscure video), wherein your free software doesn’t drive significant revenue directly or indirectly, even as others go to the bank on top of your efforts.  As Google’s core business matures, they’ll have less and less ability to make grand philanthropic efforts.  I suspect we’ll see free become less free and Google dare phone manufacturers to shift platforms once they have started down the Android path.

The good news is neither of these problems are mine to solve.


image Microsoft (market cap $182 billion) is fixated on Google.

Google (market cap $122 billion) is fixated on Facebook.

Facebook (market cap ~$3 billon) is fixated on Twitter.

Who or what is Twitter fixated on? 

Revenue?  Uptime?  Oprah?  Rolling up the $300 billion in market cap chasing them?