Virtual reality (VR) has been in the public consciousness since at least the 1980s. Science fiction films and television shows, as well as technology evangelist, have often predicted the rise and eventual ubiquity of virtual reality with glee. However, until recently, those auguries have proved to be wide of the mark. VR, much like its near relative – augmented reality (AR) – has remained a fantasy.
Despite frequent attempted revivals, the technology behind VR consistently failed to break into the mainstream. Prohibitively high costs and its unwieldy nature meant VR has remained largely inaccessible to the majority of consumers.
But this may soon change. VR technology is becoming increasingly streamlined and sophisticated. Although the cost of top of the range headsets, such as those produced by HTC, Sony and Facebook-owned Oculus, will likely remain high for the foreseeable future, entry level models from Samsung, Google and others are democratising VR, making it cheap and accessible via smart phones.
As a result, the narrative around VR is changing. Momentum is gathering, with analysts suggesting 2016 will be the year it truly takes off. Much of the available data seems to support this hypothesis.
According to Pitchbook, since 2010 around $4bn has been invested in the industry, more than $2bn of which was invested between 2013 and 2015. In the first nine months of 2015, VR and AR companies raised a total of $408m from investors, up from $145m during the first nine months of 2014, according to CB Insights. Specialist AR and VR focused venture capital funds are appearing. In late December 2015, a new a venture capital fund solely targeting AR/VR investments was formed by a number of former gaming and VR tech executives. Presence Capital is an early-stage VC firm, believed to be the first to focus exclusively on this space. The company has already raised and begun to invest its inaugural $10m fund. Not since the dotcom boom of the 90s has the tech industry seen similar investor appetite. The size of the global market could reach $12.3bn in 2018.
Understandably, the first bastion of VR will be gaming. It is believed that consumers will spend $5.1bn on virtual reality gaming hardware, accessories and software in 2016, according to a new report from SuperData Research. With these figures in mind, it is easy to see why investors are rushing to the industry. Japanese mobile game company Colopl Inc recently established the largest ever VR fund. Tokyo based Colopl’s fund has set aside $50m for companies developing a variety of game related VR products. The fund will deal with companies working on VR head-mounted displays, as well as game and 360-degree content, development tools and equipment, distribution platforms and input devices.
One of the most important elements of the VR boom will be the technology’s versatility. As the market uses for VR and AR become more diverse and plentiful, the appeal of the tech to investors will grow. Aside from the obvious gaming platforms that will be the focal point of the first iterations of the technology, VR has the potential to impact a variety of sectors. Education, healthcare and the military could also harness VR technology.
From an enterprise perspective, VR can enhance business-to-consumer relationships by allowing enterprises to provide the best products with matching customer experiences. If Facebook is able to successfully integrate Oculus into its social media platform, VR is even more likely to explode in popularity in 2016 and beyond.
As with many new and emerging technologies, it is the internet giants that are helping to lead the way. Facebook’s notable presence in the VR field has acted as a catalyst for Alphabet, via its Android operating system and the Google Cardboard programme, to become more heavily involved in the space. In October 2014, Google invested $852m in AR company Magic Leap. Over a two year period, investors made 114 investments totalling $1.3bn in VR and AR, according to CB Insights. The Magic Leap investment seemingly kick-started the VR/AR investment race, and the pace has yet to slow. Furthermore, in January 2016 Google announced the creation of a new VR division.
Content is king
One of the key drivers in the space will be the quality of content available. Consumers won’t be willing to spend big on a device which lacks desirable content. YouTube, Netflix and Hulu are among those branching into VR content. Electronic Arts, Apple, and Tencent have also shown an interest in content production for 2016.
For some investors, however, the VR market remains immature, preceded by a number of false dawns. It is difficult to accurately predict the average sale prices for VR products, so there is uncertainty over how the market will develop. Though a number of major businesses and investors have jumped on the VR bandwagon, there is much work to be done before VR devices become household staples.
The AR/VR market delivered $250m worth of M&A deals throughout 2015, with Intel’s acquisition of Recon accounting for around three quarters of that total alone. With VR/AR set to become a major consideration for investors through 2016, major corporates could try to leapfrog the competition and acquire start ups in the field. For companies and investors involved with VR, the reality they create may be fictional, but the returns certainly won’t be.
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