Verizon Ventures’ Suresh Madhavan shares his thoughts on the state of the VR industry, how mass adoption can be achieved and where investment opportunities lie. Below is the full article which originally appeared on UploadVR.
Virtual reality has captured the imagination of the venture community like few other technologies have in recent years. It is increasingly being viewed as the next computing platform to transcend the way that consumers interact with and consume media and content, as well as the ways that they communicate with each other.
VR has the profound potential to completely revolutionize how we view live experiences. Imagine a courtside seat at an NBA game from the comfort of your couch, accompanied by all of the statistics, analysis, and commentary you could ever want access to. VR will eventually redefine the commerce experience as well. Having the option to virtually try on a new suit or evening dress at home can greatly enhance how we shop and enable the shift to transact most commerce online (Click to Tweet). Then there is the immense enterprise potential of the medium, which will allow a much more intimate and contextual connection in high touch areas such as the sale of automobiles or real estate, or assist in highly complex tasks in surgery and medicine.
A healthy level of skepticism remains for people that have the battle scars from the 3D TV revolution, and the perception that this is just a hype cycle repeating itself all over again. However there are reasons to believe that this renaissance in VR is the real deal. The ubiquity of low cost VR players in the form of smart phones has already ensured that content is in the hands of a broad base of users. When coupled with a low cost viewer, such as Google Cardboard, a basic VR hardware stack is accessible at a fairly low cost. A wide range of potential use cases from gaming, video, media and even communication gives the technology many applications beyond just TV makers looking to sell incremental hardware.
The rush of developers moving into the market to supply VR hardware also speaks to the excitement in this space. In addition to the low-end Google Cardboard, the Oculus Rift, HTC Vive, PlayStation VR, Samsung Gear VR and most recently Google Daydream, provide a variety of viewers with different capabilities and price points. To consumers’ benefit, there is no shortage of VR viewers or headsets for people who are interested in consuming content.
Despite the plethora of choices, significant challenges remain:
Hardware Usability: While there are a significant number of new hardware entrants, VR viewers still find that the headsets are difficult to tolerate for long periods of time. Surveys have suggested a peak usage time of 6 minutes, which makes it difficult to develop longer content that drives maximum monetization (Click to Tweet). Immersive sporting experiences, or premium cinema quality content, are difficult to deliver if a user has to adjust their hardware every few minutes. What’s needed is better hardware, not a greater number of models.
Immature Business Models: Production of full capture VR related content is particularly expensive, typically running at 2-3x the cost of normal video content. The rigs and detailed video stitching required means a lengthy post-production process. Yet monetization of VR content is still immature. At present, platform developers are happy to pay for premium content to drive eyeballs and engender brand loyalty. While millennial-focused brands are willing to experiment with content, a lack of audience scale and ROI metrics appear to be limiting factors to taking these ad budgets beyond the experimental category (Click to Tweet). Finally, premium content experiences that transform into subscription revenues need to overcome the hardware problem that currently limits consistent viewing.
How can we achieve mass adoption?
While most of the ecosystem inhibitors will get resolved over time, there are some key catalysts that will drive broad-based adoption beyond the specialized use cases like gaming and enterprise:
Comfortable and Low-Cost VR Headsets: The introduction of low-cost hardware that is conducive to sustained viewing of content is a required ingredient for a high quality experience. While there will no doubt be a greater proliferation of low cost hardware in 2017, it remains to be seen whether the user comfort factor will persist.
Easy UGC Creation: There’s likely nothing better to spur VR adoption than the ability for consumers to create their own VR experiences and share those experiences with others. The benefits of user created VR content – having your parents experience your daughter’s first steps, for example – will likely be a major step in moving the VR category forward. This will also drive demand for an accompanying set of hardware and software.
Engaging, Mass-Market Content: The availability of must-watch pieces of long form content or recurring episodes that generate broad community interest will likely catapult VR from niche to mainstream. High quality content creators who are successful will be in high demand in the ecosystem.
Progression of multiple use cases: While content consumption appears the more dominant VR use case at present, the progression of other use cases such as commerce or travel will help in more broadly evangelizing the power of VR with consumers and spur hardware adoption and investment by ecosystem stakeholders. Improving the ease of online commerce through virtual fittings (Rayban’s Virtual try on app is an interesting use case) or simulating virtual travel experiences will help drive VR as a category.
Venture Investment Implications
The attraction to being first to invest in the next computing platform is obvious, but the bigger question is: what sorts of investments are likely to be defensible long term?
With the hardware ecosystem and dominant participants now seemingly set, there doesn’t appear to be much room for emerging hardware players. The marketplace will likely spawn its share of superstar content creators who will enjoy decent returns, not unlike content creators in traditional media. Of course, the challenge here is to pick content likely to be in favor with a new medium and a user base still in experimental mode.
However there is likely still a lot of opportunity and potential ROI in being the provider of “picks and shovels” and enablement tools to the VR ecosystem (Click to Tweet). Businesses that offer volumetric capture tools and studio time for content creation (such as startup 8i) or developer tools focused on the encoding and delivery of VR content at low latency across a variety of network technologies – these are all potential venture plays that are waiting to be realized.
By becoming the dominant standard early on and the toolset or technology that most players in the ecosystem rely on, businesses will be able to create enduring network effects that make it difficult for even technically better offerings to compete. We will certainly be monitoring the developments to see who will emerge as long-term VR leaders.