Daily Management Review

Virtual reality market reaches point of disillusion


Sales of VR equipment fell 40% below forecasts, according to a February report from CCS Insight research firm. The most popular are relatively low-cost glasses that allow you to dive into virtual reality using a smartphone as a screen. Among the best-selling gadgets are Samsung Gear VR and Daydream from Google. Sales of Sony Corp, Oculus, HTC Corp showed weak dynamics.

Maurizio Pesce via flickr
Maurizio Pesce via flickr
"There is an opinion that 2016 was not very successful for the VR industry, that, perhaps, virtual reality will develop not where we supposed", said Roy Taylor of Advanced Micro Devices Inc. in his program speech at the conference. However, he listed a number of achievements of virtual reality in 2016, including the first use of technology in surgery and in court practice, as well as several iconic games and VR-films.

Yet, the industry is changing its mood from an all-consuming rush to a critical attitude and a more rational approach to technology.

In 1995, Gartner research company proposed a hype cycle, that is, a technology maturity curve that graphically represents the stages through which technological innovation passes during its development. This phenomenon is observed when any new technology appears. According to this methodology, now VR-industry is at the stage of "peak of high expectations", when public excitement leads to excessive enthusiasm and unrealistic anticipations.

Successful application of technology is possible, but usually there are more failures than successes, so this can lead to the next stage - the bottom point of frustration, "Trough of Disillusionment". Then, new shortcomings start to appear, the technology fails to meet expectations and quickly the enthusiasm dies out.

If people raised the bar of expectations too high at the very beginning of the project, then the fall could be so sheer that it could become incompatible with life for this project. However, if an invention overcomes the point of frustration, then the technology goes to the stage of mass adoption.

Many of those who work with VR have faced a brutal economic reality, trying to produce content for niche technology. Daniel Kihlgren Kallander, a developer of Swedish company Svrvive ABAB, told how the startup was losing money on the first VR game called SVRVIVE, released last year for the HTC Vive platform: "For now, this is a very small market." 

This is also true for VR movies. Edward Saatchi, CEO and co-founder of Oculus Story, a VR-studio owned by Oculus, compared the early experiments of VR-films with the transition from silent cinema to sound in the late 1920s. But, remembering the pioneers of sound cinema, he added: "At least they had a business model".

While the disappointment in virtual reality is brewing, expectations around the augmented reality are growing. In 2016, Pokemon Go mobile game became a phenomenon that showed potential and opportunities of augmented reality. Microsoft has launched the HoloLens headset, which has been used in industry and business. Photo-filters of Snap company have become one of the messenger’s most popular functions. And now many expect that Apple will present a project in the sphere of augmented reality next year, which will strengthen its position as a mass technology.

Analysts at ABI Research believe that virtual reality brings about 50 percent more revenue than augmented reality, but relies on sales of hardware. In contrast, augmented reality depends more on the software and, in most cases, is available to users via smartphones. ABI predicts that revenue from the augmented reality will exceed revenues from virtual reality by 2019.

"The Google Glass project was just the beginning of a major market transformation, which is being prepared by AR-technologies. As early as 2017, the market will significantly accelerate, the volume of investments and implementations will grow. Devices with a more powerful processor, such as the ODG R7 glasses and the Daqri smart helmet, are best suited for industrial use in healthcare", said ABI Research’s senior analyst Eric Abbruzzese.

ABI Research forecasts growth in the supply of VR-devices to 110 million by 2021. This is a fairly bold prediction, given that only 6.3 million of such devices were shipped in the last year, says Super Data.

Roy Taylor believes that release of Fallout 4 VR game from Bethesda Softworks will boost widespread dissemination of premium virtual reality devices. The expert recalls a similar scenario, when Super Mario Brothers and Sonic games helped to increase popularity of the newly appeared consoles Nintendo and Sega. Enthusiasts believe that the period of doubt is only a temporary stage in the VR market’s development on the way to mainstream technology.

source: bloomberg.com