Tech giants are keen, but the VR-to-VC relationship is complex.
When Facebook bought virtual reality pioneer Oculus for £1.2bn in 2014, there was a big question mark over the long-term value of the deal for the social media giant. Eyebrows were raised again in January 2017 when Facebook CEO Mark Zuckerberg revealed a further £600m had been pumped in to retain and incentivise staff.
This question is often asked of big technology acquisitions, but with VR a deeper issue emerges: of whether the technology can fulfil the many, ambitious uses touted by VR firms and evangelists, so that VR becomes a must-have for consumers and businesses alike.
Facebook has set a target of one billion active users of VR and in October 2017 announced Oculus Go, a wireless, standalone VR headset priced at a relatively low $199. But its Oculus deal and subsequent plans are unprecedented in the VR and augmented reality (AR) sector.
The first billion-dollar company in the VR space will be B2B, selling to the enterprise
In the 12 months to the first quarter of 2017, there had been £1.15bn of investments in the AR and VR space, but only £460m of M&As in the same period, according to a report by Digi-Capital, a consultancy. Digi-Capital also suggests that mobile AR could be the primary driver of a VR and AR market worth a $108bn by 2021, with AR comprising about 80 per cent of that market.
The market intelligence firm IDC sees the AR/VR market even bigger in 2021, it expects total spending on AR/VR products and services is expected to soar from $11.4bn in 2017 to nearly $215bn in 2021, achieving a compound annual growth rate of 113.2 percent along the way.
Regardless of who is right, tech giants are leading the way. After Oculus, the most well-known firm in the VR and AR market is Magic Leap. Founded in 2010, it has raised £1bn from investors including Google and China’s Alibaba Group. Microsoft, Samsung and Sony have been experimenting with the tech for a number of years. Apple CEO Tim Cook is more a fan of AR than VR, suggesting that AR combining digital and real-world elements “will change the way we use technology forever.” VR’s total emersion in digital worlds, he says, has “cool niche things… but it’s not profound.”
Perhaps it is this sentiment that is holding back investment in VR. Julian Williams, founder of WizDish, a start-up making a VR treadmill set-up allowing people to move while exploring virtual environments, says that industry insiders feel the technology is suffering from overhype, but that it will eventually follow a similar path to the internet and mobile phones.
“Those two technologies didn’t happen overnight, but what they offered was so valuable that investment continued and now rewards are being reaped,” he says. “In much the same way, VR is so useful in so many totally different applications and therefore investment will continue.
“Investors should avoid companies who push their products and keep saying how great it’s all going to be – once they’ve developed the technology. It’s too easy to be taken in by what VR ‘could do’ instead of what a particular product can do.”
This is only part of a wider issue. There isn’t yet enough proof of VR being a game-changer like the internet and the smartphone. With lacklustre mobile sales and disappointed investors, some see VR as a bubble on the verge of bursting.
However, Adam Draper, founder and managing director of accelerator Boost VC, says that both VR and AR are still in their early stages of growth. His next accelerator tribe is 70 percent VR companies. Speaking to Forbes, he admitted that VR is on a “crazy low”, but he is excited about it because the only way is up.
“The problem is when everyone was pitching for an idea versus actually delivering a product is that now there are numbers, and those numbers are not as good as they thought they would be,” he said, adding that there are still a number of hurdles to overcome like making a headset easier to put on.
He suggests that with VR, fostering consumer habit is harder than any technical challenge, but this habit will arrive, through the B2B space. “What I think will happen before adoption is that the first billion-dollar company in the VR space will be B2B, selling to the enterprise, because that establishes a habit. It will make someone’s life better, like the Excel spreadsheet did for computers. Suddenly there was a reason to use your computer, and now it’s an efficient machine to help you. That is the adoption cycle.”
Sooraj Shah covers the tech industry for Forbes, New Statesman and Computing.