The Future of VR: 2018 Outlook and Predictions

As a CES veteran who has attended the show most years since the first iPhone was the talk of the show back in 2007 (even though it was announced by Steve Jobs at Macworld in San Francisco), you come to view the event through a different lens. Many things are approached with a greater deal of pragmatism, and “new” tech is viewed simply as a glimpse of the greater progression of technology and the markets at large. Responses to the proverbial question “What’s hot and new at the show?” usually start with “Well, the theme of the show was…” (it was smart home this year). This brings us to VR.

VR made a splash at CES 2015, and it generated a heightened level of excitement among many within the tech industry (this analyst included). Over the course of the subsequent two CES events, VR captured a significant part of the CES spotlight, but it has seemingly lost some of its luster by 2018. No long lines to demo VR and the volume of exhibitors showcasing 360 cameras declined (at least visibly on the show floors). Conversations with companies within the video value chain further threw water on VR’s fire, citing marginal interest from clients, with most video-related activity remaining sponsorship-based and/or trials. 360 video at least appears stuck in first gear.

The most headline-grabbing VR announcements from CES 2018 were two new HMDs (standalone Daydream HMD from Lenovo and HTC’s Vive Pro) and Intel’s partnership with NBC and the Olympics. While not groundbreaking, they do represent forward-progress in the VR market, similar to technologies that will become core to the VR market, such as wireless tethering (e.g., Peraso, Intel), eye tracking (e.g., Tobii, Tactai), and haptics (e.g., Go Touch VR). Taken in aggregate, however, there appears to be a VR malaise. If true, does this mean VR might be the next 3D?

The VR market is certainly moving at a slower burn than some would like (e.g., less enthusiastic game developers and companies like Nokia and CCP that have moved away from the market), but it’s far from becoming static and certainly not failing. VR is too often viewed as a consumer-first product and further news like Amazon cutting Windows MR HMDs by up to 50% just a few months after launch (“sale” price) start to paint a bleaker picture, but behind the broader public scene, VR is finding surprising success in the commercial and enterprise markets. STRIVR, for instance, continues to find success in the VR training market, partnering with BMW, the NFL (and other sports groups like the U.S. Olympic Ski and Snowboard team), and Walmart, among others. ABI Research also published a presentationon the China market, which discusses some of the developments in that market that could foretell future applications in other regions (e.g., VR ecommerce).

Destination or location-based VR continues to grow in most regions outside of China, where it grew too fast. The addition of “4D” effects and objects that create a deeply immersive experience where the user can both touch and feel objects, weather effects, etc., are testing very favorably. Companies like The VOID and Zero Latency are providing users the pinnacle of VR immersive experiences, and these interactions will help evangelize the technology. Theme parks have already started employing VR elements to rides and attractions and the boundaries of what is possible extend as far as creativity can take it.

Circling back to the Lenovo Mirage Solo standalone HMD, 2018 is shaping up to be a pivotal year for VR, and while ABI Research continues to believe it is not a “make or break” year, it will go a long way to determining if the VR growth rate currently forecasted is achievable. Standalone VR in particular is a critical device category; on the one hand, it addresses some of the barriers found in the tethered VR category (e.g., matching 6DOF functionality but at a lower cost and without external PCs/console), but if too many of the products serve as a pure mobile VR alternative, then this category’s value will be greatly diminished. Freeing up one’s mobile phone (be it for other applications or saving battery) does not present enough value to convince most consumers to buy another device. Content is still lacking and game developers will view these devices as mobile counterparts and continue to see it as a weak revenue opportunity (e.g., limited base and unwillingness to purchase games). Time will tell which direction the market takes.

By 2022, ABI Research still expects there will be 200+ million HMDs in the wild, but to reach this base, some critical steps need to happen. On the standalone HMD front, these devices need to draw comparisons to tethered VR setups and not mobile HMDs. Initial expectations saw a mix of mobile and PC hardware in the standalone category, but increasingly we’re seeing mobile take precedence, with PC occupying both tethered and “portable” setups (e.g., PCs in a backpack or worn). 6DOF movement for the HMD and controller(s) (ideally two) is a critical element still missing from the standalone (and mobile) HMD segment.

With the consumer market developing slower than anticipated, VR companies need to increasingly focus on developing and cultivating the commercial and enterprise spaces. Companies need both end users and the various target markets to break free from the assumption that VR is a “consumer-only” product.

On the consumer front, standardization will help, but currently it is not a significant growth detractor; there are some platform issues that need to be addressed. Microsoft’s decision to withhold VR from its Xbox One X platform, along with its public sentiment that VR is not yet ready for the living room, sent a mixed signal as it pushed Windows MR HMDs. Microsoft’s view that tethered VR today is best suited for PCs and the console is a living room experience (where VR is not ready) sounds more like a convenient excuse than a legitimate concern. Ignoring Sony PSVR’s market leading share of the tethered VR space, the console should be viewed as a fully packaged PC alternative (that is less expensive and offers a homogenous hardware platform) that could be used in any room of the house. In fact, consumers that already own an Xbox One might purchase a second console (Xbox One X) just to add VR to a separate room (assuming VR won’t work in their living room). Assuming there are no issues/complications with the Xbox One X hardware, Microsoft should enable VR, especially since the company is not producing and marketing an HMD.

Other aspects of the consumer VR experience, like social-first experiences, are still very much a work in progress. VRChat, for example, is generating buzz and attracting users, but it also reflects some of the darkest elements of the public web and the seeming anonymity it affords its users. In time, however, advancements like eye tracking will greatly enhance the user experience (e.g., eye blinking/movement for avatars) and ideally bring the social platforms to a larger, more mainstream audience; before this happens, however, social media will need to better address the issues that plague today’s services because these problems will only be compounded by the added immersion offered by VR.

Much is needed for VR to live up to its potential, but most markets that proved to be transformational had to push through similar growing pains. AR will also play a critical role in the development and future potential of VR, so there are other angles to consider as well.