2020: Virtual Reality’s Next Big Moment?

on March 6, 2020

The Virtual Reality (VR) market has seen its fair share of ups and downs over the last few years, but the technology is poised to have a very good 2020. This year we will see VR hardware and software come together in new, exciting ways that will help drive growth in both the consumer and commercial segments. While the market still faces substantial challenges, including hardware supply constraints due to COVID 19, the opportunities are significant.

Hardware Evolution
VR hardware continues to evolve and improve. In late February, VR pioneer HTC announced the launch of its VIVE Cosmos Series, focused on expanding the functionality of the original PC-based Cosmos product. By using modular, swappable faceplates, the company is now offering three flavors of the product. The Elite uses an external tracking faceplate that works with external SteamVR base stations and the company’s Vive or Vive Pro controllers to offer a precision experience that retails for $899. The original Cosmos, which uses six inside-out tracking cameras, will remain in the market at $699. And the upcoming Cosmos play will bring the platform to more value-focused users by utilizing four inside-out tracking cameras at a presumably lower—but not yet announced—starting price. Finally, the company also announced the Cosmos XR edition, which will bring high-quality pass-through cameras to enable a mixed reality experience. The modular nature of the Cosmos product line means that users can effectively move up the stack as their needs change by buying a new faceplate instead of buying a whole new setup.

HTC isn’t the only VR company to bring new capabilities to an existing product line. Last year Facebook’s Oculus announced it would bring a handful of new features to its shipping Oculus Quest headset, and since then, it has rolled those new features out. The first is called Quest Link, a free software update now in beta that lets you connect the Quest to a PC using a USB 3 cable. Link allows Quest users access games previously available only on the higher-performance, PC-tethered Oculus Rift. The second new feature is integrated hand tracking, which lets you put down the controllers and interact with VR content hands-free in the Quest, which tracks your hands using its existing cameras. Oculus rolled out the feature to consumers as a free update and has also now made the SDK available to developers.

HTC and Oculus aren’t the only ones making notable VR hardware moves. I wrote in November about Varjo, which announced four high-resolution headsets in 2019 that I expect to drive continued strong interest in 2020. Another big launch in 2019 that should have a positive impact in 2020 is the Valve Index, a high-fidelity VR experience focused on gamers. Two other companies to keep an eye on in 2020, as they moved significant unit volumes in 2019, are DPVR and Pico. Finally, we expect Sony to ship a follow on to its successful PSVR either later this year (in conjunction with the PlayStation 5 launch) or early next year.

Next-Generation Software
In 2020, expect to see VR software continue to evolve and improve. We’ll see more developers work to bring hands-free capabilities to headsets such as the Quest with hand-tracking capabilities. We’ll see others move to utilize the eye-tracking functionality in products such as the HTC Vive Pro Eye and Varjo VR-2 that radically change the way you interact with content in VR. And I expect to see more developers dip their toe back in the VR waters as the consumer and commercial installed base of devices grows, and it becomes easier to make money in VR. A recent piece noted that an estimated 100 VR apps have now crossed the $1 million revenue mark.

One of the key drivers around VR software will be the continued growth of commercial VR. As more companies embrace the technology, they’ll be engaging with developers to create an ever-increasing range of apps. These purpose-built VR apps don’t need to appeal to a wide audience, and this means developers can create them to run on a single hardware platform. Companies realize that they can quickly recoup the money they spend on the creation of VR apps that help speed training, eliminate unnecessary travel, and accelerate processes such as design and manufacture.
There are two big software-related VR launches to watch closely in 2020, one from Valve and another from Oculus. Later this month, Valve will release Half-Life: Alyx, perhaps the most highly anticipated VR game to date. Based on the much-loved Half-Life series, Alyx is a prequel build specifically for VR. And while Valve would encourage players to enjoy the game in its Valve Index headset, the game will be compatible with any SteamVR-compatible system, which includes HTC Vive, Oculus Rift and Quest (with Link), and Windows Mixed Reality. The success or failure of Alyx will have a notable impact on the near-term future of VR.

The second big launch to watch in the coming year is the rollout of Horizon from Oculus. The company is taking applications for beta testers now to be a part of what it calls a “new social VR world.” I expressed my reservations around Horizon when I first wrote about it last year. That said, Facebook—and CEO Mark Zuckerberg—clearly still see VR as a key component to the future of social. It will be interesting to see what the company has built and how people will respond to it.

Supply Constraints
I’ve painted a pretty rosy picture around the upside for VR in 2020, but I should note that this doesn’t mean I expect VR to be a huge mainstream technology anytime soon. And in the near-term, one of the biggest challenges the industry is going to face is a lack of headset supply. Anyone who’s been paying attention knows that key products such as the Oculus Quest and Valve Index have been in short supply for months. Demand outstripped supply late last year, and now we have the added issue of COVID 19, which is impacting the supply chain and creation of all manner of technology products, including VR headsets. As I noted in my recent piece, it’s very difficult to forecast the speed at which production in China will ramp up, even as the country contains the virus, and this could negatively impact the VR market for months to come. I’m hoping these near-term supply constraints don’t cause the market to miss what could be a key inflection point for VR in 2020.