Why Oculus Could be Destined to Ultimately Fail

If you have read my columns on VR recently, you know I am relatively bullish on this new technology. I have used all of the headsets available and, while the actual VR differs with each, they all deliver an experience that is both exciting and immersive.

As I look at the VR landscape, there is one question at the heart of a lot of our research on this subject: what the adoption cycle of VR will look like and, in the end, which VR headset model eventually drives the market into broad consumer usage?

The first generation headsets from Oculus, HTC, and Sony will play a very important role in launching VR to the game industry. Indeed, it will revolutionize the game market and change it forever.

However, I want you to imagine a marketing pyramid. At the very top, put the gaming industry as the first serious market for VR. Granted, the game market will do $91 billion in revenue this year and will be the first to adopt VR. Important to this conversation is the fact the gaming folks have no problem tolerating a tethered solution at this stage. Which is why Oculus, HTC, and Sony Playstation VR will be big hits. Gamers are not price sensitive either.

If you go to the next rung of the pyramid model of marketing, we have what we call the vertical markets to be the next to adopt VR, even if its costs are high and the headsets are tethered. Real Estate, sports, cruises ships and advertising industries, to name just a few, are excited about what VR can deliver to their customers in the way of new immersive experiences and I see them driving the second wave of VR into the marketplace. I think the vertical space covers about a three year period where the technology is fleshed out and various business models emerge to impact business and, eventually, consumer markets. The one caveat here is the role the porn industry plays in driving VR adoption. They are also high on VR and their audience is clearly consumer focused. They could influence an interest by some consumers during this vertical stage but the solutions will still be costly and not at prices that could drive strong, broad consumer adoption.

The next rung on this pyramid is the adoption by consumers. As you can imagine, this will be the largest market for VR eventually. This is also when VR could see broader interest and adoption in education, too. However, the current tethered solutions will not work in the consumer market and that is why I think the Oculus and HTC tethered headset approach to this market will ultimate fail.

I believe that, for the consumer market to really take off, all of the technology and related intelligence has to be built into the headset itself and be delivered in a fully untethered solution. We tested price ranges of interest for a VR headset and the total cost of this headset must be under $399.

I have seen some really good work in this area and expect solid untethered solutions to be out as early as 2017. But I expect these to be a bit pricey for consumers and think my model of VR gaining stronger consumer adoption will not happen before 2019 at the earliest.

So, who could bring out the best-untethered headset by then and be a big winner in this space? You could see Oculus, HTC, and Sony move to untethered solutions by then but my bet would be on Apple being the company that eventually brings VR to the masses. Apple does not invent technologies per se — they reinvent them. I could see Apple taking at least another year and a half before they even enter the VR space and then do it with all of the technology and components needed to deliver a high-end VR experience built into an Apple VR headset. More importantly, it would connect to Apple’s ecosystem which could include a strong stable of VR apps and content created through a VR developers kit Apple might release as early as the developers conf in mid-2017. Carolina Milanesi shared some of our research, Apple’s brand is already seen as a trusted one to bring new technologies to market.

What about low-end versions of something like Google Cardboard or Samsung’s VR and its role in driving VR into the consumer market faster? As I wrote last week, Samsung’s Gear VR and Google’s Cardboard are more like training wheels for VR. While it basically works, it does not come close to delivering the type of experiences one gets in the higher end models. Sure, there will be some consumer traction given its low cost but what consumers eventually want is a high-end experience at consumer prices. I don’t see that coming before 2019 at best, especially if it is to be an all-inclusive headset VR solution.

I have tracked consumer adoption cycles for 35 years and, in almost every case, it goes through this pyramid model. Smallest market is at the top, second tier grows the market through vertical adoption and, once that has shaken out, it finally gets into broader consumer adoption cycles. In some cases, it takes many years in the early and vertical markets cycle before it gets to consumers. But with VR and its ability to deliver a whole new immersive computing experience, I can see this cycle being one that goes from high end to consumers within a 4-7 year time frame given the activity and technology developments that could get adoption up and prices down in this time frame.