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The Business of VR

05/12/2019

The Virtual Reality (VR) market is expected to explode by more than 400% over the next five years—and that might just be the beginning.

The Business of VR

Virtual Reality (VR) is a computer-generated simulation of an artificial, interactive 3D environment that directly engages the user’s sight, hearing and sometimes even tactile sensations. Its aim is to construct a fantasy so compelling that the user almost loses the ability to distinguish between what is real and what is artificial. 

It is tempting to pinpoint the birth of VR in 1962 with the release of Sensorama, a mechanical device that simulated a motorcycle ride using visual and audio systems, fans, odour emitters and a motion chair. The first interactive, virtual world was developed in 1977 by NASA, but after that, the VR industry progressed slowly until 2012, when the Oculus Rift VR headset was first released. In retrospect, it is the development of Oculus Rift appears to have been the tipping point. 

Physically, a complete VR system typically consists of (i) a head-mounted display with two monitors that create a 3D effect by providing separate images for each eye, (ii) a sound system that creates an immersive experience, (iii) a real-time head tracking that alters the user’s view in sync with his or her head movements, (iv) motion controls that allow the user to interact physically with the virtual world and (v) an omnidirectional treadmill (similar to a normal treadmill but allowing for movement in all directions) that allows the user to change his or her “location”.

Monetisation of the VR industry

Every new communications breakthrough has generated oceans of revenue, at least for those with the foresight to put it to creative use. To say that VR will one day be as crucial to the communications as the printing press was sounds today like an exaggeration—but if some of the more optimistic forecasts pan out, it might not be such a laughable comparison.

VR festivals

VR festivals allow people to enjoy many of the benefits of large-scale music festivals from the comfort of their own home—all without suffering through long lines, bad weather, overpriced food and drinks, and a long journey home. 

Virtual events have been around for decades, of course, but a 2D experience is not nearly as immersive as a 3D VR event. Moreover, the ability to manipulate your own embodied avatar offers a degree of involvement that the old-style events cannot match. Naturally, the production side of this new market segment is exploding—NextVR and Oculus Venues, for example, are two up-and-coming companies that organise VR music festivals along with other VR events. 

One of the pioneering VR festivals was organized by NextVR and LiveNation, which streamed the Global Citizen Music Festival in 2017. Minecraft added to the mix by holding the Coachella festival in late 2018. This year, however, might be remembered as the moment when the VR festival finally hit the mainstream. Fortnite’s Marshmello DJ set drew over ten million concurrent users to the event held in Fortnite’s “Showtime” mode—for all of ten minutes.

The monetisation potential here is obvious: charge participants to access the VR streams. The main downside is that VR festivals could put artists into competition with themselves. If VR makes it easier to watch your favourite artists from your living room sofa than to travel to a live venue, revenues from live performances could decline even as VR revenues rise. 

Nevertheless, it may be possible to create a pricing structure that will balance the incentives between live shows and VR events in a manner that results in a hefty net gain for the music industry. Participants who purchase a VR stream, for example, could be required to pay the live event ticket price plus a premium for the comfort of “attending” from their sofa. Ultimately, only a period of trial and error is capable of working out the economic viability of this business model.  

Immersive films

The world of immersive films is starting to merge with VR. Cutting-edge immersive films allow the user to engage with live actors half a world away, actually participate in the performance and even interact with other users-as-avatars. Users can even “teleport” instantaneously to other environments within the movie.  

Currently, the VR film First Man, starring Ryan Gosling as astronaut Neil Armstrong, and Oculus’s Quest experience The Under, are attracting media attention. Less well-known is the fact that Lionsgate, Disney, Marvel, 20th Century Fox and Warner Brothers have all released VR videos. Meanwhile, every year the Sundance Film Festival screens interactive VR short films that allow audience members to navigate their way through a story in unique ways.

At this point, monetisation models for immersive films largely mirror what has been successful in Hollywood: theatre films and home viewing. First Man uses a full-motion chair called Voyager that incorporates rotation and pitch motion, tactile feedback, six degrees of freedom and built-in VR headsets. The challenge facing this business model, of course, is that VR chairs will have to fill theatres, a costly investment that theatre owners are by no means certain to embrace.

Home viewing, perhaps the more viable option, still requires an initial investment from the user. The Oculus Quest all-in-one gaming headset, for example, retails at around £350–£450—a significant cost, but less than the price of many PCs. After this initial investment, however, the marginal cost is far more affordable; individual VR streams can be acquired separately at a reasonable price.

Hopefully, immersive VR films will prove more consistently profitable than their closest analogue to date, 3D films. Despite the negligible investment required (a pair of 3D glasses), 3D movies have never been a consistently profitable business model. If immersive VR films are not to suffer the same fate, VR filmmakers are going to have to remember what many 3D filmmakers forgot: no matter how flashy the special effects, artistic quality still matters. 

VR, advertising and product placement

Many of the media outlets available to users free of charge in the 20th and 21st centuries have been funded by advertising revenues, including radio in the 20th century and the World Wide Web in the 21st century. Nevertheless, consumers widely report that they find traditional advertising annoying and distracting.

Product placement, by contrast, is a relatively new advertising strategy, developed through use on various media platforms, where products are introduced seamlessly into storylines without any overt attempt to sell them. Product placement allows consumers to see the product in use and decide if it would be useful to them.

The innovations offered by VR have dramatically expanded the opportunities available to advertising strategies of all sorts, including traditional advertising and product placement. In 2016, YuMe and Nielson conducted a study that found significantly higher emotional engagement with advertising when it was integrated with VR rather than with 2D or video content. 

Innovation can yield volcanic results. Ikea, for example, saw sales explode after developing the IKEA Place iPhone app that allows users to test how furniture will fit into their home. Advertisers can now buy checkpoint listings on the mobile app Pokémon Go, which has well over a billion downloads, to encourage users to visit their businesses. The various means by which products can be advertised in a VR environment is limited only by the human imagination.

VR and education

A bored mind is a dull mind, and VR at its best is anything but boring. Students learn faster and retain material longer when the learning environment is fun. Moreover, certain uses of VR offer learning methods that are far superior to anything traditional education has to offer. All told, the potential impact of VR on education is nothing short of revolutionary.

One of the most exciting aspects of the application of VR to educational objectives is that it can be used to provide students with a realistic virtual environment to develop their skills by trial and error—without suffering the real-world consequences of failing, which can be dangerous or even deadly in some fields of study. Consider the advantages of a VR environment, for instance, in martial arts, military, pilot and astronaut training.

Educational VR is already gaining momentum throughout the world. Education technology company Nearpod, for example, which offers virtual field trips to locations such as Rome and Athens, estimates that over six million students have used its services in just two years. At the university level, Copenhagen-based Labster has created virtual scientific laboratories that are used by students in over 150 universities throughout the world, including Exeter and Harvard. 

In theory, educational VR can easily be monetised by selling or leasing learning products to educational institutions. The current slogan “a PC for every student” might have to be changed to “a VR headset for every student.” Another financial benefit that perhaps shouldn’t be directly referred to as “monetisation” is the efficiency gains produced by VR that have the potential to drastically lower the cost of education without sacrificing results.

Currently, however, educational VR is facing two bottlenecks: too few schools have invested in VR equipment and too little quality content exists. These two obstacles are largely related. After all, why invest in VR equipment without enough quality content to put that technology to work? Likewise, why invest in the production of quality content when too few schools have invested in the technology necessary to appreciate it?  

The education industry has been in this conundrum before. In the early years after the invention of the printing press, for example, few people bothered learning to read because of the shortage of quality books, and authors were discouraged from investing their time into writing quality books to market to a largely illiterate population. But we all know how that worked out, don’t we? 

VR and healthcare/exercise

The average patient is unaware of just how extensively VR is used in the healthcare industry in just about every major area:
 

  • Medical students can now practise medical procedures on virtual patients without risking their lives if they commit a major error;
  • Aspiring paramedics respond to virtual accident scenes in a risk-free environment;
  • Cave Automatic Virtual Environment (CAVE) systems are used to educate patients on the consequences of negative lifestyle choices;
  • Phobias can be treated by gradually exposing the patient to a VR version of that which he or she fears (a claustrophobic patient, for example, might be placed in a virtual ‘elevator’ that grows gradually smaller);
  • Bravemind is a VR application that helps PTSD sufferers confront their troubling memories in a safe environment by, for example, reliving a battlefield experience in VR.
     

We have only scratched the surface of the profound potential of VR to revolutionise medicine, however. VR applications are being sold to hospitals, clinics and medical schools, and in some cases they are even marketed directly to patients. Considering the massive size of the healthcare sector and the ageing of the population, the money is unlikely to run out before the innovation does. 

The Fitness Industry

Some fields of human endeavour will never completely surrender to the VR juggernaut—after all, sending your avatar out to climb a VR Matterhorn isn’t going to do a thing for your waistline.  Innovative minds, however, have been making inroads into the fitness industry, mainly through the use of innovative gaming. 

Knockout League, developed by Vive Studios, allows you to box a series of terrifying virtual opponents, all without so much as a headache the next day. Bean Boy Games’ Hot Squat, by contrast, has you squatting in place in the real world while your virtual avatar careens through an obstacle course at breakneck speed.

The monetisation models for the new fitness games have already been pioneered by the gaming industry (retail purchase, digital distribution, subscription, etc). It seems likely that any new innovations will mirror innovations that transform the gaming industry as a whole.

Brave New World?

Some critics see a distressing future ahead, one in which everyone is “jacked in” 24/7, and where actual reality fades before the relentless advance of VR. It’s a storyline reminiscent of the dystopian sci-fi film The Matrix. Ultimately, however, it will be up to us to decide the extent to which we allow VR to replace, rather than merely supplement, our experience.

 

David Carnes

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