VR's missing link? A killer app that convinces us to buy in
Facebook, Sony, Microsoft and many others have bought in on virtual reality. You likely haven’t, and it’s starting to show.
Chika Umeadi could be the poster child for what's wrong with virtual reality today.
At a glance, he seems like the perfect candidate to buy a VR headset. He's an app developer and techie. He loves video games . He's 30, unmarried and says he has the means to splurge when he wants to.
Yet even though the Chicagoan has tried a friend's VR gear several times, and even slipped on the fabled Magic Leap mixed-reality headset that was released in August, he's just not convinced enough to buy a device of his own.
"It's low on my priority list right now," he says. "I can't see a reason to buy it."
What's missing, industry insiders say, is a killer app, the experience that gets everyone buzzing that they just have to try it and possibly even buy one of their own.
As a result, people are expected to buy only 8.7 million headsets this year, up from 7.1 million last year and 6.7 million the year before, according to data from industry watcher SuperData Research. That includes Oculus VR's $399 Rift headset, which was released in 2016, two years after Facebook CEO Mark Zuckerberg bought the company for more than $2 billion.
It's not like there aren't cool VR experiences. One of the most popular right now is Beat Saber, a $20 rhythm game in which you slice through bricks to the beat of a song. It's become the top-selling VR game on the popular Valve Steam Store, and people who've filmed themselves playing have garnered millions of views on YouTube.
But even with those successes, the money that might help fund developers, game studios and others working on those killer apps seems to be drying up.
Venture funding for consumer VR software companies may drop by more than half this year, to $265 million from $576 million a year ago, SuperData says. It's even a third lower than funding levels in 2015, just after Facebook's Oculus acquisition.
VCs aren't the only ones cooling on VR. Industry executives and developers tell me that alternative sources are drying up, too. They say Hollywood marketing teams, which had tapped companies to build VR apps to hype hit movies such as 2016's Fantastic Beasts and Where to Find Them and TV shows including Game of Thrones, are paying less and appear to be more cautiously approaching projects.
Even early VR boosters are tapping the brakes. Samsung , which was one of the first to market with its Gear VR mobile headset, didn't say anything about VR in its major headset announcements this year.
That's sure to be on the minds of the more than 2,500 developers heading to San Jose for Facebook's fifth annual Oculus Connect developer conference, starting Wednesday. There, they'll brainstorm in talks like "the next generation of storytelling," "video that doesn't suck" and, tellingly, "building brand + community (on a budget)."
"There has been a cool-down in general in terms of investment," said Tipatat Chennavasin, a general partner at the Venture Reality Fund. Companies are still getting funded, he notes, and new initiatives like VR arcades, where people can go to a mall or a warehouse and play VR games in a large room, are gaining traction.
The wait for VR's eventual uptick has already been too long for Nicolás Alcalá, a film producer in LA who founded a well-regarded VR studio Future Lighthouse in 2015. At the beginning of this year, he had to shut down because he couldn't raise enough money to keep going.
People need a reason to try VR and they don't have it yet, he said. "The industry is hoping people will embrace this new technology that isn't yet so useful, but it's cool."
The Oculus RIft is Facebook's highest-end headset. The first prototypes were shown publicly in 2012.
On the hunt
The killer app isn't some mythical thing in tech. It's a proven, reliable way to get you and me to buy.
Nintendo 's Wii video game console took off in large part because of Wii Sports, a tennis, golf and bowling game that sold nearly 83 million copies after its 2006 debut, making it one of the most successful games ever. The Wii went on to sell more than 101 million units, becoming one of the best-selling consoles of all time. It was replaced by the less popular Wii U in 2012.
HTC Makes the Vive headset, which was released just after the Oculus Rift in 2016.
Not so much with VR. After decades of development, billions of dollars of investment and so much hype Steven Spielberg made a movie about it earlier this year, there isn't anything that truly resonates beyond VR's current fan base.
Industry executives say they still have hope, in particular because many of VR's nagging technological problems are being solved.
One of the biggest complaints is that high-end headsets such as Facebook's Oculus Rift, HTC 's $499 Vive and Sony 's $299 PlayStation VR need a powerful computer or video game console to power them, adding hundreds of dollars of cost.
Oculus' upcoming "Santa Cruz" headset, which doesn't yet have a release date or price, won't need a computer to offer a high-end experience. That means it also gets rid of the annoying wire that connects headsets to computers.
Even then, there still aren't any killer apps.
"So many pain points are disappearing in VR, and it's being ignored at the worst possible time," said Denny Unger, creative director of Cloudhead Games, which makes the well-reviewed episodic VR puzzle solving series The Gallery.
More promise elsewhere
Pokemon Go became an international sensation after its 2016 release, and is still one of the most popular games in the world.
Those hundreds of millions of dollars dropping out of VR investment aren't disappearing. They're shifting to companies working on augmented reality (AR) or mixed reality (MR), where computer information is laid on top of the real world. Think Pokemon Go, which dropped cartoon monsters around your neighborhood that you saw through your phone.
It's not just in our smartphones. There are mixed-reality headsets like Microsoft 's HoloLens, Magic Leap and even Apple 's secret research project reportedly aimed at creating a headset in 2020 with better specs and capabilities than anything on the market today.
Unlike VR, whose use beyond video games is still unrefined, mixed reality has already impressed Ed Moore, senior technology strategist for oil giant Chevron. After testing all sorts of tech, he's bought hundreds of Microsoft HoloLens devices and is offering them to people who work on oil rigs and gas refineries this month.
The killer app for Moore was a feature called remote assist, through which an expert can connect with employees anywhere in the world over video. While talking, the expert can draw circles, arrows and diagrams around a pipe, engine or whatever else the employee is looking at.
It can take days to fly experts to a remote location where they're needed, Moore says, and that doesn't include the costs and risks associated with globe trotting. With HoloLens, they can have "an expert in the field" immediately.
"When we first saw it, we thought it was innovative and a game changer," he said.
The thing is, you and I aren't the target audience, at least not yet. HoloLens costs as much as $5,000 apiece, and it's intended for companies, though Microsoft has shown people using it to play things like the world-building game Minecraft as well. The $2,295 Magic Leap One is only meant for app creators and creatives for the next year or more, company co-founder Rony Abovitz said in August, as part of its strategy to get more apps in the market before he releases a lower-priced consumer version.
Even so, money is already flowing into the technology. Investment in companies working on MR is expected to jump by nearly 50 percent this year to $427.1 million, according to SuperData. Next year, it'll jump again to $644.6 million.
Meanwhile, VR investment are expected to remain relatively unchanged.
Sales of MR headsets are expected to explode to "tens of millions" of units by 2022, said Tim Merel, managing director of market watcher Digi-Capital. Part of the reason, he added, is that much of VR has been focused on gaming, while MR is already branching into the business world.
"Companies are seeing a return on investment right away," said Lorraine Bardeen, the general manager for MR efforts at Microsoft. "There are scenarios where VR is important, but the reason investment has been magnetically drawn to these use cases is they're proving themselves."
Moore still sees use cases for VR. He's looking into creating simulations of various oil rigs and other work locations to help employees familiarize themselves before arriving on site. Eventually.
Don't be just a VR company
Sony's PlayStation VR works with the company's PlayStation 4 video game console. It's tallied more than 3 million sold, making it one of the top headsets so far.
While VR companies wait for the technology's inevitable aha moment, they're changing tack to weather the financial storm.
Paul Bettner, one of the people behind the early hit mobile game Words With Friends and the high-profile VR action adventure game Lucky's Tale, is focusing on partnerships and exclusive deals that can help deliver predictable revenue so he can keep his 70-person company, Playful, working.
"Even though the audience isn't as big as PlayStation or Xbox, the attention we can get, and the love our fans can have for our games, it makes it a viable strategy for us," he said.
He's also diversified the types of games he makes, moving from VR to a standard TV when he released the sequel Super Lucky's Tale for Microsoft's Xbox One last year.
The New York Times is also spreading out its bets. In 2015, the newspaper sent a million entry-level Google Cardboard headsets to subscribers, and kicked off a 14-month project publishing a daily 360-video series. Then it built AR technology into its news app for phones.
Now the newspaper is building stories using both technologies, offering readers a chance to look at a 3D model of the site of a chemical attack in Syria and a 360 video detailing the efforts to rebuild Puerto Rico's power grid after Hurricane Maria last year.
"We've learned what stories work well in VR and we're learning what stories work well in AR," said Marcelle Hopkins, deputy editor for video and co-director for immersive journalism at the Times. She declined to say whether the 167-year-old publication has increased the size of its teams or investments in them, but she said the newspaper is seeing increased use from readers. "It's starting to take."
Meanwhile, organizations just starting to experiment are learning from these early experimenters. The International Committee of the Red Cross partnered with VR studios in England and used funding from Google 's "Daydream Impact" project to build an interactive app called The Right Choice, chronicling life for a Syrian family trapped in urban warfare.
"We're thinking about how we can use technology in different ways," said Christoph Hanger, a spokesman for the ICRC, whose mission is to provide humanitarian aid to civilians caught in war.
Despite its enthusiasm, the ICRC is keeping its VR teams and investments small. It plans to publish a white paper based on the response from this project as it figures out the what projects work best. "We hope this builds empathy for the most vulnerable."
The biggest hurdle will be to get people to put on a headset in the first place. Or even want to.
That's what Greg Root learned after starting a tech evangelist YouTube channel with his friends called Technically Speaking. Originally, the 36 year-old IT tech consultant from Ohio planned to talk about VR regularly, but he quickly found that his audience just wasn't interested.
"It only appeals to the nerdiest of nerds," he said.
As for Umeadi, he's excited about the Oct. 26 release of Rockstar's Read Dead Redemption 2 western drama. He says he's likely going to buy a $499 Xbox One X to play the game on.
"if there's something I want to experience, I'll make the investment," he said.
So far, none of the games on VR have moved him to buy. Yet.
Trough of Disillusionment: A look at Oculus Rift's slow first year on the market.
Brilliant or BS: Inside Magic Leap, one of tech's most secretive unicorns.