Virtual reality (VR): a billion dollar niche

TMT Predictions 2016

Executive summary

Deloitte Global predicts that virtual reality (VR) will have its first billion dollar year in 2016, with about $700 million in hardware sales, and the remainder from content. VR is likely to have multiple applications, both consumer and enterprise, in the longer term, but in 2016 we expect the vast majority of commercial activity to focus on video games. We estimate sales of about 2.5 million VR headsets and 10 million game copies sold.

Virtual reality hardware offers visual (and sometimes audio) immersion via a wide-angle, head-mounted display that shows a stereo image in 3D. Sensors in the headset track the user’s movements and change the user’s view accordingly. A VR version of scuba diving allows you to feel as if real fish are swimming toward you. If you look up, you see a realistically rendered sky. When you glance down, you are shown the ocean floor. The sound track adjusts accordingly, enhancing the perception of being elsewhere. However the illusion remains incomplete, in that not all senses would be catered for. VR could take you into the depths of the rain forest. You could see the forest floor or look up to the canopy. But you would not feel the humidity, experience the smells or touch the vegetation.

There are likely to be two main types of VR device in 2016: ‘full feature’ and ‘mobile’. The former incorporates high-resolution screens and are likely to cost about $350-$500 (with prices at the start of the year possibly being higher), and we estimate between 1.0–1.75 million sales in 2016, with volumes depending heavily on the initial price. Full feature devices will likely be designed for use with either latest generation games consoles or PCs with advanced graphics cards capable of driving high refresh rates. ‘Mobile VR’ incorporates a high-end smartphone’s screen into a special case, enabling the headset to fit more-or-less snugly on the user’s head. This is likely to cost from about $100, and we forecast that at least half a million units will be sold in 2016. Both types of VR would provide a high quality VR experience, with the calibre of full feature VR being noticeably superior, at least in 2016 and out to 2020.

As for VR content, we expect most revenue generated to come from games sales, with titles sold at between $5 and $40, generating over $300 million. Many of the apps created for smartphones are likely to be available for under $10 or free, with the latter serving primarily as marketing tools. We do not expect VR to be used to any great extent in television or movies in 2016. A key reason for VR’s minimal impact on TV and movies this year is that little VR content exists, with a fundamental constraint being the lack of broadcast grade or even hobbyist cameras capable of capturing VR content.

With regard to enterprise adoption of VR, we expect 2016 will be a year of experimentation, with a range of companies dabbling with using VR for sales and marketing purposes. These activities are likely to be commercially insignificant this year.

Virtual reality is a fantastic innovation which can demonstrate the cutting edge of what technology is capable of today. VR’s capability is likely to improve further still over the years as processors improve, screen resolution increases yet further, and content creators learn how to create for the format. That said, as can happen with emerging technologies, there is considerable hype about the impact of VR in the near term. Any company that is considering VR in any regard should have a careful look at the likely addressable market. Recent breakthrough technologies that required consumers to wear something on their face have not proven to be mass market successes. While VR headsets may sell better than smart glasses or 3D TV glasses, also consider that using the technology may require a set of behavioural changes that the majority of people do not want to make.

Virtual reality (VR): a billion dollar niche

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