Despite Some Potholes, Immersive Technologies Getting Ready to Hit Its Stride

The month of August 2020 was relatively busy for Virtual Reality (VR) and immersive technologies. The COVID-19 pandemic has continued to rock the Location-Based Entertainment (LBE) segment and, in August, pushed Sandbox VR to file for bankruptcy protection, but elsewhere the market is experiencing renewed interest and expectations are correspondingly looking up. Facebook began showing more of its upcoming social VR platform, Horizon, and launched a private beta. Spaces made news earlier in the year, when the company abandoned the LBE market in favor of immersive collaboration, and was recently acquired by Apple. On the hardware front, Varjo announced US$54 million in Series C funding (with total funding around US$100 million including US$8.2 from the Series A round, US$6.7 from Tekes, and US$31 from Series B). Each of these point to different aspects of VR and immersive technology’s future, but the road ahead still has potholes and speedbumps.

The LBE market segment has continually drawn very disparate responses from industry insiders, ranging from those who believe it’s the most profitable segment to others who view it as the other extreme and claim it’s a terrible business and doomed to fail. While the pandemic is creating challenges for the LBE market, it does bring to light to and accentuate its preexisting weaknesses. Viewpoints that depict LBE negatively often stem from dedicated, larger VR installations compared to destinations where VR is implemented as a value add. Dedicated VR installations require larger spaces and are often located in places with high consumer foot traffic (e.g., malls, shopping centers, tourist areas). These businesses have significantly higher overhead than smaller installations (e.g., VR booths in other entertainment venues) and, while the higher flow of traffic can sustain these operations, limited content updates make dedicated VR locations more reliant on first-time customers than other businesses with more diversified services. Once the pandemic hit and virtually eliminated this foot traffic, the higher overhead of the larger dedicated locations became harder to bear.

Given the current state of the VR market (even before the pandemic), these larger installations were likely ahead of their time. In addition to offering limited content, immersive technologies have yet to reach a critical mass where more users view it as an essential tool or element of their digital lives. This is where some of the other announcements come into play. Facebook’s Horizon is already drawing comparisons to Ready Player One’s OASIS and is expected to serve as the hub of Facebook’s virtual social network. It will allow users to build their own virtual environments and worlds, laying the groundwork for a VR “Internet.” Corporations will create branded locations with activities and eventually virtual merchandise—some of the market potential of which is discussed in the ABI Insight Immersive Communications and Virtual Goods: Pointing to a Virtual Future? (IN-5788)—and new businesses around virtual tourism, information/education, and other services will carve out spaces within the virtual world. The vision for a fully realized and vibrant virtual 3D Internet might also explain why Apple acquired Spaces.

Spaces was in the immersive communications business for less than six months (after pivoting away from LBE) and, while its platform was good (especially considering its limited development time), there were more advanced communication platforms available. Spaces did, however, differentiate on the avatars. Spaces worked with Loom to import avatars into the platform, but more happened behind the scenes owing to the expertise of the Spaces team. Spaces was founded by Shiraz Akmal and Brad Herman, both previous executives at DreamWorks Animation who leveraged their expertise to make significantly more natural looking avatars in regard to gestures, facial expressions, and syncing speech and mouth movement. Avatars that look and feel more natural will benefit Apple in the near term, with its Augmented Reality (AR) overlays and emojis, but also lay the groundwork for virtual worlds.

Looking at Facebook Horizon a casual observer might balk at the visual graphics of the service, especially if they judge it based on the OASIS as depicted in Ready Player One (or even current/next-generation video games). Horizon is targeting a range of devices, including the Oculus Quest, though, and while it will initially support smaller groups of people in a space (beta allows for eight people per space), the goal is to expand it to support many more and, considering the service intends to allow a range of users to build within the platform, it’s understandable to focus more on ease of use and performance than impressive visuals. We can think of Roblox or Minecraft as a guiding force here. In the VR world, high-end visuals are still the realm of enterprise solutions like Varjo’s Head-Mounted Displays (HMDs), but they do showcase what the future holds for a more mainstream audience.

In a previous ABI Insight, we espoused the need to look at VR in a proper frame of reference and view it as a technology that is still developing and waiting for an inflection point that drives it toward the mainstream (e.g., paralleling the smartphone market). While many still believe that inflection point will be a must-have app or a device (Apple again is a popular choice), regardless if that criteria rings true or not, we can start to imagine what the future will look like—and it is social. Since VR isolates users from their environment, many detractors felt the technology was not conducive to social activities, but those barriers are starting to come down.

The COVID-19 pandemic‘s need for social distancing and isolation has instilled a new appreciation for VR and its ability to bring people together in a more immersive and natural way than video conferencing alone. People have discovered multi-player gaming and video viewing rooms in VR and, with Horizon and other virtual worlds, the applications that were previously only pipe dreams will start to come to fruition. With social VR, customization will become far more important than in other social networks and previous virtual worlds. The connection between the user and the avatar is far more intimate when these virtual representations mirror the user’s actual gestures and movements. We can look at the virtual economies in video games and the value of virtual goods/items, all of which could take on a new level of importance in a VR world. As these worlds expand and develop, there will be more opportunities to translate real world opportunities into the virtual world.

There will certainly be a great deal of work to develop and establish these virtual economies, but for the first time since ABI Research started covering VR over five years ago, we are starting to see tantalizing glimpses of what many imagined the future could be and what made VR seem so magical when they first donned a VR HMD.