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A New Reality Check for VR and AR

NEW YORK — The virtual reality and augmented reality sectors are still spinning inside a hype cycle, but the high levels of investment and interest — as well as an array of recent product launches — all seem to point to boom times ahead.

And there’s no shortage of those signs. Sony just launched the PlayStation VR platform for its popular gaming consoles; Google is about to pull the trigger on the retail debut of its new mobile- focused Daydream platform; and Baobab Studios, the startup focused on animated VR content, just banked a $25 million “B” round of investment.

The buzz and excitement around VR and AR were clearly present last week at VR 20/20, New- Bay Media’s first day-long event on this new market, and the event that kicked off NYC Television & Video Week.


Venture capitalists and established consumer electronics and media players are making big bets on VR and AR, but nothing is a sure thing.

While that adds risk to the equation, it’s especially true for VCs that need to time their investments. Being too late is a missed opportunity, and being too early is a good way to flush funds down the drain.

With VR and AR, it’s especially tricky ground today because it’s still full of unknowns, making it difficult to pinpoint the future value of the marketplace, Terence Kawaja, founder and CEO of Luma Partners, said in an opening keynote.

Kawaja said a “base case” prediction sets the VR market’s worth at about $80 billion ($35 billion for software and $45 billion in hardware) by 2025. However, others set that opportunity at as low as $23 billion to as high as $182 billion in that general timeframe.

And while VR has more “firm” funding opportunities than AR, he said his company believes that AR represents a larger opportunity, citing the dollars flowing into (and the secrecy surrounding) AR startup Magic Leap as one example.

He also believes the AR sector, which he expects to feature more “mainstream” applications, will take longer to develop than VR, and that about $3.3 billion in funding has gone into 375 companies across AR and VR.

“AR will become like an application layer to basically everything we do,” Kawaja said, noting that while “VR replaces your experience … AR amplifies it.”


Despite the current uncertainty, investors are not shying away, confident that technology heavy hitters will be successful in selling the necessary headsets and other hardware, while others will fill that ecosystem with content, software and applications that suit consumers and enterprises.

“They’ve built the hardware platform, that’s really set now,” Tipatat Chennavasin, general partner at VR-focused The Venture Reality Fund said, on a VC-focused panel, referring to such big technology firms as Facebook (Oculus), Google (Daydream) and Sony (PlayStation VR). “Now it’s time to invest in the software ecosystem that supports that — that’s really the opportunity.”

Intel, which is developing a standalone VR hardware design under the “Project Alloy” umbrella, thinks “it’s going to become a mainstream computing platform,” Arjun Metre, investment director at Intel Capital, said during a panel with executives from strategic investment units at Comcast, Time Warner and Samsung.

Chris Fralic, partner at First Round Capital, which, he said, has backed more than 350 companies with early “seed” funds, said his firm has been looking at social applications, at “how the 2D and 3D worlds come together” and at parallels with how app stores developed in 2008 with challenges for publishers and consumers “that are playing out again today.”

They were also asked if virtual reality has moved past the point of worrisome comparisons to 3DTV, which fizzled out after a year or so of consumer-electronics fueled hype. Scott Levine, managing director of Time Warner Investments, said the comparison to 3DTV often comes up, but he thinks “the dynamics are much different.”

3DTV was about TV sales, Levine said, while virtual reality apps driven by mobile phones are “much more immersive” and the support by the biggest tech companies and the potential reach of applications are much broader than a TV-set feature. “There’s so much momentum,” he said.

Said Intel’s Metre, “We all agree, I think, it’s going to be a massive market.”

The good news for VR content developers is that hardware makers are pumping money in that direction, knowing popular content is critically important. Facebook’s Oculus has already invested $250 million in content firms and plans to invest another $250 million, Chennavasin said.

Comcast Ventures tells the content companies it invests in — including Baobab Studios, Felix & Paul Studios and NextVR — not to worry about monetizing that content yet, managing director Michael Yang said. Between hardware-maker backing and venture investments, “if you manage your company appropriately, you can get well into 2019 and 2020,” he said. Content companies in VR have done well attracting venture funds, relative to content companies in general, he said.


While price and a breadth of apps and services will help to draw a crowd to VR, reducing friction into these new platforms will go a long way toward helping the new technology connect with the masses, Amit Singh, vice president of business and operations, VR, at Google, said during a keynote presentation.

That, he said, is a big reason why Google’s current work on VR centers in large part on headsets that can be paired with a device that most everyone already has — a smartphone.

Making VR simple and mobile will enable Google to “bring it everywhere” and “make VR a daily habit,” Singh said.

Google gave the world a taste of VR with Cardboard, an inexpensive, entry-level platform that must be paired with a smartphone. The company will soon take it to the next level with Daydream, a $79 Android-powered platform featuring the Daydream View headset and controller.

Daydream will initially be compatible with Google’s new Pixel smartphone, but consumers will soon see eight to 10 Daydream-compatible smartphones hit the market, Singh said.

The platform begins to run when a smartphone is matched with the headset because the two sides talk wirelessly. “It takes all the friction out of being in VR,” Singh explained.


Gaming is viewed as a key driver for VR adoption, but the platform will also be used to put consumers inside the sporting world.

Getting fans to slap on a virtual reality headset to watch their favorite teams battle it out on the pitch, the diamond or the gridiron for hours at a stretch will involve more than just fancy camera angles, though. Content providers must offer a compelling social and statistical experience to get viewers to make the VR commitment.

“There are two really big hurdles that this is going to have to overcome,” STRIVR head of sports training Andrew Wasserman said during a sports-focused panel. “One is that that 2D broadcast is a really good experience. The second obstacle is the social [aspect] of watching sports. It’s not that common that I’m sitting alone watching a game. When you’re on a headset, you’re on your own.”

Devin Poolman, senior vice president of digital platforms at Fox Sports, said VR may be more of a companion technology, giving viewers the opportunity to go back to watch a particular play immersively through a “magic window” on their phones.

“There are use cases that will get us there,” Poolman said. “It becomes a really compelling companion experience that is more like what’s been alluded to with in-car cameras, to be able to jump in and see different perspectives throughout the game. I think we’re maybe going to see this as a second screen experience that ultimately replaces the broadcast.”


The year 2020 is not that far out on the horizon, but much will change with VR and AR between now and then, Eric Romo, the co-founder and CEO of social virtual reality startup AltspaceVR, predicted during the closing keynote.

Among his examples, he observed that many investment firms have a “VR person,” an individual who understands the new market. Romo noted that this similarly played out during the early days of the Internet, “Web 2.0” and mobile.

Today, the notion that one person at any one company can encapsulate any of these now-massive markets is “ridiculous.”

“And VR is the same,” Romo said, noting that companies will embrace and use VR as a foundational technology “or suffer.” In 2020, there will no longer be “VR companies,” but companies that use VR to solve a problem, he said.

Romo also pointed out that today, 360-degree video is the dominant “passive” VR content.

“People sort of know how to make it already,” he said of that category of content. In 2020, he predicted, new forms of “semi-passive” content will emerge, and VR itself will become a new medium under which purpose-built content will flourish.

He also made light of the fact that just about every PowerPoint on this topic presents the “sunglasses slide,” used to represent the merging of VR and AR in a way that resembles a pair of Wayfarers. In 2020, he predicted, the sunglasses slide will go the way of the dodo as VR and AR “diverge” further and become more useful and support additional markets and specific applications.

Romo also sees major change coming to VR platforms themselves. While today’s focus is on viewers that must be paired with smartphones, gaming consoles or high-powered PCs, the industry, if it’s being honest with itself, will admit that this is a “broken” model, he said. In the coming years, he said, standalone platforms “optimized for VR” will dominate and outsell today’s approaches, pointing to initiatives such as Oculus’s Santa Cruz project, and designs from Qualcomm (the Snapdragon VR820) and Intel (Project Alloy).

And what of the “Metaverse,” a term that is loosely defined as a collective, virtual shared space? Romo argued that the Metaverse won’t necessarily be based on what’s been proposed in books such as William Gibson’s Neuromancer or Ernest Cline’s Ready Player One. Instead, the one Romo sees emerging will embody “the evolution of the Internet” and will grow into something much different than what is being imagined now.

It will not be purposefully built, Romo said, but will instead materialize from the hard work of disparate groups, all trying to deliver great experiences.

“It’s organic … it’s an evolution,” he said.

Kent Gibbons and Mike Farrell contributed to this report.