Is Virtual Reality the Next Big Thing?

We have been hearing about virtual reality for over 20 years. Is it finally going to play a major role in everyday life?

Apr 14, 2014 at 1:27PM

Facebook (NASDAQ:FB) may be willing to bet on virtual reality being the next great computing frontier that will reach a mass consumer audience, but there is no guarantee that will happen.

The social media company spent $2 billion buying VR headset maker Oculus -- a company with limited revenue, no product in the mass marketplace, and all sorts of questions about viability. Oculus -- like the VR market in general -- represents potential, and potential can fail to turn into anything of value. To put it in sports terms Oculus may well be the next Peyton Manning but it also could be more like Akili Smith or Heath Shuler.

Virtual reality has been a novelty so far

Virtual reality has been the next big thing that never really happened for over 20 years. There has been lots of hype and a few novelty products like Nintendo's (NASDAQOTH:NTDOY) failed Virtual Boy headset from 1994 (which gave users headaches).  

VR has not caught on because the computing power required to make it practical has either been too expensive or not portable enough. 

Yes, there have been minor successes like Linden Labs' Second Life, a 3D virtual world that can loosely be defined as virtual reality, but the game's actual audience never equaled the hype. At its peak it had around 100,000 users, Fortune reported, making it a novelty and not a mainstream game-changer. 

Facebook founder and CEO Mark Zuckerberg, at the time the Oculus deal was was announced, seemed to think VR was ready to hit primetime. 

"Mobile is the platform of today, and now we're also getting ready for the platforms of tomorrow," he said. "Oculus has the chance to create the most social platform ever, and change the way we work, play, and communicate."

Having a chance to do something and actually doing it are a big leap. While Oculus has some impressive technology, we're a long way from assuming consumers will want to wear Google-style glasses as anything other than a novelty, let alone a giant headset.

Will VR have mass consumer appeal?

"I can tell you that immersive VR is not the next big platform after mobile," Gartner research analyst Brian Blau told Fortune. "We see wearable devices as very important, but it's not just limited to head-mounted displays. It includes products like watches, fitness trackers, or even connected devices such as home appliances and cars. And even then, it's a long-term play at best."

VR appeals to companies like Facebook because the technology seems like a logical extension of the increasing relationship between man and machine. VR can improve communication and allow for all sorts of new social interaction, but you have to question whether consumers want that.

For all the technological advances smartphones have made -- including taking video chat from science fiction to everyday life -- the dominant form of communication is text messaging and other variants on typing at each other.  

In 2013 Pew Research Center found that 81% of cell phone owners used their phone to text, while 52% used it to check email, and only 21% used theirs for a video chat. 

VR may open up all sorts of ways to communicate but it seems possible that Zucerkberg may be wrong and VR won't be the next big thing, it will be a novelty or a niche product relegated to use in gaming and porn.

Can virtual reality be done in way that is affordable?

"The technology has been moving at a crawl up until two years ago," Jeremy Bailenson, director of Stanford University's Virtual Human Interaction Lab, told Fortune. "From a technological standpoint, the hardware is becoming lighter, more realistic, and cheaper. From a software standpoint, we have passed the tipping point."

Affordable however does not people will actually want it. 3D technology has become affordable in recent years but consumers almost entirely rejected it as an at-home technology. Affordable VR will likely lead to practical (or at least fun) applications, but just because we can buy it does not mean we will buy it.

VR may not be the next big thing

It seems like for the first time in the long, slow development of VR technology that headsets or other devices that make VR practical are close to existing. It also seems like the public is not clamoring to integrate VR into their social media experience. Yes, the video game industry -- which is likely to be worth $100 billion in 2014 and $111 billion in 2015, according to Gartner -- will use the technology, but VR is only likely to breakthrough to hardcore gamers. Maybe Nintendo will be able to make use of a dumbed down version of VR in one of its products and give it mainstream appeal like it did with motion control and the Wii, but that hardly means VR will be the next mobile. 

Even after the success of the Wii consumers were largely indifferent to improved motion control products like Microsoft's (NASDAQ: MSFT) Kinect and Sony's (NYSE: SNE) PlayStation Move. 

It's harder to judge the size of the porn industry but Covenant Eyes gauged the U.S. portion at around $12 billion in 2012. The VR potential in that market is obvious, and was foreseen by Woody Allen in Sleeper 40 years ago. But the world predicted by that movie -- where human interaction during intercourse is replaced by people hooking up to a device -- seems highly unlikely. The actual market for VR porn would appear to be somewhat limited to the pool of people willing to buy such a thing. 

After 20 years VR seems closer to being a reality but it still feels like novelty technology for use in theme park rides and maybe in museums. As prices come down there could clearly be educational implications -- picture a VR visit to the pyramids of Egypt or doctors training by operating on VR patients -- but a world where people interact on a VR Facebook seems very far away.

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Daniel Kline is long Microsoft. He has more than enough to handle in regular reality. The Motley Fool recommends Facebook and Google (C shares). The Motley Fool owns shares of Facebook, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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