A Realistic Look at Sony’s and Facebook’s Virtual Reality Efforts

To some tech investors, virtual reality (VR) represents the final frontier of gaming and entertainment. Yet to critics, it's the same clunky, impractical technology that enthusiasts claimed would be the future ... three decades ago.

The VR debate recently took center stage again with Facebook's (NASDAQ: FB  ) purchase of Oculus VR's Rift and Sony's (NYSE: SNE  ) introduction of Project Morpheus -- two large headsets that are vying to bring VR to mainstream consumers. In a recent Engadget interview, Shuhei Yoshida, Sony's President of Worldwide Studios, called Facebook's purchase of Oculus a "validation" for VR products like Morpheus.

However, I have some serious doubts about that "validation." I strongly believe that VR tech is destined to remain a niche technology rather than a mainstream one for three main reasons -- form factor, uncertain usefulness in other industries, and the rise of augmented reality (AR) devices like Google (NASDAQ: GOOG  ) Glass.

Facebook's Oculus Rift (L) and Sony's Project Morpheus (R). Source: Company websites.

3 key lessons in form factor
There's no question that Oculus and Morpheus are incredible pieces of technology. When the Oculus Rift's 3D headset is used in tandem with the Virtuix Omni treadmill, it immerses a user in virtual environment to a degree that can't be matched by even the largest HD displays. The same applies to Sony's Morpheus, which synchronizes with its Move motion controller and the PS4 camera to provide a more immersive experience in games.

However, the inescapable fact is that these headsets are huge, block the user's view of the outside world, and often require completely uncluttered free space for safe usage. Three key products illustrate my point -- Nintendo's (NASDAQOTH: NTDOY  ) Virtual Boy, Sony's 3D TVs, and Microsoft's (NASDAQ: MSFT  ) Kinect.

Back in 1995, Nintendo inexplicably released the Virtual Boy, a table-top "VR" experience that played red and black games in stereoscopic 3D. The Virtual Boy failed due to its uncomfortable form factor when compared to the Super NES and Game Boy. Simply put, people didn't like putting bulky things on their head.

Nintendo's Virtual Boy. Source: Wikimedia Commons.

Since 2010, Sony and other TV manufacturers aggressively promoted 3D TVs as the future of television. At the time, it made perfect sense -- films like Fox's (NASDAQ: FOX  ) Avatar had opened the floodgates to a deluge of 3D IMAX (NYSE: IMAX  ) experiences in theaters, so it made sense that viewers would want to enjoy an equivalent experience at home.

Unfortunately, the idea of watching 3D films at home never caught on. By CES 2014 in January, several manufacturers had reduced their selection of 3D TVs, and Vizio had completely abandoned the technology. The key reason for this 3D detox was that more immersive technologies simply can't change lifelong habits overnight.

Meanwhile, Microsoft's original Kinect never gained traction in Asia for a simple reason -- it required too much space to set up and play. To operate a Kinect, the player had to jump back and forth in a large, clear area -- ideal for an American McMansion, but not so much for an average 980-square-foot apartment in Tokyo. By comparison, swinging the Wiimote was far less dangerous than leaping across the living room.

When we combine those three key lessons, we get a clearer view of why Facebook's Oculus Rift and Sony's Morpheus could be headed far away from mainstream consumers.

VR's telepresence appeal could be marginalized by the rise of AR
Oculus Rift and Project Morpheus could actually have better uses beyond gaming and home entertainment.

As Facebook CEO Mark Zuckerberg mentioned during this discussion of Oculus, VR headsets could be used to help people in remote areas visit the doctor, attend classes, or socialize with friends.

Many of these tasks can obviously be accomplished via a tablet or laptop, but supporters of VR in telepresence technology believe that converting physical actions to virtual ones could revolutionize the way humans interact with each other digitally.

Google Glass. Source: Wikimedia Commons.

However, a major threat looms on the horizon -- AR devices like Google Glass give users a virtual overlay of their surroundings, synchronized in real-time to wireless and satellite connections. Whereas the Oculus Rift and Morpheus immerse users in fake worlds, Google Glass enhances a user's perception of the real one.

That clear difference -- and the fact that users can still see while wearing Glass -- could make VR devices look like dated toys. Moreover, Glass has plenty of possible telepresence possibilities as well, since it is equipped with a microphone, camera, screen, and wireless connectivity.

As a result, the growth potential of the AR market is much more clearly defined than the one for VR products. Analysts at Research and Markets expect the Global Augmented Reality market (apps, hardware, and components) to grow at a compound annual growth rate of 132% between 2013 and 2018. The market for VR devices is harder to project, since sales are currently non-existent. However, a report from KZero expects the global VR market to grow from nearly nothing in 2014 to $5.2 billion by 2018.

Surprising, KZero expects that growth to be fueled by light gamers and early adopters instead of hardcore gamers -- which means that Sony and Facebook might be disappointed if they plan to market the Morpheus and Oculus Rift as PS4 and Xbox One accessories.

The bottom line
In conclusion, there's plenty of hype regarding VR tech, but the form factor of large headsets like the Oculus Rift and Morpheus simply limit its mainstream appeal. Meanwhile, sleek AR-enabled wearable devices like Google Glass could also adversely impact the public perception of Oculus Rift and Morpheus, even though they are different technologies aimed at very different customers.

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