Project Morpheus vs Oculus Rift: Who Will Win the Virtual Reality Battle?

Sony  (NYSE: SNE  ) formally introduced its Project Morpheus virtual reality headset at E3, setting the company up for a faceoff with Facebook  (NASDAQ: FB  ) , which paid $2 billion earlier this year to buy VR game company Oculus.

Like the Oculus Rift headset the Morpheus device has been shared with developers but has not been released publicly nor has it been priced. Sony intends for its VR headset to integrate with the company's PlayStation 4 consoles. In conjunction with showing the technology off during its E3 presentation, it shared some info on what it expects the device to do via press release.

Morpheus enables developers to create experiences that deliver a sense of presence -- where players feel as though they are physically inside the virtual world of a game.... Morpheus features a visor-style head-mounted display and works seamlessly with PlayStation Camera to deliver a unique VR experience.... Furthermore, in supporting games, the player can use a PlayStation Move Motion Controller as an object, such as a sword. Morpheus will reproduce the player's hands and sword within the game so the player feels like they are physically fighting off enemies with their sword in the virtual world.

That's a much more specific explanation for how the technology will be used than Facebook gave at the time of the Oculus purchase. From the statement CEO Mark Zuckerberg made then, it was clear that while the company has plans for VR beyond gaming, they may not be fully formed.

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

Facebook wants to change how people communicate while Sony wants to build cooler games. Both might be possible through VR but it's important to note that virtual reality has been an emerging technology since Nintendo  (NASDAQOTH: NTDOY  ) released its seizure-inducing Virtual Boy in 1994. Interest in the tech has always been high, but mass commercial success has been non-existent. That may be a product of technology -- and maybe Morpheus and Rift are finally good enough -- but it may be that consumers don't actually want an immersive virtual reality experience. VR could be huge or it could be 3D television -- a cool idea that's fun to look at in Best Buy that few people actually buy.

How big is the market for virtual reality?

The current market for VR technology is essentially zero but researcher MarketsandMarkets expects the augmented and virtual reality market will surpass $1 billion by 2018. That number includes the potential for the tech in gaming but it also looks at market segments that are certainly outside what Sony has targeted and possibly beyond the scope of what Facebook is looking to do.

MarketsandMarketseport states that by 2015 augmented reality will be widely used in education for "advanced learning and for teaching technologies." The rapid growth of the virtual and augmented reality market, according to the research firm, will be largely based on computer hardware advances and improvements in Internet connectivity. 

In reality though any forecast of the market is just a guess as the success or failure of VR -- at least in the short term -- hinges on whether Sony, Facebook, or a smaller player can create a device that not only captivates the public but gets people to shell out some cash. In many ways it's like when Nintendo launched its Wii console. People had long talked about interactive gameplay and a few lesser takes on it had been released. But once the Wii came out and it delivered the right mix of playability and wow factor at a decent price, customers came in droves.

VR may be a niche play in fields like medicine and education or it could be the next big thing if Sony or Facebook create the right device.

Sony has a platform, Facebook has a huge audience 

Facebook bought Oculus based on future promise. It's possible to tie VR into the company's core social media network, but it's a bigger leap than using a headset for enhanced gameplay. There are all sorts of neat social interactions made possible in a virtual world but none seem exciting enough to inspire the purchase of a headset. Gaming, however, has often been able to deliver the so-called killer app -- an experience that looks awesome enough for people to be willing to spend money on an accessory.

PlayStation 4 has a number of well-known games already on its platform that might benefit from a VR version. Imagine being immersed in a war playing Call of Duty or actually experiencing a virtual world football game. Those opportunities might be enough to bring VR into the mainstream and Sony is well-positioned to make that happen.

There is no currently established market for virtual reality headsets, but Sony or Facebook could establish one. Of the two Sony seems to have a clearer path to success though it's hard to discount a player that owns more than one platform with reach that extends to over a billion people.

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