Virtual reality is creating quite a buzz in the tech sector these days, and all of the talk around the trend's possibilities may leave investors wondering what's actually a good way to gain some exposure to the virtual reality (VR) market, and what's just hype.
So, here's a quick, five-point guide to help you better decide how to benefit from VR, and what you should be mindful of.
1. Know what it's worth
Research from TrendForce estimates the VR market to be worth $22.4 billion by 2020, with most of that coming from software sales. This number excludes mobile VR (like the Samsung Gear VR), but other forecasts that include mobile VR in the mix put the market size at closer to $30 billion.
Virtual reality should experience meteoric growth in the coming years, up from its humble $1.9 billion market size in 2016, but we likely won't see the uptick begin until next year.
2. Understand the risks
While VR is growing, it's still in its very early stages. Last year, GPU-maker NVIDIA (NASDAQ:NVDA) estimated that just 1% of PCs were capable of handling VR. The company has made a point of trying to expand that percentage by releasing several VR-ready graphics cards for notebooks (an impressive feat considering how much power is needed for virtual reality), but it'll still take some time before the hardware is available to most consumers.
And PCs aren't the only problem. The high-end virtual reality headset, Oculus Rift, costs $600 (and $200 more for wireless controllers) and the HTC Vive starts at $800. Meanwhile, Touchstone Research found that only 40% of Internet users would be willing to spend $600 on virtual reality.
If all that weren't enough, even tech leaders like Facebook (NASDAQ:FB) CEO Mark Zuckerberg have said that VR will probably grow slowly. In an interview with a German newspaper last year, Zuckerberg said, "I honestly don't know ... how long it will take to build this ecosystem. It could be 5 years, it could be 10 years, it could be 15 or 20. My guess is that it will be at least 10."
3. Pick a segment
Companies that are betting on VR include hardware, software, and chipmakers, and vary across the mobile, PC, and gaming console segments.
TrendForce believes that early revenues from VR will come mainly from hardware, but in the end it'll be software that is the most lucrative. That's important to keep in mind, because most of the hype surrounding VR has to do with hardware right now -- but it'll be the games, movies, and possibly even new computing platforms that will bring the real money for the VR segment years down the road.
4. Narrow it down to a few key players
Of course, some companies are betting on both hardware and software. Sony (NYSE:SNE) released its PlayStation VR headset late last year, and sells an upgraded PlayStation 4 console to better handle VR games. But the company is also working with content creators like Reality One to make VR content that's an extension of some of its films, along with other original VR content.
Facebook, of course, made a huge bet on VR's hardware market when it bought Oculus in 2014 for $2 billion. But the company has also created original games and movies through Oculus, and Zuckerberg believes VR could become the next major computing platform.
For the mobile side, Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google has already released several iterations of its Cardboard headset, and recently released its new Daydream View headset. These allow users to use their own smartphones to power a VR device.
Google also recently debuted its Daydream platform, making it one of the easiest ways for consumers to find VR content and for developers to build it. That's important for the virtual reality segment right now, as most of the early growth will come from mobile applications.
5. Take the long-term approach
While there's a lot of hype around virtual reality right now, it's important for investors to remember that any transformative technology -- as VR might be -- will take a while to develop. Zuckerberg said that VR will "grow slowly" over the years, and I think that's a wise position for investors to take as well. This market certainly has lots of potential, but it's going to take at least a few years before we see it become mainstream.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Facebook, and Nvidia. The Motley Fool has a disclosure policy.