Please ensure Javascript is enabled for purposes of website accessibility

Alphabet Is Already Experimenting With VR Ads -- and They Look Like This

By Chris Neiger - Updated Jul 10, 2017 at 1:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Google could use its dominant position in virtual reality headsets to grab the lion's share of a new advertising medium.

Perhaps no company is more aware of how important advertising can be than Alphabet's (GOOG 2.68%) (GOOGL 2.63%) Google. It will earn an estimated 78% of all search ad revenue this year -- or $28.5 billion -- according to eMarketer, and it's expected to grab 80% of the market by 2019. So, when Google talks about how it's working on new adverting opportunities -- this time within virtual reality (VR) -- it's worth paying attention. 

Image outlines of Google VR headsets.

Image source: Google.

The company posted on its Google Developer blog last week that it's already experimenting with how to serve up non-intrusive ads on its own Google Cardboard and Daydream View VR headsets, as well on the Samsung Gear VR. 

Here's a glimpse of one of the VR ads the company has already created.

Screen capture of Google's VR ad testing. Image source: Google.

The small, white dot in the video represents where a user is looking with their eyes, or where their hand gestures are moving. These actions are what trigger a small cube to open up and then start playing a video ad, which then offers the option to download an app.

Google said on its blog that the trick to getting VR ads right is to make them non-disruptive to the user experience, and easy to implement for developers.

"So our first idea for a potential format presents a cube to users, with the option to engage with it and then see a video ad. By tapping on the cube or gazing at it for a few seconds, the cube opens a video player where the user can watch, and then easily close, the video," the company said. 

Google is in the process of opening up VR ad testing beyond its handful of initial partners, and is asking for more developers to sign up. The company also just released a new software development kit. 

Alphabet is already in a great position to grow VR ads

Research firm Strategy Analytics says that Google dominated VR headset shipments in 2016 with a 69% market share, followed by Samsung's Gear VR, which had 17%. 

Here's how all the VR headset competitors stacked up last year:

Graph of VR headset market share in 2016.

Image source: Strategy Analytics.

Strategy Analytics expects the VR headset market to be worth more than $10 billion annually and reach an installed base of over half a billion units by 2022. Most of those units will be in the ultra-low price tier that Google's Cardboard and Daydream View headsets fall into. Google's new and most expensive Daydream View headset costs just $79.

Dominating the mobile VR headset space is good, but Google's real advantages will come from getting users to watch more ads on the devices, and buy apps for them. Daydream apps are downloaded through the company's Google Play Store, just like Android's mobile apps, and Google will eventually earn money from them by taking a cut of the revenue earned by paid VR apps, and when users engage with video ads on their VR headsets.

A recent App Annie report forecasts that Google Play revenue will jump from about $16 billion in 2016 to $42 billion in 2021. It's unclear right now how much of that app revenue will derive from VR ads, but Google's early forays into VR advertising should be seen as signs of things to come. The company has built out its search business with ads, gives its Android software away for free by using in-app purchases and advertising to pay for it. Expect to see it use all that experience to become a dominant force in virtual reality ads in the coming years. 

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 shares) and Alphabet (C shares). The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$119.70 (2.63%) $3.07
Alphabet Inc. Stock Quote
Alphabet Inc.
$120.65 (2.68%) $3.15

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.