Tech companies are in love with the idea of virtual reality right now. Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), HTC, Facebook (NASDAQ:FB), Samsung, Lenovo, and Microsoft are just a few of the big companies introducing VR headsets of one form or another. And the incredible technology is getting better every year.
What these tech companies haven't been able to do is make VR a big business and turn the technology into something customers will engage with on a regular basis. And I would argue that's because they don't yet know how to make VR technology more than a cool toy because their business models aren't built for VR. It's even possible Apple (NASDAQ:AAPL) will make augmented reality commonplace with the iPhone and iPad before any of these companies can make VR everyday technology.
Great VR tech isn't very accessible...yet
There are a few levels of VR in the market today that complicate any broad discussion about VR. At the low end, Google Cardboard or Daydream operates with most smartphones and gives a little peek into the world of VR. But at this point, what are primarily available are 360 videos, and there's little interaction with the content itself.
At the high end, HTC Vive and Facebook's Oculus require a high-end computer and a room-size space to operate. A computer like that is $2,000 or more and isn't something most people have today, even if they have the space available for VR. The high end is where the best technology lies, but you can see there's a big hurdle to get over to increase adoption.
Until low-end VR improves to a level that will interest customers and allow them to have VR in their pocket with little effort, utilization of the technology will be limited. High-end VR that requires a computer and a large space to operate is likely more of a niche product that may make more sense in a location-based arcade rather than your living room. Adoption of VR is tough for tech companies, and there's no easy answer for how to get it into customers hands. Yet Apple's AR technology will be on millions of devices by the end of the year, which is why I said adoption of AR may exceed VR very soon.
VR content may be even harder
Not only is tech a challenge for VR companies, content is as well. On smartphones, there are apps that make VR easy to distribute, but this is the low end of the market so quality isn't terribly high. And customers have to seek out content on specific apps, so if they don't know VR video exists they're unlikely to find it.
On the high end, app stores aren't well developed, and there's not a clear ecosystem delivering content to customers.
This makes it difficult for content developers to know how to make content for customers and how to sell it. Will people be using VR at home? Will VR arcades be a primary source of demand? Will they use it alone or with friends? What headsets will they use?
Right now, VR technology is "cool," but there's no clear business model or consumer angle that will grow the market to what tech companies think it can be.
Where is VR headed?
There aren't easy answers to the questions facing VR companies. But VR hardware and content developers need to develop a clear value proposition for customers and business model before the market will reach its potential. Without both, VR will be a cool tech toy, but won't be something most people find accessible. Ultimately, accessible technology is where tech companies and VR enthusiasts would like to get -- and there's a lot of work to be done to get there.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Travis Hoium owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Facebook. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.