The virtual reality (VR) industry may very well be the most exciting one in the stock market right now.
With high expectations and an even higher pace of technological change, many fear coming volatility could send stock prices tumbling. This has some investors steering clear of this high-flying market. But a potential inflection point in demand could provide incredible returns for more risk-tolerant, forward-looking investors.
Let's take a moment to quantify those high expectations. Research firm IDC predicts that the virtual and augmented reality market will dramatically expand from just over $9 billion last year to a whopping $215 billion by 2021! That incredible 118% compound annual growth rate in four years would make VR one of the fastest-growing industries on the planet, which growth-minded investors simply cannot ignore.
IDC further explains that the outsize growth will be made possible by an explosion in the sales of VR headsets, such as Samsung's (NASDAQOTH:SSNLF) Gear VR, Facebook's (NASDAQ:FB) Oculus Rift, or HTC's Vive. It predicts the number of headsets sold annually will grow from 14 million last year to 81 million by 2021. More headsets with better performance reaching the hands of consumers will attract content developers, which could fulfill a virtuous cycle and create a massive industry.
Gartner's Hype Cycle, which tracks the expectations that the market has for technology over time, believes virtual reality has reached an inflection point. After a few years of significantly lower expectations (which they refer to as the "Trough of Disillusionment" in last year's graphic), they believe VR will experience a renaissance in the coming years (the "Slope of Enlightenment"), which could spur adoption as firms recognize ways to incorporate it to create value.
Are we virtually there?
But we've been waiting for VR's hockey stick of rising demand for quite some time now. Rather than accept the hype or the Hype Cycle at face value, why not directly solicit an informed opinion to determine if those lofty forecasts were directionally correct or completely out of line? So, we spoke with someone who lives and breathes the VR industry on a daily basis.
Enter Jan Goetgeluk, who is the founder and chief executive officer of Virtuix. After a successful career in investment banking, Jan founded Virtuix to be a leader in the VR industry. The company's Omni virtual reality solution allows for complete, 360-degree movement of the body on a frictionless pad, which is drawing gamers for the unique, immersive experience. Virtuix is also partnering with more than 20 global game developers, such as Arizona Sunshine, Affected, and VRZ Torment.
In the video below, Motley Fool Explorer advisor Simon Erickson interviews Jan about where the VR industry stands today and where it's headed in the next three years. The two also have some fun chatting about what it's really like on the set of Shark Tank and discuss Steven Spielberg's upcoming VR-inspired movie, Ready Player One.
A full transcript follows the video.
Simon Erickson: Virtual reality is an industry that's caught a lot of media headlines in recent years, but what's really going on behind the scenes in this fast-paced industry? I'm here at Virtuix headquarters and joined today by founder and CEO Jan Goetgeluk in an exclusive interview to tell investors what they need to know. Jan, thanks very much for making the time for us.
Jan Goetgeluk: Thanks for having me.
Erickson: One of the key questions for investors about virtual reality is the headsets. The headsets are still pretty expensive for the mass market to afford, and I know that's a key part of VR adoption. Where do we stand in the headsets that we're starting to see from Samsung? From HGC? From Oculus?
Goetgeluk: Oculus will be the first supplier that will come out later this year with a stand-alone headset that no longer requires a high-end gaming PC. They're coming out with Oculus Go for a fairly low price point. So, we are seeing the prices coming down for those headsets.
And not just the prices, but also the complexity. Before you always needed to have a high-end PC to drive these headsets, except for Samsung. Samsung uses mobile phones. You slide your mobile phone into the headset, so it's a bit of a different technology. But Oculus and the HGC versions -- you needed to have a high-end gaming PC. Lots of people don't have that.
Now we see that requirement going away with the first stand-alone headsets that no longer need to be plugged into a PC. We're seeing both the cost come down of these headsets and the complexity go down, as well.
Erickson: And we know that Virtuix has done a pivot of your own in the last couple of years. Not as focused on the consumer market. Now a little bit more focused on the commercial market. Can you explain why you did that and what you're seeing out there?
Goetgeluk: That's right. We started out as a consumer company focused on selling our device, the Virtuix Omni, to consumers. To gamers at home.
We pivoted away from consumers entirely. Now we only sell to commercial customers and specifically commercial entertainment. Gaming centers. Family entertainment centers. VR arcades. Those are our customers. We find that the commercial market is right now the best market for VR. That's where people are making money in VR.
The home market is not there, yet. There's a couple of reasons why we pivoted. One is the home market was slow to take off. Consumers were not and still are not fully ready to embrace VR. Second, our product, even though we started making a consumer product, eventually turned out [to be] much more suitable for the commercial market. And we were getting a lot of calls and requests from the commercial markets and we just followed our customers, if you will. Now we sell exclusively to commercial entertainment operators all around the world.
Erickson: Can you tell us a little bit about that product? I know it's called the Omni. What is that?
Goetgeluk: The Virtuix Omni is the first-ever virtual reality motion platform that allows you to walk and run around inside virtual reality. Instead of sitting down on a chair and pushing a button on a game pad, or just standing up and walking around with a joy stick, you're actually walking around naturally by moving around naturally in virtual reality games and applications. It's like a treadmill, if you will, but in every direction. An Omni directional treadmill -- hence the "omni." Running and walking around in 360 degrees.
Erickson: We're here at SXSW. Later tonight there's going to be a sneak preview of Ready Player One, a movie that's all about virtual reality. Are you seeing this tonight, Jan?
Goetgeluk: I'm so excited about this movie. You know, the concept of the Omni comes from the book by Ernest Cline, Ready Player One. Back in the day for us VR enthusiasts, that book was the bible and now we're so excited that this book is coming to the big screen with Steven Spielberg. High excitement. High hopes. I think it's going to be a great movie for us in the VR industry.
Erickson: One more fun question for you. I know you were on Shark Tank a couple of years ago. Anything that you can tell us about the experience of what it's really like behind the scenes on the show?
Goetgeluk: Well, it was a great experience. It was a great show. This was, for us, early days. We were in front of the sharks in the fall of 2013, way before virtual reality was cool, again. Eventually we didn't do a deal on the show. Mark Cuban did become a big investor of ours, but overall the Shark Tank experience was great for us. You have an audience of 8 million people that see your product, and still today we notice that a lot of people recognize our product from our Shark Tank appearance. So, a great experience for a small company like ours.
Erickson: And last question. Our audience for The Motley Fool is individual investors.
Erickson: People that are interested in publicly traded companies for the most part, but really interested in trends that are developing out there. Where do you see virtual reality headed in the next three years and what should investors know?
Goetgeluk: We believe that virtual reality will be extremely popular and successful in the commercial market, specifically the commercial entertainment market. We personally are not convinced that VR will take off in the consumer space anytime soon. We think there's still a lot of hurdles to overcome in the consumer market.
In the commercial markets (gaming centers, entertainment centers), VR is taking off. It is very popular. Operators are making money with VR and as VR companies, for us that's a very profitable market. We, ourselves, became profitable last year. I think we must be among the first VR start-ups to become profitable. We ship our product all over the world. More than 2,500 systems shipped to operators all over the world, and we're in close to 500 commercial entertainment locations on five continents.
So, our shift to the commercial markets for us was excellent, and we believe that that is the market where VR will truly break through in the next three years and the foreseeable future.
Erickson: We'll keep an eye on it. Thanks very much for the insight, Jan.
Goetgeluk: Thank you.