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Samsung Should Dominate Virtual Reality in 2016

By Sam Mattera - Jan 23, 2016 at 11:31AM

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High-end headsets from Facebook, Sony, and HTC will remain outside of most consumers' budgets, making the Gear VR the most economical option.

Samsung Gear VR. Source: Samsung

When it comes to virtual reality, Samsung (NASDAQOTH: SSNLF) has been a pioneer. 

In 2014, it launched its first headset, the Gear VR Innovator Edition. Rough around the edges, and limited in terms of which handsets it could work with, the first version of the Gear VR was unlikely to find much success (the moniker "Innovator Edition" serving as a tacit reminder of the Korean tech giant's low expectations). Another Innovator Edition followed, and then, late last year, Samsung finalized its effort, launching the consumer-grade Gear VR in November.

Although Samsung has yet to release any firm sales numbers, the Gear VR appeared to be a success. It received almost universal critical acclaim, and was backordered for several weeks. Since the Gear VR requires a Samsung handset to function, it seemed as though the company had delivered a feature that would once again make its phones stand out from the competition.

But Samsung's quasi-monopoly is about to come to an end. Several new headsets, including Facebook's (META -1.01%) Oculus Rift, HTC's Vive, and Sony's (SONY -1.54%) PlayStation VR, should make their debuts in 2016. With high-end graphics and more immersive games, they could render Samsung's fledgling Gear VR totally obsolete.

But I don't think that's likely to happen. Given the challenges these headsets will face in driving early adoption, Samsung's Gear VR should remain the most accessible way for mainstream consumers to experience virtual reality, at least for the foreseeable future.

Well over $1,000
Facebook's Oculus Rift will make its retail debut in March, making it the first truly dedicated virtual reality headset on the market. HTC's Vive is on track to follow in April, and Sony's PlayStation VR should arrive sometime later this year.

Utilizing the power of a high-end graphics card (in the case of the Oculus Rift and HTC Vive) or PlayStation 4 video game console (in the case of PlayStation VR), these headsets should be capable of offering truly compelling virtual reality experiences, ones that far outstrip the sort offered by Samsung. Unlike Samsung's Gear VR, these dedicated headsets won't be limited by the constraints of a smartphone. The Gear VR utilizes the chips found in Samsung's handsets, along with its display, for most of its functionality.

But that makes the Gear VR far more affordable. The Gear VR retails for just $100 -- one-sixth the price of Facebook's Oculus Rift, which at $600, costs about as much as Samsung's Galaxy S6 smartphone. HTC's Vive and Sony's PlayStation VR haven't received definitive price tags quite yet, but it would be surprising if they were considerably cheaper.

The total cost of ownership is even greater. The Oculus Rift and HTC Vive require PCs equipped with fairly powerful graphics cards -- the sort most consumers aren't likely to have. If you want to buy one, you would likely need to spend more than $1,000. Indeed, of the PCs in use this year, only an estimated 1% are expected to meet the requirements necessary to drive the Oculus Rift or HTC Vive. The PlayStation 4 is more popular (earlier this month, Sony said it sold more than 35 million of them so far) but, retailing for around $350, is still fairly expensive. Admittedly, the Gear VR requires a smartphone, but for a growing number of consumers, that's both a necessity and a given.

Samsung shouldn't lose its edge in 2016
With such disparate price points, Samsung's Gear VR isn't likely to compete directly with the high-end headsets offered by Facebook, HTC, or Sony. Those who do buy them may not derive much value from the Gear VR, but with such high barriers to entry, the competition between the two should be limited.

Rather, they should work as complements, driving increased interest in the medium. The Gear VR was itself borne out of a partnership between Samsung and Facebook, and its dedicated app store is powered by Facebook's Oculus. In a recent interview with Business Insider, Oculus head Palmer Luckey noted that the company continues to work on Gear VR for the "tens of millions of people who have modern Samsung phones."

For consumers interested in virtual reality, choosing a Samsung phone when it's time to upgrade and purchasing a Gear VR is likely to make the most sense, at least in 2016.

Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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