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1 Simple Way Google Could Make Money From Virtual Reality

By Chris Neiger – Mar 12, 2016 at 7:00PM

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It's kind of a no-brainer.

Image source: Google.

Let's face it: Alphabet's (GOOG -0.84%) (GOOGL -0.90%) Google isn't going to make a ton of money selling cardboard virtual reality headsets. The company's cheapest Cardboard sells for $15 on its website, after all.

But despite this, Google is pursuing virtual reality (VR) with gusto. Google Cardboard has been out for a few years now and the company just recently named its head of virtual reality, Clay Bavor, who used to be Google's VP for product management. 

But the majority of Google's business comes from advertising. So how will the company make money from virtual reality? A recent Re/code article shed some light on this question and said the company is looking to offer in-app purchases for VR games on the Android platform. Essentially, Google will make VR app development enticing to developers by allowing them to sell add-on features within VR apps. 

If this turns out to be the case, it could be a great thing in the development of VR, and spur on more VR-specific apps. And it could make Google some money as well. The advantage for Google is that it would be the first mobile VR platform to offer such purchases.

Banking on a $5.1 billion market
Virtual reality games are the largest market for VR right now, and are expected to drive $5.1 billion in sales this year, according to SuperData Research. That number represents the total revenue for VR games, and not the (smaller) in-app purchase revenue that could be made from VR games. 

But consider how quickly in-app purchases for mobile games have taken off, and how much is made from that platform. By the end of next year, mobile in-app purchases are expected to reach $28.9 billion. 

We can't know VR in-app purchases will experience the same success, obviously. But we do know that mobile users are already very eager to spend money after they've downloaded an app, and it's not illogical to think that virtual reality entertainment could easily apply the same strategy. 

Getting ready for VR's growth
Google's likely interested in figuring out the best way to add in-app purchases to VR games because the technology is already starting to take off. 

While the vast majority of computers can't run high-end VR headsets like Oculus' Rift, headsets powered by mobile devices like Google Cardboard and Samsung's Gear VR will likely spur most of the growth right now. Samsung is even giving away its Gear VR with each new purchase of its new Galaxy S7 and S7 Edge smartphones.

If Google can implement in-app purchases for Android soon, it'll allow the company to capitalize on mobile VR's growth, and help spur on its adoption as well. It's still unclear when Google will lay out its in-app VR purchase plans, if at all. But it's a logical step for the platform as more VR apps hit the Google Play store and as Google looks of for ways to benefit from the technology's growth. Android may not be a leader in VR now, but if Google implements this new feature soon, it might become just that. 

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). 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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