Samsung's (NASDAQOTH: SSNLF) latest flagship smartphone, the Galaxy S7, went on sale March 11. Buyers who pre-ordered the phone, and those who purchase it by the end of this week, receive a free gift alongside the device: Samsung's Gear VR virtual reality headset.
The Gear VR made its debut last fall, and has been widely praised by critics. Offering an experience not easily matched by other devices, a free Gear VR may prompt a few buyers to consider Samsung's phone over rival handsets. More important, it gives the Korean tech giant and partner Facebook (NASDAQ:FB) an advantage over their competitors in the emerging VR space.
How big is the Gear VR?
When Samsung released the Gear VR last November, the device quickly sold out and was backordered for several weeks. That suggests the Gear VR was at least modestly popular, though it's difficult to quantify. Unfortunately, Samsung has yet to disclose any firm sales figures, and third-party research firms have not put out any credible estimates.
The Gear VR is not a stand-alone device, but rather an accessory -- it requires the use of one of Samsung's smartphones to function, and more specifically, one of its expensive models. Samsung shipped about 325 million smartphones last year, but most were incompatible with the Gear VR. Only Samsung's premium flagships (the Galaxy S6, Galaxy S6 Edge, Galaxy Note 5, and Galaxy S6 Edge+) supported the headset in 2015. Samsung doesn't regularly breakout its smartphone sales by individual model, but third-party estimates pegged the combined sales of its four flagships at under 100 million last year. That put a hard cap on the Gear VR's popularity, though demand was nowhere near that.
Last week, a Samsung executive told Reuters that the company had received more pre-orders for the Galaxy S7 than its predecessor, the Galaxy S6. He didn't offer up a specific figure, but that could suggest sales of more than 15 million. However, that's phones sold to wireless carriers, rather than end consumers. Last month, Piper Jaffray analyst Travis Jakel (via Fortune) estimated that Samsung would sell 5 million Gear VR headsets throughout all of 2016.
Building a platform
Without hard sales data, it will be difficult to discern how many consumers were enticed to purchase the Galaxy S7 for its virtual reality headset. Many may have planned to purchase the Galaxy S7 even before Samsung announced the promotion, and those who chose afterward could've been swayed by many other factors, such as the device's larger battery, microSD card slot, or water-resistance. But the Gear VR gives Samsung's smartphones something it hasn't had in quite a while: a compelling, exclusive feature.
Samsung's smartphone shipments rose last year, but only a modest 2.1% on an annual basis, according to research firm IDC. That was less than the broader market, which grew 10.1%. Samsung's smartphones have been pressured by low-cost rivals, many of whom offer similar handsets running the same operating system. But they can't offer consumers the Gear VR.
To be fair, there are other VR solutions out there, most notably Google Cardboard. Facebook's own Oculus Rift will start shipping at the end of this month, and other headsets will follow later this year. But Samsung is offering the most compelling solution. Bundled with a smartphone most consumers were going to buy anyway, it's affordable, and although it can't offer experiences on par with full-featured virtual reality headsets, it's better than its low-cost rivals.
The Gear VR has already attracted the attention of developers, and boasts several dozen exclusive games on the Oculus Store. Those experiences are tethered to Samsung's phones, but interest in the platform should eventually benefit Facebook. Samsung's Gear VR and Facebook's Oculus Rift are two separate platforms, but they both make use of the same digital storefront. In a Reddit AMA earlier this year, Oculus head Palmer Luckey predicted that many Gear VR apps would be ported to the Oculus Rift over time. Facebook's management doesn't expect VR to affect the company's financials this year, but the success of the Gear VR bodes well for Facebook's own shareholders in the long run.
It's still early days for the platform, but Samsung's decision to bundle the Gear VR with the Galaxy S7 may be the aggressive step needed to push the device into the mainstream.