After years of false starts, virtual reality (VR) is finally becoming a technology millions of consumers will interact with in 2016. However, there are many ways the VR market could evolve in the coming years, potentially creating very different winners.
What's an investor to do?
In the video below, Fool analysts Rex Moore and Eric Bleeker look at how their recent experiences at technology event South by Southwest illustrate the VR market fragmenting into three unique areas.
The first is the low-end, where you'll find devices that essentially turn your smartphone into a virtual reality unit. Alphabet's (NASDAQ:GOOGL) Google has shipped more than five million units of its Cardboard viewer. Another major product in this space is Samsung's Gear VR headset, which it gave away with purchases of its new Samsung Galaxy S7.
The advantages to the low-end approach in virtual reality is it's 1) cheaper, and 2) there is plenty of scale available. With smartphones having seen their first ever shipment decline in the first quarter of the year, VR could be a way to interject some much needed growth into smartphone manufacturers.
This approach also could present an interesting opportunity for a company like Apple (NASDAQ:AAPL), which so far has stayed clear of VR, to directly enter the market itself.
Yet, any player relying on mobile phones for their VR ambitions will be hampered by their relative lack of processing power.
The second main VR market in 2016 is video games. The big announcement in the space has been Sony's (NYSE:SNE) PlayStation VR. As of the start of 2016, the PlayStation 4 had shipped 36 million units. So video game systems give VR a pretty large built-in audience.
Pricing won't be as reasonable as mobile VR, with a PlayStation VR bundle selling for $500 at launch (the headset sold alone costs $400), but that pricing is still considerably cheaper than our final VR market, which is high end PCs.
Two of the VR headsets that have gotten the most attention are the Oculus Rift from Facebook (NASDAQ:FB) and HTC's Vive. These headsets, combined with a powerful PC, present the most compelling virtual reality experiences. For example, the HTC Vive comes with "room-scale" technology, which allows you to walk around a virtual scene in space. It's very impressive technology.
This market will see quite a bit of scale up in 2016, with some projections pointing to more than a million Vive and Oculus Rift units sold combined. Yet, due to the extensive computing demands of virtual reality content, less than 1% of computers are considered "VR ready."
That presents a compelling opportunity for a company like NVIDIA (NASDAQ:NVDA), which makes the high-end graphics cards that are essential for VR ready PCs. Yet, the high costs associated with virtual reality on PCs could push more and more spend into mobile VR applications with a much wider customer base.
To see Rex and Eric's complete thoughts on the different markets of VR and how you can profit, simply watch the full video below.