What Will Virtual Reality’s Future Hold?

Written by Kyle Harrington, Taesan Josephson, and Jackson Ottman

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Imagine waking up for a morning hike up Granite Peak. You then have an executive meeting on the beaches of Hawaii. Later, you play ping pong with your friend who lives in New York and near the end of the day, you sit courtside for the NBA finals and watch Kyrie Irving make one of the most clutch 3-pointers in history. You’ve had all these amazing experiences within a day, and you never had to leave the comfort of your own home. Virtual reality (VR) allows users to experience events and see places that would normally be out of the realm of possibility. This ability to transcend normal imagery and take users to a unique environment has the potential to disrupt industries such as gaming, engineering, retail and training, to name a few.

As a result, investors are bullish on VR and have spent billions of dollars to pursue a truly “virtual world.” According to a 2016 Goldman Sachs report, 225 venture capitalists were funding over $3.2 billion in VR and AR in years 2014 and 2015 (Goldman Sachs). Facebook bought Oculus VR for $2 billion in 2014 and is not the only big company investing in VR. Microsoft, Google, Sony, Samsung, HTC and more are investing in this field (Terdiman). Yet, despite VR’s promise (it’s projected to create $30 billion in revenue by 2020), there are some key barriers that have prevented it from moving into the mainstream market (Terdiman).  Tech uncertainty and a lack of an effective innovation ecosystem have limited VR’s potential.

This blog provides an overview of VR, highlights interesting use cases, describes key barriers associated with the technology and prescribes a solution that will overcome these barriers.

Virtual Reality Overview

Virtual reality is a technology that utilizes a headset to display computer generated three-dimensional images and artificial environments.  VR is designed to immerse the user into a virtual world to the point that the user forgets that s/he is in the real world. This is achieved through both mental and physical engagement with the virtual setting.

There are three types of immersion in a virtual reality setting.

The first type is non-immersion, which does not require a headset. This type of VR requires only the stimulation of a few senses and can be powered by a standard desktop (The Ultimate Virtual Reality Technology Guide). The users are engaged in the virtual setting but are still highly aware of the reality that surrounds them.

An example of non-immersion VR is playing golf on the Nintendo Wii.

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Non-immersion example, Wii golf.

Semi-immersion is a more intimate VR setting, but not as complete as a full-immersion virtual experience. Like non-immersive settings, semi-immersion allows the users to be conscious of the reality around them. Most semi-immersion experiences are powered by computers with high-quality graphic cards that then display on large screens (“The Ultimate Virtual Reality Technology Guide.). A semi-immersion experience would be a flight simulation.

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Semi-immersion example, flight simulation.

Full-immersion provides the user a realistic, unique experience in a “virtual” world. This is the most promising of the types of virtual reality and the one most people think of when they hear “virtual reality.” It requires a headset, and/or any motion sensors needed to create the best virtual setting for the user. Full immersion is what most companies such as Facebook and Google are trying to accomplish with their respective VR hardware and software. The most common examples of full immersion VR technology are in the video game industry, yet more applications are being tailored to business needs, as we discuss subsequently.

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Full immersion example.

Use Cases

Virtual reality has the potential to affect a plethora of industries. For the purpose of this blog we will dive into two Business-to-Consumer (B2C) use cases: video games and retail. We will also look at two use cases for Business-to-Business (B2B): engineering and training. Among the various use cases, we chose these four based on our personal interests.

B2C

Video games

Video games have been considered virtual reality’s first valid application. The use of VR in video games allows players to be more immersed than ever, as their “surrounding” during game play is solely the view of the game on the screen.

The availability of hardware and software for VR in the videogame industry continues to increase, and this year’s Electronic Entertainment Expo (E3, video game trade show that happens every year), showcased many new options.

A major player in the video game industry, Sony is among several companies introducing VR options for their video game products. This year at E3, Sony announced some of the most popular video games ever would be made available on their VR headset, the PS VR. Two videogames, Fallout 4 and Skyrim, both very popular single-player role playing-games, will attempt to pave the way for using VR as a main platform to play video games. Sony also announced a multiplayer game for VR, StarBlood Arena, which allows VR players to connect to others online and battle in various game modes (Parker).

Along with the videogames, Sony also offers a variety of accessories to enhance their VR users’ experience. Racing wheels, fighting sticks, flight sticks, and other accessories allow users to feel even more engaged and physically part of the game when using the accessories.

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Sony’s, PS VR and the accessory “Playstation Aim” being tested at E3 2017.

Given these new advances, companies will continue to explore and innovate VR applications within the video game industry.

Retail

According to the National Retail Federation (the world’s largest retail trade association), 2016 consumer spending on retail products for the months of November and December totaled $655.8 billion dollars (NRF). Approximately 6% of this spending was gained through the e-commerce portion of the retail industry (Goldman Sachs). Retail is clearly a lucrative industry and on company attempting to intertwine virtual reality and ecommerce in retail is Sixense.

Sixense is a software-development company that offers a VR accessory product, the STEM System, along with app-building solutions for developers to create content. Their solution for virtual reality in the retail space, vRetail, allows users to combine entertainment with shopping, taking the best characteristics from online shopping and physical stores.

vRetail will provide e-commerce shoppers with the “try before you buy.” This application of VR will allow consumers to get closer than ever to online products. Users can immerse themselves into a virtual dressing room as they try on hundreds of products at a time.  vRetail has the potential to disrupt the retail industry, furthering the decline of brick-and-mortar stores, because consumers can get the in-store experience from the comforts of home.

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Click the image above to open a link to a video from Sixense, which shows vRetail in use.

B2B

Engineering

By combining virtual reality (VR) with computer-aided design (CAD), VR has made its way into the markets of engineers, architects, and artists, offering the potential to change the design process. In the product development stage, CAD is used to help design products in 2D and 3D conditions. With virtual reality applications at their disposal, CAD users will now be able to test their products after they are  developed. For example, architects could walk through a building they designed, consumers could hold a virtual product in their hand, and engineers can see how their product will appear at scale compared to other virtual objects.

VR and CAD will also allow its users to see design flaws that can be changed before creating the final product, which can have tremendous savings. Take Ford, which according to a 2016 Fortune Magazine article, had their designers and engineers use VR to test elements of new cars, with savings generating approximately $8 million in one year (O’Brien). If this success could be replicated across all of the major car companies in the world, the resulting savings could be hundreds of millions of dollars.

Joint research by the University of Windsor, Canada and the University of Hong Kong found that there are currently two methods for integrating CAD and VR: Using a tool kit and designing in VR (Baldwin). With the use of a toolkit, designs that have been made in a CAD program are integrated into a virtual reality space. An example of this would be an architect designs a building and imports his design into a digital space, allowing the user to walk through it and make additions or find any errors. Designing in VR allows for the user to create ideas and products while immersed in a virtual space.

Applications and software combining CAD and virtual reality are being used today. An example is the software called MakeVR, which allows to user to create designs in a virtual space by pulling, pushing, or stretching, rather than generating them on a screen. Users can create three-dimensional objects in real time, thus saving time where they would have had to master complex CAD software to do the process.

Although this technology is groundbreaking, it is still in the early development. Combining CAD and VR is great in theory, and will become more conventional as it is deployed in the design process (Baldwin).

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Click the image above to open a link to a video from MakeVR, which shows the product in use.

Training

Today, training for a job is quite limited in terms of how employees are put into actual situations they might face. Virtual reality offers the potential to remove those limitations. Using innovative content, VR will allow users to get closer than ever to actual scenarios. For example, Walmart uses a VR simulation to prepare employees for Black Friday, a scenario which would be extremely costly to recreate in real life (Rao).

In addition to retail, VR training is being implemented by the military, athletics, education, healthcare and many more.

A healthcare company that is paving the path for using virtual reality for training purposes is medRoom, which focuses on using VR to train doctors and medical professionals by immersing users into an operation situation. medRoom allows VR users to have a tutor or assistant users while in the medical simulation. Users can also enter a medical scenario with a team, putting users into specific roles and limiting them to what they can do in the scenario.

The image below, from medRoom’s website, illustrates the various reasons to buy medRoom for training purposes. medRoom’s value proposition would be more compelling if these benefits can be quantified; in addition, these benefits could be applied to any industry where the products or services the company offers rely heavily on scenario-based training. (medRoom)

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Click the image above to open a link to a video from medRoom, which shows the product in use.

Barriers to Success for VR

A key barrier that virtual reality faces is the lack of a strong innovation ecosystem. According to University of Montana Professor, Dr. Jakki Mohr, an innovation ecosystem is “the collaborative arrangements through which firms combine their individual offerings into a customer-facing solution.” For VR to be successful, it is imperative that not only the producers of the VR headsets make a good product, they also need third-party developers to make stellar content.

In theory, as more and more users start using and engaging with VR, the value for users will grow exponentially. This direct network effect will provide value for users, because the increase in users will allow for a richer experience and create communities of users to enhance the experience. However, according to survey research by Horizon Media, despite immense coverage of VR, two-thirds of the U.S. population remains unaware of the technology (O’Brien).

In turn, this small number of users does not offer a compelling incentive to developers to develop “complementary products.” These products would consist of the actual content that VR users experience. In order for companies to have an incentive to develop software, they want to make sure that there is an established customer base that they can access/sell to; this is known as an “indirect network effect.” This “chicken-or-egg” scenario presents quite the conundrum, because without great content, potential users will not be drawn in; however, for developers to create said content, they want to see a significant customer base.

Further complicating the scenario is that the multitude of independent offerings have not yet formed a cohesive ecosystem; the tech companies within this field have yet to offer consumers a “plug-and-play” experience across the different offerings.  Coalescing around one set of protocols/standards would perhaps allay user concerns about which VR system to invest in, creating a larger installed base, which in turn would provide the necessary incentive for developers to develop more content.  Industry standards have been shown to jump start the development of network effects.

In addition to the barrier arising from the lack of an innovation ecosystem and insufficient numbers of users, VR technology itself still faces some issues and concerns.

“Technology uncertainty” refers to concerns regarding whether the technology will perform as promised, or perhaps cause unintended consequences. Regarding virtual reality (VR), the two most evident uncertainties are whether the technology will function as promised and ambiguity over whether the supplier will be able to fix problems with the technology (Mohr).

According to Time Magazine’s “Why Virtual Reality Is About to Change the World,” “some people experience nausea, disorientation, motion sickness, general discomfort, headaches or other health issues when experiencing virtual reality” (Stein). An additional concern is that although virtual reality promises to immerse users in an alternative reality, it cannot completely isolate users from real-time, real-world events. Jeremy Bailenson, the founder of Stanford’s Virtual Human Interaction Lab, echoed similar concerns; Bailenson thinks that people will get hurt walking into walls or when a dog darts across the room. (Stein). He also believes that the glasses will never be comfortable to wear for long periods (Stein).

Additionally, it is possible that VR may fail to truly replicate what an experience may be like, e.g. cutting open a real person (medical) or getting shot at by real bullets (military). The development requires that industry experts ensure that the content is an accurate representation of whatever is being emulated

One last barrier that VR faces is cost. While some VR Headsets such as Google
Cardboard are affordable ($20), any premier headset by Oculus is over $400 and similar technology is almost equal in price. Until the price goes down (which it will), VR is not accessible to many users.

Overcoming Barriers

Crossing the Chasm:  Selecting a Beachhead and Developing a Whole Product Solution

The barriers that VR currently faces are akin to that of many tech products seeking to break into the mainstream market, a dilemma known as the “chasm.”  According to Geoffrey Moore, the “chasm” is the substantial technology adoption gap between the visionary customers and the early majority or pragmatist customers. Moore observed that while start-ups would have early success, many of these companies’ technologies would never succeed in the marketplace. This was because the adoption and diffusion of innovation is based on word-of-mouth relationships from one category of adopter to another. However, since visionary customers were so different from pragmatist customers, this word-of-mouth relationship was ineffective and never came to fruition. Further compounding the issue was that the marketing these start-ups were doing was not able to influence pragmatists to buy/adopt new technology.

For a business to be successful and have staying power, it must bridge this gap, i.e., “cross the chasm.”  To do this, a business must establish a beachhead and develop the whole product solution.

A beachhead is a single target market that the company strategically selects to access other market segments behind the beachhead. This beachhead acts like a lead bowling pin, since when the beachhead is toppled, the momentum that is created will topple over the rest of the pins, i.e., expand into the segments behind it. A good beachhead should give customers a compelling reason to buy the product, based on explaining and quantifying the relative advantage of adopting this technology. Furthermore, a useful beachhead will also provide logical word-of-mouth relationships to other segments.

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In contrast to selecting a beachhead to access mainstream market acceptance, another route to market is based on a horizontal marketing strategy—selecting an application that cuts across industries.  Although a horizontal marketing strategy requires more resources for marketing communications, it leverages technology development across multiple industries.

We recommend that leveraging VR for training offers a strong horizontal strategy.  Because training needs span multiple industries, it is exactly what VR needs to develop the necessary customer base to entice more companies to focus on developing great content. Education, medical, military, retail, and athletics could all leverage VR training to enhance the realism of what employees will face, offering a plethora of opportunities beyond more singular applications.

This recommendation does not solve all the barriers surrounding VR, but it can have a tremendous impact. With a growing base of users, more research and development will be devoted to VR. Ideally, further development will help eliminate the discomfort users feel when using the physical headset, while also synthesizing some of the technology around a common standard. Lastly, as more and more people know of VR, they will be primed so that when the product becomes more affordable and mainstream, there will be a larger consumer base to tap into.

To further stimulate adoption, it is imperative that VR companies also develop the whole product solution: everything that the product will need to function properly. To use VR, users require a headset, whether that be Oculus, HTC, Sony, etc. Given that there are a variety of different VR headsets with different requirements, we will focus on one of the more popular models, the Oculus Rift VR Headset. For this particular VR experience, users also need a computer that is compatible with the headset (probably a gaming PC), wires attached to said computer, sensors in every corner of the room, physical space to maneuver, and downloadable content that the headset can bring to life.

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The whole product solution.

To reiterate, it is the VR company’s job to make sure the customer knows ALL the elements that will be required to make the technology function as promised are available. The consumers must also understand that it will take some time to properly set up the VR components and that it may be difficult for technically challenged people to work with the content. While set-up and initial usage are not issues for the “gadget freaks” and “visionaries,” they only represent only 16% of the market.  More mainstream users will require some hand-holding and this presents yet another element of the whole product solution for tech providers to consider.

Conclusion

In conclusion, virtual reality (VR) has the potential to dramatically alter how a variety of industries design and develop their products, leading to new experiences for consumers. Despite numerous well-known companies and heavy investment, VR has yet to truly penetrate the mainstream market. If the technology and the companies that promote it are to be successful, they must find a way to overcome technology uncertainty with the product and foster effective ecosystems with third-party developers and content experts. To enable this ecosystem, VR companies must find a compelling beachhead to “cross the chasm” and gain a large customer base that will allow their product to gain traction. This is easier said than done.

Despite the barriers, we believe that it’s not a matter of if virtual reality will succeed, but when. Our answer: only time will tell, but we look forward to what the future will hold.

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Sources

Baldwin, Jessemay. “How CAD Is Currently Playing into the VR Industry.” GrabCAD Blog, 14 Aug. 2017, blog.grabcad.com/blog/2017/08/14/cad-currently-playing-vr-industry/.

Goldman Sachs. “Virtual & Augmented Reality: Understanding the Race for the Next Computing Platform.” Profiles In Innovation, 13 Jan. 2016, pp. 1–30., www.goldmansachs.com/our-thinking/pages/technology-driving-innovation-folder/virtual-and-augmented-reality/report.pdf.

medRoom. “Our Simulator.” MedRoom, www.medroom.com.br/en-us.html.

O’Brien, Jeffrey. The Race to Make Virtual Reality an Actual (Business) Reality. FORTUNE Magazine. 27 April, 2016. http://fortune.com/virtual-reality-business/

Parker, Laura. “Virtual Reality Is a Disappointment? Not in the World of Video Gamers.” The New York Times, The New York Times, 22 June 2017, www.nytimes.com/2017/06/22/technology/personaltech/virtual-reality-video-games.html.

Rao, Leena. Walmart Is Looking to VR to Prep Workers for Black Friday. FORTUNE Magazine. 2 June, 2017. http://fortune.com/2017/06/02/walmart-vr-black-friday/

Stein, Joel. “Why Virtual Reality is About to Change The World.” Time Magazine. 5 August, 2015. http://time.com/3987022/why-virtual-reality-is-about-to-change-the-world/

Terdiman, Daniel. “VR and Augmented Reality Will Soon Be Worth $150 Billion. Here Are The Major Players.” Fast Company. 13 October, 2015. https://www.fastcompany.com/3052209/vr-and-augmented-reality-will-soon-be-worth-150-billion-here-are-the-major-pla

“The Ultimate Virtual Reality Technology Guide.” Reality Technologies, www.realitytechnologies.com/virtual-reality.

“Welcome to the Startup Jungle | The Economist.” The Economist, Youtube, 23 Nov. 2017, www.youtube.com/watch?v=MTnAQ8ftGjc&feature=youtu.be&t=379.

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