What to Watch: Q4 VR Numbers

A lot of what seems to be alarming news on the Virtual Reality front. Steam is reporting a 0.18% penetration on VR headsets. The gadget press is calling it a crashing halt. Or a nose dive. It’s interesting. Let’s reserve judgement. Google Trends suggests a summer lull in interest in VR.

What happens in 2017/18 for VR really depends on what happens on the weekend of November 24 – Black Friday.

If the demand from early adopters responds the way the supply side wants, we’re in for a roaring year of consolidation in the space. And we’ll be feeling the effects of that consolidation for a very long time. If you’re looking to make a long term bet on a specific platform, I expect the end of the beginning in that shakeout to happen Q3 of next year.

If the demand from early adopters does not respond, then I don’t see more consolidation imminent. Perhaps a few dropouts. But no consolidation. That would suggest a far longer chasm, and then a lot more would hinge on PlayStation Neo and Microsoft’s response to get the weight of the headsets down and get the power of the hardware up.

Decisions

If you’re a marketer, you could spend some innovation dollars on VR and walk away from it after back to school. You can keep on using VR as an event marketing gimmick and realize benefits. It’s engaging and early adopters like it. It’s all throwaway. Keep doing what you’re doing – you’re funding a lot of R&D in the space.

If you’re a tech entrepreneur looking at the space – opportunities ahoy:

I don’t think the risks of consolidation can be hand waved away. There is considerable complexity and nuance associated with VR hardware and specific use cases that need support. This may represent an excellent stream of short run professional service revenue, but it would require significant volumes of ingenuity to build a steady software firm in that environment. I think it would take a lot more investment than you’re willing to give up in equity, and a lot more investment than what most VC’s would be into.

A decision to enter VR pre-consolidation may yield a lot of advantages and a headstart. If you’re already in now, you’re in now. Iterate early and often. Don’t get too attached to a given platform because the odds are that it won’t survive consolidation. Even if you have good judgement, there’s a lot of chance involved, and you may end being wrong for the right reasons.

A decision to enter VR mid-consolidation likely yields the sweetest spot. Paying an abstraction tax with two three, or four platforms is sustainable, and you’d be in a good position for a Series A just as penetration is forecasted to hit the low 20’s in 2018. And if forecasts are wrong and the install base grows much slower, (sadly for you maybe?) you’re in a sustainable position to wait it out until it does.

Let’s see if the demand curve responds on Black Friday.