VR, AR, and the Market That's Still Virtual

Last week saw the Augmented World Expo in Santa Clara, bringing together a number of companies and people interested in XR (the catchall term that covers Virtual Reality (VR), Augmented Reality (AR), and Mixed Reality (MR)). While there were big companies like Microsoft exhibiting, there was a distinct lack of companies aiming at the consumer space -- like Oculus, Vive, or Magic Leap. The two companies with the current largest market of AR-capable devices -- Apple and Google -- were nowhere to be found. This show was not focused on consumers.

Overall, the AWE show continues to draw a good crowd and some interesting speakers; the XR market for hardware and software, though, doesn’t seem to be growing much. The AWE show, judging from the exhibitors and the various sessions, is mostly about the various verticals that constitute the enterprise market. That actually seems like a smart decision to me, because the consumer market for XR is pretty much going nowhere fast. VR headset sales have consistently underperformed, and the installed base of even the largest is still just a few million. AR is in the hands of hundreds of millions of people, between ARKit and ARCore, yet almost nobody is using it – even in one of the poster children for AR, Pokemon GO. (That app is a good touchstone for how smart someone is about AR – ask them how important Pokemon GO is. Sure, it’s done very well for Niantic, and helped generate press for AR, but the use of AR in the game is completely cosmetic and can be toggled off easily; it adds nothing to the experience or the gameplay.)

At least on the hardware side, there’s good progress. The hardware continues to get better – faster processing, better displays, lighter, and cheaper – but it’s still hard to see what software is going to drive hardware sales. It’s the classic market development problem for hardware and software – the hardware doesn’t sell without the software, and no one writes the software unless there’s a good hardware base.We are getting to the point (still a couple of years away) where a good pair of AR glasses will be like slipping on sunglasses – at which point the market could explode, if the price was right and there was software people really saw a critical need for.

Digi-Capital's Tim Merel said he thought Google’s AR assistance for Google Maps walking directions was the first really critical use for AR he’d seen for consumers. I’d also nominate furniture placement, like Ikea’s app – I spoke with one of the guys doing that app, and they have plans to make it even more useful. So we are making progress towards useful consumer software for XR, but it’s slow.

Major companies exhibiting at the show included Microsoft, Qualcomm, and Sony. Interestingly Sony was not showing PSVR, but instead some enterprise stuff so unmemorable I can’t even recall what it was. Microsoft was focused on HoloLens and commercial uses. Yeah, who’s going to drop $3,000 for a cool way to play Minecraft? A handful of people, maybe, but not more than that.

One of the potential big players in XR is Magic Leap... but at AWE, it was Magic Leap who? They had no presence at the show, and no mind share in the conversations I was in. Regardless of what miracles can be pulled off with their hardware, they need to have compelling software… at least one thing that people will pay a lot to use regularly. That’s needed to grow VR, AR, MR, whatever kind of reality you’re planning. And I’ve yet to see it. I think it will happen, but the time frame is indeterminate. Magic Leap did show a little bit of what their hardware looks like, but we still don't know the price or the release data -- nor have we seen what you can actually do with it. Apparently their demos have been impressive enough to get over a billion dollars in financing, so you can't count them out. But don't count them in until you know the price, and get details on how the hardware works -- and see some reviews from users.

As for games, which many people seem to suppose are the killer VR app, and a huge potential market on AR or MR, I think that most people are barking up the wrong tree. Sure, games could be cool, but people aren’t looking at the right kinds of features or genres so far in XR games. Worse, no one seems to be building a game for XR that has billion-dollar potential. I think for a game to make $1 billion or more, it has to have a couple of things: A large enough installed base of hardware that can run it (A hundred million at least) and some aspect of play that keeps people coming back for hundreds of hours of game play. Now, that can be in 5 or 10 minute chunks like Candy Crush, or 5 hour chunks like Minecraft or World of Warcraft – but the game has have that sort of innate attraction (and ideally ways to build revenue over time). Nobody seems to be making games with that sort of potential yet for XR.

I do think that with Apple's ARKit and Google's ARCore making AR easier on hundreds of millions of smartphones, that will provide an easy on-ramp for developers to try out ideas. That will make future AR wearables more likely to get adopted faster. Those developers who are learning how to build AR and VR apps now will be in a good position when that market finally arrives. The only trick is to have your development business survive until the larger market arrives...