By Jordan Pruce '18

Virtual reality garnered much attention when Facebook acquired Oculus VR in 2014 for $2 billion.  Since then, the value of venture capital investments in both virtual reality and augmented reality has reached $3.5 billion.  Companies like Samsung, HTC, Google, and Oculus are leading the effort to make VR and AR popular computing platforms.  These tech giants are all key players in a young industry that has much potential, and some believe the groundwork for this potential could be realized as soon as this year.  However, the industry is facing similar problems that were last seen with the advent of the smartphone.

Bloomberg recently interviewed analysts from Deutsche Bank who believe virtual reality is in the same stage as the smartphone in 2007, the same year Apple released the first iPhone.  Adoption of the smartphone was slow at first, but within five years, the number of smartphone users grew to 100 million in the U.S.  An even slower implementation curve is expected for VR/AR, and that is due to constraints in user experience, content and application development, and price points.  But, what exactly does the addressable market consist of?  The first consumer market to develop, according to Goldman Sachs and Deloitte, will be video games. Beyond this, real estate, retail, and healthcare will be among the first markets disrupted.  However, the uses extend even further into the military, education, engineering, video entertainment, and live events.  Affecting these nine markets, VR/AR has the potential to assist in medical processes, allow users to view a new home, and be used for simulations during military training, among others.

Focusing on real estate, retail, and healthcare, these markets will see significant change in the coming years.  According to 2025 base case assumptions, software revenue from VR/AR will be $2.6 billion and disrupt the current $107 billion real estate commissions market (US, Japan, UK, and Germany).  Homes could now be shown to prospective buyers using VR, and this could change the industry by having to rely less on brokers.  In retail, software revenue from VR/AR will be $1.6 billion and disrupt the $3 billion e-commerce software market.  With the introduction of VR/AR into retail, consumers could now “try on” apparel without having to physically wear it.  Furthermore, Goldman Sachs anticipates VR/AR being used in retail mostly for high-end purchases.  Finally, with healthcare, revenue from VR/AR will be $5.1 billion and disrupt the $16 billion dollar market for patient monitoring devices.  These devices could be used in therapy, to project scans or x-rays of the patient while operating, or even to treat phobias.

The greatest risk facing the VR/AR industry is the inability of software to keep up with hardware, disappointing consumers with a lack of available apps and uses.  In this year alone, almost all of an estimated $6.7 billion dollars spent by virtual reality companies will be spent on hardware.  While Goldman has called for a slower adoption of the virtual reality platform, it also claimed, “the first half of 2016 will see the most significant progress on VR/AR ever."   VR/AR has quickly reached the forefront of technological innovation, and so it seems the next computing platform is here, and it is here to stay.

 Sources:http://finance.yahoo.com/news/how-facebook-plans-to-dominate-virtual-reality-in-real-life-171309509.htmlhttp://www.bloomberg.com/news/articles/2016-03-03/this-wall-street-firm-says-virtual-reality-is-like-smartphones-nine-years-agohttp://www.goldmansachs.com/our-thinking/pages/technology-driving-innovation-folder/virtual-and-augmented-reality/report.pdfhttp://www2.deloitte.com/global/en/pages/technology-media-and-telecommunications/articles/tmt-pred16-media-virtual-reality-billion-dollar-niche.html#full-reportPhoto:http://blogs-images.forbes.com/erikkain/files/2014/03/OculusRift1.jpg