Virtual Reality

Introduction & Market Overview

by Brian Radmin

BDMI, Nov 2015

What is Virtual Reality?

Virtual Reality
(VR)

Augmented Reality
(AR)

Experience that simulates

Experience that supplements

immersive physical presence

the view of a live, physical

in a real or imagined

environment with

environment.

digital assets.

BDMI, Nov 2015

Beginnings of VR
Thomas A. Furness III
introduced Super Cockpit,
a visual flight simulator for
the Air Force.

1962!

MIT created the Aspen

Movie Map, a hypermedia
experience that allowed
users to take a virtual tour.

1968!

1966!
Morton Heilig created
the Sensorama, a 3D
display, vibrating seat,
and scent producer.

Jonathan Waldern founded

Virtuality, a company in the
UK that produced arcade
headsets.

1982!

1977!
Ivan Sutherland created
the Sword of Damocles,
widely considered to be
the first VR headset.

BDMI, Nov 2015

1994!

1990!
Atari Sunnyvale
Research Laboratory,
led by Alan Kay,
founded to explore VR.

Sega introduced
the Sega VR-1, a
head-tracking VR
device.

Modern Era of VR
Oculus crowdfunds
$2.4M, promises a $300
VR development headset.
QUARTER1!

Google releases
Cardboard, a do-ityourself VR headset.

Oculus plans to
release consumer
Rift VR headset.

MARCH!

2011!

QUARTER1!

2014!

OCTOBER!

2012!

Valve launches VR effort

to create headset with
truly immersive presence.

JUNE!

2014!
Facebook
acquires Oculus
for reported $2B.

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P
R
E
S
E
N
T

2016E!

2016E!

QUARTER1!

2016E!
Valve and HTC
plan to release
Vive VR headset.

Sony plans to release

PlayStation VR
headset for PS4.

Billions

The Right Time for VR

Democratized content

Widely affordable

Devices available for

CREATION

DISTRIBUTION

CONSUMPTION

More money is available

for creating.

More people can afford

cheaper bandwidth.

More people can afford

computing devices.

Crowdfunding Investments

Bandwidth Cost

Computing Cost

(per 1000 Mbps)

(per 1M transistors)

$20

$1,400

$8

$15

$1,050

$6

$10

$700

$4

$5

$350

$2

$0

$0
2011

2012

2013

$0
2000

2014

2005

2010

2015

2000

2007

2014

More people have

access to the internet.

More people have

smartphones.

Hours of Video Uploaded Every Minute on YouTube

Internet Penetration

Smartphone Penetration

2.00

225

1.50

150

1.00

75
2008

2010

2012

2014

Billions

300

Billions

Hours

More content is
being created.

1
2000

2005

2010

2015

0.50
2006

2009

2012

2015

Sources: eMarketer (Mobile User Forecast), Deloitte University Press (Exponential Technologies to Exponential Innovation), Crowdsourcing (Crowdfunding Industry Report)

BDMI, Nov 2015

The Right Time for VR

New technologies are generally being adopted faster.
Years from consumer availability to 10% penetration in US

Telephone
(1876)

Television

(1938)

PC

(1975)

Internet

(1990)

Smartphone
(2005)

Tablet

(2010)

Virtual Reality

(2015)

10

15

20

25

Years
Sources: Technology Review (US Technology Adoption Rates), The World Bank (Internet Users), Asympco (Smartphone Penetration)

BDMI, Nov 2015

Disruptive Potential of VR
SOCIAL

FILM

GAMES

[VR] has the potenCal to
be the most social plaEorm
ever. Immersive, virtual and
augmented reality will be
part of peoples daily lives.

Working on game
development, we always try
to create a new kind of
experience, and having VR
technology is almost unfair.

Mark Zuckerberg
CEO of Facebook

Shuhei Yoshia
President of Sony PS Studios

Were right on the cusp of a

major upheaval of the
entertainment world once [VR]
technology really kicks in.

Peter Jackson
Director of Lord of the Rings Trilogy

MUSIC

ADVERTISING

EDUCATION

I can only do so many
concerts. So to be able to have
more people experience
them through VR
that would be epic.

[VR] is a percepCon changer

for any adverCser that wants
to associate with a new
fronCer in media.

[VR] is going to be really

important for educaCon.
Because kids dont learn best
from reading a book or looking
at a chalk board.

Miley Cyrus
Singer / Songwriter

Mitch Gelman

VP of Product for Gannet Digital

BDMI, Nov 2015

Palmer Luckey
Creator of the Oculus RiO

Industry Players React to VR

HARDWARE

PLATFORMS

MEDIA

BRANDS

developing the PlayStation

VR (VR headset for PS4)

purchased Oculus, VR
headset producer, for
reported $2B

developing two original

video series in VR

launched a campaign for

Google Cardboard with a
VR app

developed the Samsung

Gear VR (a mobile VR
headset)

created Cardboard (VR

headset) and Jump (rig and
software for VR video)

produced the VR
documentary film
Millions March

developed VR
experiences to tour
tropical destinations

developing the Vive (VR

headset) in collaboration
with Steam

developing the HoloLens

(AR headset)

created VR experiences
for the 40th Anniversary
SNL Special

created a VR walkthrough of their distillery

BDMI, Nov 2015

Projected VR Market
VR Headset Sales

VR Revenues by Category

over 200M users with headsets by 2020

$30B in projected revenue in 2020

100
Other

Games

80
Theme Park

60

$30B

Millions

40

2020E

20
0
2016E

2017E

2018E

Film

2020E

Hardware

mobile

VR Hardware Revenues

VR Software Revenues

nearly $7B cumulative over next 3 years

more than $6.5B cumulative over next 3 years

$3

$3

$2

$2

$1

$1

Billions

Billions

console / PC

2019E

$0

2016E

2017E

2018E

$0

2016E

2017E

2018E

Sources: KZero (Consumer Virtual Reality Report), Piper Jaffray (Next Mega Tech Theme is Virtual Reality), Digi-Capital (Augmented / Virtual Reality Report)

BDMI, Nov 2015

Projected VR Market
VR Headset Sales

VR Revenues by Category

over 200M users with headsets by 2020

$30B in projected revenue in 2020

100
Other

Games

80
Theme Park

60

$30B

Millions

40

2020E

20
0
2016E

2017E

2018E

Film

2020E

Hardware

mobile

VR Hardware Revenues

VR Software Revenues

more than $8B cumulative over 4 years

more than $7.5B cumulative over 4 years

$3

$3

$2

$2

$1

$1

Billions

Billions

console / PC

2019E

$0

2015E

2016E

2017E

2018E

$0

2015E

2016E

2017E

2018E

Sources: KZero (Consumer Virtual Reality Report), Piper Jaffray (Next Mega Tech Theme is Virtual Reality), Digi-Capital (Augmented / Virtual Reality Report)

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Landscape of VR

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VR Studios
Jurassic World
FILM | COMPUTER-GENERATED

Interact with an Apatosaurus up close and

personal in this companion experience.

Volvo Reality

Paul McCartney

ADVERTISING | BLENDED

MUSIC | LIVE-ACTION

Watch Sir Paul McCartney in concert performing

Live and Let Die in a cinematic VR experience.

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Test drive the Volvo XC90 in a

beautiful journey through Vancouver.

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VR Capture
360 Degree

Stereoscopic

3D

Two cameras are placed at each viewpoint and

slightly angled, capturing different video for
each eye that allows viewers to infer depth.

Lightfield

BDMI, Nov 2015

Multiple cameras are carefully angled

to form a rig that captures 360 video.

Lenses capture the intensity and direction of light

in a scene, creating a map of the environment
that lets users look around with 6 of freedom.

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VR Process & Engines

Editing &
Stitching

Engines

Frameworks for the creation of

computer-generated imagery (CGI),
game development, and animation.

Compression

BDMI, Nov 2015

Software to edit videos and stitch

together footage from multiple cameras.

Technology that reduces file sizes.

Particularly pertinent for VR, where video
sizes can reach up to 1 TB / hour footage.

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VR Distribute
Companies in the distribution space provide platforms
where users can access (stream or download)
content. In regards to being closed / open, they can
be evaluated across three dimensions:
Hardware can be a closed ecosystem tied to a
specific headset (walled garden) or hardware-agnostic.
Content can provide premium content (Netflix of VR) or
be open to any user-generated content (YouTube of VR).
Price can be fee-based (e.g., pay-per-download,
subscription) or free for consumers.

Closed
Only available on specific
devices.

Available on many devices, but only

provide specific or curated pieces of
content, and can be fee-based.

BDMI, Nov 2015

Open
Available on many devices
for free, and allow open
uploading of content.

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VR Display
Mobile Low-End Best for first, introductory VR experiences
and quick demonstrations.
Pros least expensive, portable, only requires smartphone
Cons basic tracking, limited input (i.e., button)

Mobile High-End Best for casual consumption and viewing

short-form content.
Pros input included, moderate tracking ability, portable, only requires
smartphone
Cons limited computing power, basic input, can require specific
smartphone

PC / Console Best for early adopters and hardcore gaming

enthusiasts.
Pros best tracking, most computing power, best content
Cons most expensive, not very portable, requires external computer

Mobile Low-End

Mobile High-End

PC / Console

Name

Google Cardboard

Wearality

MergeVR

Samsung Gear VR

Oculus Rift

PlayStation VR

Price

~$20-30

~$69

~$129

$200

$350-450

$300-400

Display

requires smartphone

requires
smartphone

requires
smartphone

requires Samsung
S6 or Note 4

integrated

integrated

Computing

requires smartphone

requires
smartphone

requires
smartphone

requires Samsung
S6 or Note 4

requires gaming PC
(~$1000)

requires PS4
($399)

Tracking

requires smartphone

requires
smartphone

requires smartphone /
integrated

integrated

integrated

integrated

button on headset

not included

included

touchpad on headset

included

included

Input

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VR Input / Output
Input that uses hands to interact
with VR environments.

Hands

Leap Motion

Nod Backspin

$149

$80

controller

camera

Input that uses feet to move

within VR environments.

Feet

Virtuix Omni
$599
treadmill

Stompz

KOR-FX

$150

$150

BDMI, Nov 2015

$200
glove w/sensors

Output that recreates the sense of touch

by applying motions, forces, or vibrations.

Haptic

foot strap w/sensors

Perception Neuron

vest

Tactical Haptics
$160
hand controller

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VR Business Models
The studio model
includes companies
that create VR
content. Some
produce their own IP,
while others work
primarily as
contractors.

The hardware model

includes companies
that produce physical
consumer goods for
VR. They can make
cameras, headsets,
and input / output
devices.

Pros:
many want to create VR
but lack expertise (in
high demand)

Pros:
potential for defensible
technology
large potential market

Cons:
not very scalable
relatively low barrier to
entry

Cons:
capital intensive
many competitors
manufacturing risk
research & development
risk

The middleware
model includes
companies that
develop software and
technology for the
creation and
distribution of VR.
Pros:
very scalable
potential for defensible,
differentiated offering
picks and shovels
approach
Cons:
research & development
risk
difficult to predict the
needs of content creators

The aggregate model

includes companies
that distribute VR
content. They can
take the form of apps,
app stores, and web
destinations.
Pros:
large potential market
very scalable
control relationship with
end-consumer
Cons:
difficult to differentiate
dependent on content
creators
threat of winner-take-all
market

Integrated
The integrated model includes companies that operate two or more of the business models shown above.
Pros:

control more of the user experience and ecosystem

Cons:

diversified business

extremely capital intensive

potentially unfocused

many competitors

The modern era of VR is still in its infancy. A majority of companies in the space are pre-product / pre-revenue, and are frequently
pivoting and repositioning. This state of flux guarantees that new business models will continue to emerge in the future.

BDMI, Nov 2015

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Projected AR Market
Augmented Reality could be $120B business in 2020
AR is expected to dwarf the VR market by 4x in 5 years. The wholly immersive nature of VR limits
its usage to seated or physically closed experiences (to prevent users from bumping into things),
making it primarily suitable for gaming and video consumption. AR, however, allows users to
interact within real-world environments. This functionality expands ARs applicable reach to
many other verticals, giving it the potential to disrupt the smartphone / tablet industries.

AR vs VR Revenue
(2020E)
VR

AR

$0

$20

$40

$60

$80

$100

$120

Billions
Hardware

Commerce

Data

Voice

Film/TV

Enterprise

Adspend

Consumer

Games

Theme Park

Source: Digi-Capital (Augmented / Virtual Reality Report)

BDMI, Nov 2015

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