via All For the Code

In my previous post VR & The Great Unbundling, I wrote how virtual reality technology threatens the last bastion of TV, namely escapism through immersion in a virtual world. I added onto Ben Thompson’s analysis and suggested that VR has the potential to do what Google, Youtube, and Netflix have done to dethrone TV in the realms of information, education, and story-telling, respectively.

But all of that is speculating on its potential. Last week, news broke that Facebook was closing around 200 of its Oculus Rift demo stations in Best Buys across the US. These pop-up stations allowed customers to experience VR for free, but Best Buy reported that they would go days without anyone requesting a demo.

Demo station for virtual reality technology
An Example VR Demo Station

While Oculus spokeswoman Andrea Schubert pointed to “seasonal changes” as the reason for these closures, Best Buy’s decision to scale back on the demo sites signals an ongoing adoption issue with VR systems. Best Buy workers said that only a few Oculus headsets were sold per week even during the holiday season. Compare that performance with how popular Amazon’s Echo and Google Home were, and you can see where we are at in the hype cycle with VR.

A couple of caveats before diving deeper into the implications of these closures:

  1. Some level of drop-off is to be expected after the holiday rush.
  2. Best Buy as a whole may be experiencing less traffic.
  3. VR’s novelty is wearing off — there will be a slight dip after the initial craze.

Troubling Signs

For many, gaming is still the only significant use case for virtual reality technology. So the comments by Gabe Newell, the CEO of Valve — the gaming company that brought us classics like Half-Life and Team Fortress — are important to take into consideration:

“We’re optimistic. We think VR is going great. It’s going in a way that’s consistent with our expectations. We’re also pretty comfortable with the idea that it will turn out to be a complete failure.”

Yes, you read that correctly. The CEO of Valve, the software partner of the Vive headset who invested heavily in their VR platform, is comfortable with the idea that VR will turn out to be a complete failure.

To be fair, Newell believes in VR being a “sustainable” business right now, but that is in stark contrast with the astronomical projections and overblown expectations of mass market adoption. (It’s important to note that Valve is a rival of Oculus, whose CEO projected “north of a million sales” in 2014.) Still, there are only 1,300 VR apps on Steam (Valve’s game distribution platform) with a measly 30 apps making just over $250,000, an insignificant amount given the hype.

Valve is currently working on three games, that are more sophisticated than previous demo-like versions, to provide a complete VR experience. Still, Newell doesn’t think we’re at a point to incite a VR revolution as he “can’t point to a single piece of content that would cause millions of people to justify changing their home computing.”

The first and perhaps the biggest obstacle is price. A Vive system costs $800, and its rival Oculus Rift headset costs $499, but also requires a $99 Touch controller for a full experience. While Newell expects significant hardware improvements, especially in head-mounted displays, in the next two years, he doesn’t think price decreases are likely, let alone significant enough to address the adoption issue:

“If you took the existing VR systems and made them 80 percent cheaper, that’s still not a huge market. There’s still not a really incredibly compelling reason for people to spend 20 hours a day in VR.”

In other words, even if headsets become lighter, resolutions become better, and chips become smaller, Newell expects virtual reality technology to still be largely aimed at a niche market of serious gamers — not your everyday user.

“It’s a great thing for enthusiasts and hardcore people. Where we are today is way further down the road than we were a year ago. But it’s just going to be this slow, painful fits and starts kind of thing. So while we are really happy with how things are going, yeah, it doesn’t match up with what other companies are saying.”

Newell said that while hardware improvements will come in the next two years — particularly in the field of head-mounted displays — price decreases aren’t likely as VR is largely aimed at a niche market of gamers with powerful PCs. Pleasing the hardcore gamers might be a stretch goal at the moment. You can read the harsh review of the Oculus Rift CV1 on All For The Code or quote Newell in describing Vive, the most expensive device on the market, “barely capable of doing a marginally adequate job of delivering a VR experience.

Virtual Reality Technology: The Bottom Line

All of this isn’t to say that Newell doesn’t believe in the technology. He remains bullish on the promise of VR and thinks that the VR industry can leapfrog any other display technology within the next two years. This just means that VR is still in its infant stage of the hype cycle. As Benedict Evans put it, “awareness is low, the device needs an umbilical, the content is limited and you can’t see why you should even have the demo unless you’re actually having it.”

While it’s nice to project based on the potential of VR to take down the TV hegemony, it simply isn’t ready for mass-market adoption just yet, and it may never be if Newell is correct in limiting its use case to hardcore gamers.