Mixed Reality set to soar while VR stays grounded

2016 was supposed to be the year Virtual Reality (VR) made it big. Three premium VR headsets launched, prompting one analyst to forecast total sales of 12.2 million headsets by the end of the year. In reality, it ended up being 1.5 million. That’s a big miss by anyone’s calculations. The same analyst predicted Facebook would sell 3.6 million of its Oculus Rift headset (nearly 30% of his imagined market). But in reality, the Oculus Rift is estimated to have sold only 243,000. That gives Facebook’s VR headset 15% of a much smaller market than forecast. It also puts Oculus a distant third behind HTC Vive (420,000 estimated sales) and Sony Playstation VR (915,000 confirmed sales).

Because VR didn’t make as big an impact as hoped last year, 2017 has seen a switch in attention to something called “Mixed Reality.” Mixed Reality (MR) is when a virtual object is layered onto the real world, usually via your mobile phone. You can think of MR as ‘VR Lite’, because it isn’t the full VR experience and it uses the smartphone as a viewer instead of a VR headset. Part of the reason for the burgeoning popularity of MR has been the success of Pokemon GO, a game in which millions of kids (and some adults) use smartphones to chase cartoon characters around their local park. Pokemon GO was vastly more popular last year than any VR game, leading some VR companies to shift their focus for 2017 to MR.

A New Zealand VR startup, 8i, was one of those companies. It recently closed a US$27 Million Series B round with Time Warner Investments, Baidu Ventures and other big name investors from the US and China. 8i plans to use that money to launch a Mixed Reality app later this year, called Holo. Like Pokemon GO, Holo will overlay virtual objects onto the real world using a smartphone camera. Early promotional videos for the app emphasize the fun factor – one shows a user messing around with a hologram version of astronaut Buzz Aldrin.

I reached out to 8i co-founder Linc Gasking and asked him whether Mixed Reality is a trend that will last, or is it just an interim step towards full Virtual Reality? “Mixed Reality is here to stay,” Gasking told me. “It will take off before VR because of the low barriers to content creation and distribution, thanks to the smartphone already in your pocket.” He thinks there will be “endless applications in MR which will provide ongoing utility and entertainment.” 8i is obviously hoping its upcoming Holo app will “take off” like Pokemon GO.

8i’s core technology is 3D representations of people, or to use its term: “volumetric holograms.” In virtual reality, the holograms are strikingly realistic. That’s why this young kiwi startup caught the attention of Silicon Valley and China. In Holo, the holograms aren’t quite so impressive – they won’t pop out of the screen, for example. But still, they’ll be photo-realistic representations of people and cartoons that will display on your phone. It’s the kind of technology that other, much larger, companies will look to copy. Snapchat, the fun messaging app popular with youngsters, is the most obvious potential competitor. What Snapchat user wouldn’t love to send their friends a hologram cartoon selfie? A selfie with Buzz Aldrin, even. And where Snapchap goes, Facebook will surely follow.

Of course this is all dependent on the hardware – that is, the smartphone – being capable of displaying volumetric holograms. Currently, 8i’s Holo app only works on a single Google Tango smartphone. But other smartphones will get this capability soon, especially after the success of Pokemon GO. Indeed Apple is rumoured to be preparing an MR-capable iPhone as we speak, and has reportedly opened a Wellington office to help with the project.

Even though MR has taken over the limelight in 2017, VR is still seen as the better long-term prospect. Linc Gasking believes that “virtual reality is a more transformative leap for media and communication, but it’s still very nascent.” He compares it to when people used to check their email at Internet cafes, in the nineties. “Some people had email at home or work,” explained Gasking, “but it was not yet mainstream. Fast forward to today and email has completely changed the way society communicates.” He thinks VR is at the ‘Internet cafe’ stage and that it will eventually become popular, but cautions that “potential killer apps and consumer-friendly displays are still in the early stages of being developed.”

VR headsets also have a long way to go. The Oculus Rift has been a rare failure for Facebook so far, when nearly everything else it touches online turns to gold. So what went wrong last year? Partly it was high pricing. The Rift cost US$800 when it launched (it’s since been reduced to US$600), and that didn’t count the cost of purchasing a computer powerful enough to run it (another US$1000 or so). HTC’s Vive had similar pricing. By comparison, Sony’s VR headset cost just US$400 and didn’t require a new PC purchase, since it was designed to work with the popular Playstation console. This explains why Sony sold more VR headsets than Oculus and HTC combined, even though it was last to launch.

Another major issue for VR headsets last year was technical. Despite all three headsets being much more sophisticated than previous attempts, many people suffered motion sickness using the devices.

However the biggest issue facing VR headsets last year was a lack of content. A year ago, I took a look at the state of VR content. I was intrigued by virtual reality, but since I’m not a gamer I wanted to find alternative ways to experience it. What I found was a lot of promising developments, such as NextVR’s experimental coverage of NBA games in virtual reality, but not much content that was available to use regularly. Since that time, NextVR has continued to expand its coverage of sports and entertainment. But the reality is, VR content hasn’t developed much otherwise. It’s a classic chicken and egg situation: consumers won’t buy a VR headset, because there’s little content for it; and content producers won’t develop content, because there isn’t a big enough market yet.

All that said, I agree with Gasking that VR will eventually take off. But realistically, three things need to happen to drive demand. Firstly, the price of VR headsets must go down further (although Sony has already lowered the bar). Secondly, the technology in VR headsets must improve – particularly to address motion sickness. Thirdly, we need truly compelling VR content, other than games. On that last point, I’m expecting VR movies and television to lead the way. I can’t wait to “attend” an NBA game from home in virtual reality, or watch the latest Peter Jackson flick in a custom built VR theatre.

In the meantime, I guess I’ll just hang with Buzz Aldrin’s hologram on my smartphone.