Virtual Reality and Misaligned Expectations

VR's Misaligned Expectations

Virtual Reality (VR) has been a prominent topic in discussions about the future of consumer technology. It has been hailed as a groundbreaking computing platform, a digital social hub, and a revolutionary entertainment medium. Meta, with its acquisition of Oculus and its significant investments in the "metaverse," is considered the leader in this field.

As the VR ecosystem has evolved, we have come to realize that VR's true value lies not as a new computing platform but rather as a new medium for entertainment. We believe that VR will follow a trajectory similar to that of traditional game consoles, and that is a positive development.

VR Has Struggled to be Social

If we revisit the original Oculus Rift Kickstarter campaign (2012), we can see that it was primarily focused on gaming. The campaign's description read, "Developer kit for the Oculus Rift - the first truly immersive virtual reality headset for video games." Since then, we have witnessed numerous advancements in hardware and software, along with the entry of new players such as HTC, Microsoft, and Pico into the VR market. However, with the rise of the "metaverse" concept and increased hype, VR has veered off course in a direction that we believe is not sustainable.

As the hype surrounding VR grew, companies started exploring experiences beyond gaming, including social interactions, productivity tools, and mental health applications. However, it has become evident that most users are not particularly interested in these types of social experiences within the VR medium, compared to other mediums. Companies like Rec Room, Meta, and VRChat have attempted to create social spaces in VR, but none have been able to convincingly demonstrate that VR is the ideal medium for social interactions (

). It’s worth noting that we do think VR is a productive medium for some solo experiences (like mental health), yet in this piece we are focused on the social side

• Rec Room: While Rec Room markets a immersive VR presence, it is widely known that over 80% of its users engage with the platform through mobile devices. While this is not a failure for Rec Room in the realm of VR (3 million monthly active users), it does indicate that consumers highly value and some even prefer the mobile experience. 
• Meta (Horizon Worlds): Due to it being a first party experience from Meta, the current adoption is extremely underwhelming. Horizon Worlds was intended to be the social hub for Oculus, but it currently has approximately 20k monthly active users (down from 300k eight months prior) and has not generated significant value for Meta or its creators (Forbes): "While Meta has provided some worlds with bonus payments to their creators, efforts to promote other forms of commerce are still in their early stages. The most successful of Horizon's worlds has earned a total of $10,000 in 'In-World Payments,' according to documents, and the feature allowing users to tip creators has resulted in total payouts of $470." (Wall Street Journal)

While we do believe that non-gaming VR content could eventually become more appealing to VR users, our belief is that approaching VR as a gaming medium will prove far more lucrative. Another strategy currently unfolding is the shift toward mixed reality, which creates an ecosystem capable of supporting both gaming and non-gaming experiences. However, the outcome of this market is still uncertain.

So, Why Will VR Succeed?

In the history of gaming, each new gaming medium has given birth to unique gaming experiences. VR will triumph as a new gaming medium and we firmly believe that Meta should prioritize game-first content as its core strategy. VR offers a platform for game experiences that were previously unimaginable due to the heightened level of immersion it provides. Attracting users with productivity, fitness, or mental health experiences should not be the primary focus, as these experiences are not proving to be superior to existing solutions.

“Statistics show that 70% of consumers who own VR headsets such as Oculus Rift, PlayStation VR, or HTC Vive have purchased games for their devices, underscoring the dominance of gaming in the VR industry and consumers' expectations for VR companies to deliver in this regard (PC Guide).” Despite the clear demand from consumers, the quality and quantity of gaming content on VR pales in comparison to other gaming platforms.

In 2022, Steam had 12,718 games released alone (Steamdb) while at present, Oculus has around 260 games available to play. (Steamdb). To address this, Meta has a clear direction with the Quest App Lab. App Lab allows users to download non-Quest Store games and apps and already offers over 1,400 games. Games like Gorilla Tag generated $26m in revenue and initially built their community on App Lab to now 2.3m MAUs (Road To VR). This volume of content and Meta’s ability to support indie developers presents Meta with a legitimate opportunity to heavily emphasize games if it can optimize the process for launching games on the official Quest Store (Road To VR).

VR initially faced challenges related to cost, battery life, comfort, and content availability. However, if VR platforms focus on increasingly compelling game content, users will certainly put up with (and pay for) the ability to enjoy these immersive and novel experiences. Costs are already decreasing with most VR headsets falling within the price range of traditional game consoles. Comfort is improving as better headset designs are introduced, and battery life is becoming more efficient. By redirecting investments toward compelling content, VR has the potential to become the next major gaming medium.

Takeaway: VR is by no means "dead," and we firmly believe that it has a distinctive path separate from the prevailing market sentiment. VR will not replace traditional computing platforms, but the gaming market continues to expand, and there has been a lack of innovation in access ecosystems for new types of content for quite some time. VR has the opportunity to claim a portion of the gaming future, and when it reaches that turning point, it will likely resemble the adoption trajectory of game consoles rather than traditional computing.

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