The state of VR

Many commentators and journalists believed that 2020 would be VR’s make-or-break year; that it would escape the clunky, headache-inducing heavy headsets of the past with poor graphics and become more of a real, desirable product than a gimmick. The pandemic could have been the catalyst it needed to accelerate its adoption; however, supply chain limitations meant some hardware was unavailable when demand picked up. Demand is also driven by content - the recently launched Half-Life: Alyx has boosted interest but what is the total market size?

In the long term, we believe that VR will play a critical piece in the future of work, communication, play and experiences but many forecasts have been too bullish about its short term adoption rates. Some of the reasons have been that the head mounted displays (HMD) are too expensive while other HMDs lack the experiences and content. We address the market size today and the content available to see if, at the half point of the year, is it making or breaking?

Hardware

According to IDC, sales of stand-alone VR headsets are expected to grow 30% in 2020 and this is backed up by both the Oculus Quest and Playstation VR sets being sold out for months. It predicts that there will be total shipments for VR and AR of nearly 7.1m units for the year and anticipates shipments growing to 76.7m units in 2024 (CAGR of 81.5%). For VR standalone HMDs, 2020 will see 3.09m shipments and 25.25m in 2024. This could mean an active installed base of nearly 14m.

Fortune Business Insights believe that by 2026, the market will be worth $120.5bn, up from $7.5bn in 2018, with significant growth coming from commercial uses. However, as the chart above shows, there are many different options which use different software - from HTC, Sony, Valve and Oculus, which all gives users a different experience. 

The Playstation VR has sold over 5m units but the growth rate is slowing as the product ages and competition increases. Sony has confirmed that the PS VR will work with its recently announced PS5 but has not simultaneously announced a new VR headset. 

Steam recently announced that there are now more than 100m users on its platform and it separately reported that 1.91% of users use SteamVR (according to UploadVR) which equates to more than 1.9m active users . HTC Vive remains the most popular headset, accounting for 26% of all VR devices used with Steam.

Monthly-connected headsets on Steam

Steam headset marketshare

Screenshot 2020-07-22 at 13.09.38.png

Data from Facebook surrounding sales of its Oculus products is notoriously difficult to confirm - it has never shared unit sales of any of its VR headsets.  However, on the 1 year anniversary of its Quest headset, it did share that it has sold $100m worth of content, with 20 titles that have made at least $1m and 10 eclipsing $2m in sales. One of the featured games was only released in November and retails at $24.99 therefore equating to c.80,000 sales. 

Frankly, we believe the competition on HDRs whereby only certain content is available on each platform risks the sector missing out on a significant consumer opportunity. Exclusivity does not help the overall sector and may restrict its overall growth. However, the main question is when there will be sufficient active users to make a sustainable and attractive model for developers to heavily invest into? 

Software and Content

The recent success of Half Life: Alyx, which PlayTracker estimates has sold upwards of 650,000 copies, a number which could push that title’s revenue near $40 million, has led to a short term boost in hardware and an increased focus on the sector. However, this is a highlight and an outlier when compared to normal content sales. 

It has been widely reported that Beat Saber, which is across all platforms, has sold over 2m copies, which equates to likely around 30% of the installed base of VR headsets. However, again, this is a standout product and the other main ‘successes’ are around 300,000 - 800,000 units. This limits the potential upside for any developer when compared to what success could mean if a game performs well on Steam (over 100m active users). There is therefore a chicken and egg situation when it comes to bringing better content onto VR - more headset sales means a higher Total Addressable Market which drives potential sales. 

2020 should in many ways be the ‘make’ year for VR - a pandemic combined with innovative new content could have led to the pick up in growth that was really required. However, recent shortages of hardware, difficulties in sharing content between platforms and the range of hardware products may mean that it was just another year for the sector - leading to investors and developers to focus on standard or AR alternatives. It’s not over yet but so far, 2020 could be defined as ‘frustrating’.