While Gartner and other analysts predict rapid, mass market adoption of VR, many of the actual VCs who’ve invested in virtual reality, not to mention executives now working on consumer level VR products, aren’t at all convinced this is the case. That’s my impression after recently talking with some insiders involved in VR at the major company level.
“I have done fireside chats with VC firms, private dinners, consulting meetings— they don't believe the numbers from analysts,” as one of them tells me. “But they are are all scared of missing out so…”
A key reason VCs are scared to miss investing in VR is Facebook’s $2 billion purchase of Oculus Rift in 2014. Back then, it seemed like a sure sign to many that virtual reality was destined for immediate mainstream growth. But for some in the industry, Facebook’s high purchase price of an unproven technology in an as-yet untested market just created more uncertainty and confusion.
“The two billion fucked everything up — it made us question jumping in,” one insider puts it. “That distorted the market. We weren't alone in thinking it — it gave everyone doing real work pause.”
You can see this pause from executives actually trying to sell VR products to consumers. Eve Online head Hilmar Veigar Pétursson was a major booster of virtual reality a couple years ago, but just released a non-VR version of his company's tentpole VR brand. Unity CEO John Riccitiello is more blunt, calling the short term period we’re in the “gap of disappointment” for VR:
The original version was a talk I gave 16 or 17 months ago. I pointed out that a bunch of these forecasts from analysts – SuperData was one of them – were just ridiculous. I showed the gap and tried to forewarn people. They later brought their numbers down and called it the “trough of disillusionment” or something like that.
Gartner’s just-released forecast, however, already has VR out of that trough, on track for the mass market as early as two years.
As for VCs who've invested in VR, analyst forecasts of immediate major growth like these aren’t taken seriously by many:
For one thing, the venture capitalists can see how much (or rather, how little) hardware is being bought versus coming off the mass production line during any given quarter. For another, their investment is actually motivated by the fear of missing out provoked by Facebook plonking down $2 billion.
What’s this mean for the future of investments in VR?
We’ll probably see less funding for smaller companies or VR companies creating content, but continued investment in platforms which have potential at mass growth. (Or being bought by a company like Facebook.)
But if sales of VR devices continue to be slow, don’t expect investment to suddenly stop. For one thing, the people with money in the game are generally the ones already anticipating those slow sales — despite what analysts claim. For another, the people with smart money in the game know if VR does eventually take off — if it ever does — it’ll be in the long term.
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