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Consumer Virtual Reality: State of the Market

The way we will interact with digital content is about to rapidly change, due to the emergence of Consumer Virtual Reality.
This KZero Worldswide report explains the state of the Consumer Virtual Reality market, the devices being created, the companies operating in it, market size forecasts and commercial application examples for key Virtual Reality markets.

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Consumer Virtual Reality: State of the Market

  1. 1. Consumer  Virtual  Reality  -­‐  State  of  the  Market ! ! ! ! ! ! ! Releasedate:June2014 Version: 1.3 ! ! ! ! Page  1A  KZero  Worldswide  Report Thewaywewillinteractwithdigitalcontentisaboutto rapidlychange,duetotheemergenceofConsumerVirtual Reality. ! ThisKZeroWorldswidereportexplainsthestateofthe ConsumerVirtualRealitymarket,thedevicesbeingcreated, thecompaniesoperatinginit,marketsizeforecastsand commercialapplicationexamplesforkeyVirtualReality markets. Consumer     Virtual  Reality     State  of  the  Market  Report
  2. 2. Consumer  Virtual  Reality  -­‐  State  of  the  Market Executive  Summary   Intended  for  marketers,  brand-­‐owners,  entrepreneurs  and  investors,  this  KZero  State  of  the  Market  report   examines  the  emerging  market  of  Consumer  Virtual  Reality  (VR).  We  have  assessed  the  hardware  market   of  Consumer  Virtual  Reality  Devices  (CVRDs)  and  the  software  market  of  games  and  apps  for  VR.   !Virtual  Reality  refers  to  a  digital  3D  environment  that  can  be  accessed  and  interacted  with  using  a  VR   headset.  Users  wear  the  headset  and  then  place  themselves  within  a  100%  immersive  world.  User  head  and   body  movements  are  tracked  by  the  VR  application  and  the  environment  (what  the  user  sees)  reacts   accordingly.   !The  CVRD  market  is  currently  being  pioneered  by  a  company  called  Oculus  VR  (acquired  by  Facebook  in   March  in  a  $2bn  deal)  with  other  companies  such  as  Samsung,  Microsoft  and  Sony  in  close  pursuit.  In   addition,  a  range  of  start-­‐ups  are  also  developing  their  own  headsets.  In  conjunction  with  the  development   of   the   devices   (typically   headsets),   an   emerging   market   of   VR   game   developers   will   create   3D   environments  to  be  explored  by  the  device  owners  and  their  friends.   !We  have  identified  12  key  sectors  that  will  adopt  consumer  VR,  which  include  the  porting  over  of  existing   Massive  Multiplayer  Games,  the  creation  of  brand-­‐new  MMOs,  VR  environments  allowing  User  Generated   Content  and  Mirror  Worlds,  re-­‐creating  places  in  the  real  world.     !In  terms  of  numbers,  our  market  sizing  assessment  forecasts  almost  57m  devices  being  purchased  from   2014  -­‐  2018  and  total  active  users  of  47.6m  in  2018.  Revenue-­‐wise,  we  estimate  device  (hardware)  sales  to   exceed  $8.4bn  over  the  five  year  period  and  game/app  (software)  sales  of  $7.7bn.  This  equates  to  an   overall  market  size  (cumulative  from  2014  -­‐  2018)  of  $16.2bn  and  represents  a  CAGR  of  125%.     Page  2A  KZero  Worldswide  Report Contents   ! The  Basics   Moving  to  a  Mixed  Reality   Metaverse  Roadmap   Technology:  Hardware   What  Can  You  Do  With  It?   Virtual  Worlds   Mirror  Worlds   LifeLogging   Market  Sizing:  Hardware   1.  The  Basics   A   Consumer   Virtual   Reality   Device   (CVRD)   is   a   piece   of   hardware   resembling  goggles.  A  user  places  this  unit  on  their  head  and  sees  a   digital  image  on  a  display  as  opposed  to  seeing  the  real-­‐world  around   them.     !This   image   is   a   a   3D   stereoscopic   computer-­‐generated   digital   environment  or  virtual  world.  When  a  user  moves  their  head  to  the   left,  their  digital  field  of  view  moves  accordingly,  allowing  the  user  to   effectively  engage  and  interact  inside  the  virtual  world.  This  creates  a   Virtual  Reality  to  the  user.     !In  order  to  operate,  in  essence  a  Virtual  Reality  Device  needs    three   things:   • Supporting  graphic  capabilities  (via  a  headset)  in  order  to  display   the  digital  environment  to  the  user.  This  display  is  delivered  either   via  a  screen  or  by  projecting  directly  onto  the  retina.   •3D  content  to  provide  ‘the  view’  for  the  user.   •The   ability   to   allow   the   user   to   interact   directly   with   the   environment.   !This  technology  has  been  available  primarily  to  the  military  for  several   years.   Recent   gains   in   technology   and   processing   speeds,   coupled   with   a   growing   appetite   for   3D   gaming   content   has   stimulated   consumer  interest.  A  number  of  companies  are  actively  developing  or   about   to   develop   Consumer   Virtual   Reality   devices   (the   hardware).   Many  more  will  develop  virtual  worlds,  games  and  apps  for  the  device   owners  to  explore  (the  software).   !We  expect  this  technology  and  supporting  ecosystem  of  sectors  to   expand   rapidly   in   the   next   five   years,   in   addition   to   new     vertical   markets  opening  up  aside  from  the  core  gaming  propositions.
  3. 3. Consumer  Virtual  Reality  -­‐  State  of  the  Market 2.  Moving  to  a  Mixed  Reality   We  are  moving  towards  a  Mixed  Reality  as  our  real  and  digital  worlds  continue  to  merge  together.  Our  digital   lives  increasingly  include  pictures  and  video  of  our  surroundings  and  content  from  everywhere  and  anywhere   can  reach  us  instantly.   !The  way  that  we  will  interact  with  digital  content  is  about  to  rapidly  change  and  is  explained  in  the  spectrum   shown  below.     3.The  Metaverse  Roadmap   From  Wikipedia:  ‘The  Metaverse  is  a  collective  virtual  shared  space,  created  by  the  convergence  of  virtually   enhanced   physical   reality   and   physically   persistent   virtual   space,   including   the   sum   of   all   virtual   worlds,   augmented  reality,  and  the  internet.  The  word  metaverse  is  a  portmanteau  of  the  prefix  "meta"  (meaning   "beyond")  and  "universe"  and  is  typically  used  to  describe  the  concept  of  a  future  iteration  of  the  internet,   made  up  of  persistent,  shared,  3D  virtual  spaces  linked  into  a  perceived  virtual  universe.’  Now,  that  sounds  a  bit   Page  3A  KZero  Worldswide  Report Augmented  Virtuality   Augmented  Virtuality  (AV)  is  the  combination  of  real   and  virtual  environments.  In  this  instance,  the  digital   content  is  not  merely  used  to  complement  the  real   view  but  instead  is  used  to  enhance  it.     !Examples  of  AV  concepts  include  news  studios  with   digital  (visual)  backdrops  (or  the  weatherman),  the   dynamic  yards  line  in  a  TV  football  match.  Whereas   AR   would   typically   have   no   more   than   20%   of   the   field  of  view  allocated  to  digital,  with  AV  this  ratio   could   be   inverted,   meaning   digital   content   would   account  for  circa  80%  of  the  total  view.   ! Virtual  Reality   When   a   user   is   placed   within   a   100%   digital   environment  that  they  can  engage  and  interact  with,   through  sight,  sound  and  movement,  they  are  in  a   Virtual   Reality.   This   concept,   although   only   now   becoming  commercially  available,  is  considered  ‘Star   Trek  Tech’,  meaning  it  has  existed  in  sci-­‐fi  and  to  a   degree  general  knowledge  for  many  years.  The  best   example  of  this  is  the  ‘Holodeck’.   Real  Environment   The  Real  Environment  is  the  ‘good  old  way’  that  we   interact  with  our  surroundings.  What  we  see  with  our   eyes  is  what  we  get.  In  this  scenario,  there  is  no  digital   content  added.   Augmented  Reality   Augmented   Reality   (AR)   is   the   real-­‐time   supply   of   complementary   digital   information   into   our   current   field  of  real  view. AR  applications  include  providing  map-­‐type  guidance   information   as   a   person   is   on   the   move,   or   house   pricing  when  a  property  is  looked  at.  These  types  of   AR   concepts   rely   on   technology   such   as   image   recognition,  GPS  and  Internet  connectivity  -­‐  basically   supplying  additional  information  based  on  the  usage   context.   AR   is   currently   available   using   smartphones   and   laptops,   as   well   as   newer   developments   utilising   glasses  (as  opposed  to  headsets),  with  Google  Glass   being  the  best  example.   The  most  important  thing  to  remember  with  AR  is   that  the  digital  content  is  always  in-­‐support  of  what   the  user  is  actually  seeing  and  doing  in  the  real  world. Image  courtesy  of  Google
  4. 4. Consumer  Virtual  Reality  -­‐  State  of  the  Market fancy,  but  the  Metaverse  Roadmap  is  a  useful  tool  to  scope  out  the  way  the  Internet  is  developing.  The  graphic   below  is  the  Metaverse  Roadmap.   !!!!!!!!!!!!!!The   various   elements   of   the   Metaverse   Roadmap,   taken   from   MetaverseRoadmap.org,   are   explained   as   follows.   !Combining   these   different   elements   to   varying   degrees  in  turn  identifies  key  markets  for  Consumer   Virtual  Reality  Devices  .  They  are  as  follows:   !Virtual  Worlds  (VWs)  and  Massive  Multiplayer  Online  Game  (MMOs)   This  market  segment  is  the  low  hanging  fruit  of  the  overall  sector.  The  initial  commercial  uses  of  Virtual  Reality   devices  will  be  in  gaming  and  more  specifically,  Virtual  Worlds  and  MMOs.  Already  massively  popular  across  all   age  ranges,  whereas  the  current  ‘experience’  for  virtual  worlds  is  simply  through  a  monitor  or  screen,  Virtual   Reality  will  place  players  ‘inside’  the  game,  being  able  to  directly  interact  with  the  digital  environment.    Note   that  there  are  already  thousands  of  VW’s  already  created  (i.e.  the  3D  environments  already  exist)  and  used  by   millions  of  players.  These  VW’s  have  been  commercially  created,  to  support  the  game  they  exist  to  serve  (for   example  a  map  in  Modern  Warfare  or  Los  Santos  in  GT5)  as  well  as  from  User  Generated  Content  (of  all  ages)  in   worlds  such  as  Roblox  and  Second  Life.   !Mirror  Worlds   Similar  to  VW’s,  Mirror  worlds  are  100%  digital  environments.  However,  rather  than  being  fictionally  invented   places  (created  to  support  the  game),  Mirror  Worlds  are  virtual  versions  of  the  real  world  -­‐  they  are  based  on   real  places.  For  example,  think  Times  Square  in  New  York  re-­‐created   virtually  allowing  users  to  put  on  a  headset  and  walk  around  like  a   tourist.     !Existing  VW’s  such  as  Second  Life  and  others  already  contain  hundreds   of  Mirror  Worlds,  ranging  from  the  central  London,  Berlin  (created  by   Germany  based  Twinity)  the  Eiffel  Tower,  Yankee  Stadium  and  even   the  whole  of  the  UK.  Mirror  worlds  are  also  being  used  to  re-­‐create   places  (and  then  events)  in  history.  Think  of  this  as  virtual  time  travel.         Page  4A  KZero  Worldswide  Report Augmentation   Augmentation  refers  to  technologies  that  add  new   capabilities  to  existing  real  systems;  in  the  Metaverse   context,   this   means   technologies   that   layer   new   control   systems   and   information   onto   our   perception  of  the  physical  environment.   !Simulation     Refers  to  technologies  that  model  reality  (or  parallel   realities),  offering  wholly  new  environments;  in  the   Metaverse   context,   this   means   technologies   that   provide   simulated   worlds   as   the   focus   for   interaction. Intimate     Technologies   that   are   focused   inwardly,   on   the   identity  and  actions  of  the  individual  or  object;  in  the   Metaverse  context,  this  means  technologies  where   the   user   has   agency   in   the   environment,   either   through   the   use   of   an   avatar   or   through   direct   appearance  as  an  actor  in  the  system.   !External     Technologies  focused  outwardly,  towards  the  world   at   large;   in   the   Metaverse   context,   this   means   technologies   that   provide   information   about   and   control  of  the  world  around  the  user. Image  source:    Second  Life
  5. 5. Consumer  Virtual  Reality  -­‐  State  of  the  Market Lifelogging   Lifelogging  is  essentially  using  technology  to  capture,  record  and  store  our  lives,  as  we  live  them.  These  means   the  people  we  meet  (what  we  see),  the  things  we  say  and  listen  to  (what  we  hear)  and  the  places  we  visit   (where  we  go).  Think  of  Lifelogging  as  a  digital  personal  diary,  without  having  to  write  it.     ! Pulling  Lifelogging  back  to  existing  technologies  and  applications,  in  a  straight-­‐forward  sense  it’s  simply  the  next   evolution   of   ‘personal   information’.   First   we   had   blogging,   then   micro-­‐blogging   (a   la   Twitter)   and   next   up   Lifelogging.   The  Google  Glass  project  is  a  great  example  of  Lifelogging,  using  a  camera  (for  pictures  and  video),  GPS,  a   heads-­‐up  display  (projected  to  one  eye)  and  Internet  connectivity,  users  of  Glass  and  receive  location-­‐specific   information,  get  digital  content  on  demand  and  digitally  record  what  they  do.    Although  some  people  think  the   primary  use  of  Google  Glass  (and  other  wearable  devices)  is  for  Augmented  Reality  (receiving  information),  we   believe  that  Lifelogging  (recording  information)  will  be  the  application  that  boosts  mass  adoption.     ! These  three  segments  will  be  further  drilled  into  and  expanded  later  in  this  report.    !!! 4.  Technology  -­‐  What  makes  a  Virtual  Reality  Device?  !This  report  is  not  intended  to  focus  too  closely  on  the  underlying  technology  required  for  consumer  Virtual   Reality.  However,  assessing  the  supply  chain  and  supply  composites  does  throw  an  interesting  light  on  the   directions  this  market  is  moving  into.       !The  following  sections  lay  out  the  high-­‐level  technology  require  to  create  these  devices/platforms  as  well  as   actual  and  potential  manufacturers.     ! Page  5A  KZero  Worldswide  Report Image  source:    Google Image  source:  Google
  6. 6. Consumer  Virtual  Reality  -­‐  State  of  the  Market The  four  elements  above  are  the  core  aspects  from  hardware  and  technology  perspectives.  But  whose  making   CVRDs?  We  have  identified  three  different  types  of  companies  interested  in  manufacturing,  as  follows:     Specialist  Gaming  creams-­‐off  the  Innovators   A   growing   number   of   early   stage   companies   founded   specifically   to   manufacture   CVRD’s   are   emerging.   These   companies,  at  the  cutting  edge  of  a  major  new  technology,   are  developing  their  systems  initially  for  the  gaming  market   with  some  utilising  third-­‐party  mobile  (Android)  devices.     !Oculus  VR,  Inc.  is  the  most  well  known  start-­‐up  in  this  space   and  even  more  so  following  the  recent  $2bn  acquisition  by   Facebook.   Other   companies   of   note   include   VRelia,     Avegant,  Sulon,  ANTVR  (shown  right),  GameFace  Labs  and   True  Player  Gear.  There  is  also  a  number  of  stealth  start-­‐ups  on  the  verge  of  entering  this  marketplace.   ! Generalist  Technology  takes  the  Early  Adopters   Existing   technology   companies   with   product   presence   in   segments   such   as   console   gaming,   telephony,   general   computing  and  general  technology  are  already  in  NPD  mode   for  CVRD.  These  include  Apple,  Sony,  Microsoft,  Samsung  and   Google.     ! These  companies  will  strive  to  create  semi-­‐closed  technology   gardens,  offering  both  the  hardware  (the  devices)  and  a  way   of   obtaining   the     virtual   reality   environments,   games   and   other  applications  -­‐  think  App  stores.     !The  Sony  headset,  coded-­‐named  Project  Morpheus  is  shown   in  the  image  left.     Section  7  shows  a  full-­‐  list  of  companies  developing  VR  headsets.   ! Brands  and  IP’s  garden-­‐wall  the  Early  Majority   Just  as  we  see  some  toy  companies  create  custom  dedicated  tablets  for  certain  markets,  we  expect  this  to   happen  also  in  the  CVRD  sector.  We  expect  companies  such  as  Mattel  and  Hasbro  (as  well  as  other  large   consumer   IP   owners)   to   acquire   third-­‐party   technology   and/or   re-­‐package   existing   technology   and   supply   closed-­‐platform  virtual  reality  experiences  based  around  their  portfolio  of  brands  and  IPs.   ! And  last  but  not  least….the  virtual  world   Or  more  specifically,  the  final  piece  of  the  puzzle  is  the  creation  of  the  3D  environment  itself,  be  it  a  virtual   world,  mirror  world  or  lifelogging  experience.  By  development,  we  mean  the  3D  modelling  of  virtual  items,  the   terrain,  buildings,  avatars/non-­‐playing-­‐characters  (NPCs)  and  other  elements  required  to  place  a  user  into  a   digital  environment,  as  well  as  the  created  mechanics,  objectives  and  interactions  needed  to  give  the  user  a   reason  to  enter.     ! Page  6A  KZero  Worldswide  Report Hardware   The  physical  headset  and  accompanying  functionality.   This   includes   processors,   wifi,   GPS   and   other   technology  needed  for  wearable  computing.   !Display   The  screen  displayed  to  the  user  inside  the  headset.   When   a   user   puts   on   the   device,   they   look   into   the   display  and  ‘enter’  the  virtual  reality  environment. Sensors   Sensors   detect   where   the   person   is   looking,   how   and  where  they  are  moving  and  generally  translate   real-­‐world  movement  into  a  virtual  equivalent.   !Render   The   combined   technology   (from   the   display   and   sensors)  that  ‘creates’  the  3D  environment    and  how   it  is  presented  to  players
  7. 7. Consumer  Virtual  Reality  -­‐  State  of  the  Market These  types  of  development  companies  are  effectively  ‘World  Builders’.  We  expect  World  Builders  to  fall  into   one  of  the  following  four  categories:   ! • KT&T  virtual  world  developers:  Companies  already  making  browser  and  tablet  based  3D  virtual  worlds  and   MMOs   for   the   Kids,   Tween   and   Teen   (KT&T)   sector   are   highly   likely   to   evolve   into   creators   of   VR   environments.  We  expect  these  types  of  environments  to  be  based  on  existing  IP’s  that  already  have  a   presence  in  the  virtual  world/MMO,  app  or  kids  gaming  markets.     ! We   asked   Matthew   Warneford,   CTO   of   leading   kids/tween   virtual   world   developer   Dubit   to   offer   his   thoughts  on  the  emerging  market  of  virtual  reality  ‘playgrounds’  for  younger  players:   ! "As  a  developer  of  multiple  virtual  worlds  and  online  games  for  brands  and  companies  across  the  world,  we've   been  monitoring  the  progress  of  the  virtual  reality  sector  for  quite  a  while.  Although  the  majority  of  these  kids   virtual  worlds  and  MMOs  have  been  browser-­‐based  and  more  recently  on  tablets,  we  expect,  and  look  forward   to  be  working  with  companies  in  the  kids  space  to  develop  VR  specific  applications.  We  see  it  as  a  natural   evolution  of  the  sector.   ! For  brands  and  particularly  kids/tween  IPs  with  presence  online,  the  movies,  on  TV  or  toy-­‐based,  virtual  reality   will  allow  these  IPs  to  fully  immerse  kids  into  their  branded  worlds  and  experiences.  We've  already  seen  how   quickly  kids  embrace  new  technologies  and  we  expect  VR  to  be  no  different."   ! • Console  game  developers:    With  the  older  gaming  market  being  the  low-­‐hanging  fruit  of  this  marketplace,   we   expect   many   game   developers,   primarily   with   console   expertise   to   develop   VR   environments.   Think   Battlefield  4  or  Call  of  Duty  (developed  by  Dice/EA  and  Treyarch/Infinity  Ward/Activation  respectively).  We   expect  these  environments  to  be  based  primarily  on  existing  games/IPs  in  the  short-­‐term.  The  medium  term   will  see  them  create  brand-­‐new  IPs  and  games  specifically  for  the  CVRD  market.   ! • Dedicated  specialists:    i.e.  companies  created  specifically  to  develop  VR  environments  and  platforms.  These   will  be  companies  typically  creating  new  IP  platforms  specifically  for  CVRD.  We  expect  there  to  be  moderate   VC  interest  and  investment  into  this  category,  just  as  over  $800m  was  invested  in  the  KT&T  VW  sector  off  the   back  of  the  Club  Penguin  acquisition  by  Disney.  Interestingly,  we  expect  the  target  market  for  these  types  of   companies  to  be  adults,  with  potential  NPD  into  areas  such  as  sex  (of  course),  gambling  and  other  vertical   markets.     ! • User  Generated  Content  (UGC)  :  Sandbox  environments  and  other  world-­‐based  platforms  currently  allowing   users  to  create  their  own  content,  such  as  Minecraft  and  Second  Life  demonstrate  the  popularity  of  this   activity.     We  therefore  expect  great  interest  and  activity  in   the  market  for  users  to  create  their  own  worlds,   either  on  their  own  or  with  others.  This  is  simply   an  evolution  from  the  browser  to  the  headset.     ! As  part  of  this  evolution  we  expect  some  UGC   platforms  currently  in  the  browser  (or  desktop   client)  to  initially  allow  users  to  ‘port’  or  re-­‐create   their  browser  worlds  easily  into  a  virtual  reality   environment.  This  trend  has  already  started  with       ‘Minecrift’,   a   total   VR   conversion   for   Minecraft   with  Oculus  Rift  support  (see  image  left).   ! 5.  Enough  of  the  tech.  What  can  you  do  with  these  things?   This  section  of  the  document  provides  examples  of  use-­‐cases  for  consumer  virtual  reality,  in  other  words,  what   you  can  do  with  it.  As  we  expect  the  first  phase  of  market  development  will  come  from  the  gaming  sector,  we   have  focussed  on  this  segment,  although  we  provide  some  example  use-­‐cases  for  other  sectors.  Some  of  the   concepts   we   will   explain   are   already   in   development   or   conceptually   defined,   whilst   others   are   our   own   examples.   Page  7A  KZero  Worldswide  Report Image  source:  Oculus  VR
  8. 8. Consumer  Virtual  Reality  -­‐  State  of  the  Market Virtual  World  Concepts   We   expect   existing   virtual   worlds   and   MMOs   to   be   converted   into   virtual   reality   equivalents   (initially   with   console-­‐type  controllers,  moving  to  full  body  input  systems).  This  will  be  the  first  consumer  use  of  consumer  VR     technology.  Listed  below  are  three  key  areas.       ! Evolving  on  from  taking  existing  browser/screen  based  virtual  worlds  and  MMOs  (massive  multiplayer  online   games),  we  expect  a  high  number  of  ‘new  worlds’  created  and  therefore  an  emerging  ecosystem  of  new  start-­‐ ups  and  IP’s  offering  game-­‐based  VR  environments.    Examples  include:   Page  8A  KZero  Worldswide  Report Teen  &  Young  Adult  Market   Genres   such   as   dating,   fashion   and   socialising  are  ideally  suited  to  a  more   immersive   experience.   Again,   we   expect   existing   properties   such   as   IMVU   and   Stardoll   to   look   closely   at   creating   3D   environments   for   their   platforms.     !Whereas  with  the  adult  gaming  market   the   environment   is   the   ‘draw’,   with   dating,   socialising   etc,   the   role   of   the   avatar  will  be  more  important.    This  is  a   market   segment   we   expect   to   materialize  early  2015.  We  believe  that   ‘Social   Worlds’   is   the   prime   reason   Facebook  acquired  Oculus  VR. Adult  Gaming  Market   Skyrim,  Mirror’s  Edge  and  Team   Fortress   2   are   three   popular   existing   games   that   have   been   adapted/ported   to   operate   via   CVRD   and   specifically   with   the   Oculus  Rift.  Many  more  existing   MMO  and  3D  multiplayer  games   will  be  ported  from  the  monitor   to  the  headset.     !First   person   shooters   (FPS)   are   likely   to   be   the   initial   popular   game   genres,   along   with   other   RPG   games   (role-­‐playing).   We   anticipate   this   segment   to   gather  momentum  mid  2014. Kids/Tween  Market   The  most  popular  (on  a  registered   account   basis)   segment   of   the   existing  virtual  worlds  marketplace   is   kids   and   tweens.   Creating   VR   versions   of   IPs   such   as   Moshi   Monsters,  Club  Penguin  and  Wizard   101  are  logical  extensions.     !User   generated   content   based   applications   for   the   kids/tween   segment   are   also   expected   to   be   very  popular  and  allow  this  younger   market  to  create  fantastical  worlds     to   explore,   play   and   socialise   in.   Initial  games  and  apps  in  this  space   are  expected  throughout  2014. Bespoke  MMOs   Brand-­‐new  MMO  games  and  virtual  worlds  will   be  created  specifically  to  leverage  and  fully  utilize   the   opportunities   and   capabilities   of   VR.     Specifically   integrating   greater   use   of   player   /   environment   interaction.   These   games   will   in-­‐ turn  become  more  immersive  as  a  result  of  the   ability  for  players/users  to  direct  engage  with  the   digital   content   around   them.   Several   MMOs   of   this  type  are  already  being  developed  by  existing   game  developers.       !Late  2014  /  early  2015  is  when  we  expect  to  see   the   first   of   these   types   of   games   launched.   Evolving  from  here,  probably  from  mid  2015  will   be  the  introduction  of  devices  that  allow  players   to  physically  move  their  legs  and  move  inside  the   virtual  world  without  needing  a  controller.     ! The  best  example  of  VR  player  movement  is  the   Omni,   an   omnidirectional   treadmill   from     a   company  called  Virtuix.  Users  stand  in  the  middle   of  a  tracking  unit  that  allows  them  to  walk  in  any   direction.   The   company   says:   ‘Gaming   on   a   keyboard,  mouse  or  gamepad  while  seated  pales  in   comparison  to  the  intense  experience  and  fun  that   comes   from   actually   walking,   running,   and   jumping  in  games’.  Another  product  to  watch  is   Sixense  Stem  motion  sensor. Gambling   It  is  not  unrealistic  to  expect  VR  casinos  and  3D  gambling   to  be  both  popular  and  profitable.  Put  simply,  wearing  a   CVRD   would   place   you   at   a   3D   digital   blackjack   (for   example)  table.  Avatars  would  represent  the  other  players   and  players’  hands  would  hold  virtual  cards,  chips  etc.  We   anticipate  this  vertical  market  to  emerge  very  soon  after   the  commercial  launch  of  CVRD  -­‐  late  2014  /  early  2015.  This   push  will  come  from  existing  online  gambling  companies   as  well  as  start-­‐ups.     !Shown  below  is  a  screenshot  from  World  Series  of  Poker:   Full  House  Pro.  A  recently  launched  game  developed  by   Pipeworks   Software,   published   by   Microsoft   Games   Studios   for   Xbox   360   as   an   Xbox   Live   Arcade   title   and   Windows  8.   Image  source:    Microsoft
  9. 9. Consumer  Virtual  Reality  -­‐  State  of  the  Market UGC  Worlds   Having   experienced   the   massive   success   of   User   Generated   Content   virtual  worlds  such  as  Second  Life,  Minecraft  and  Roblox  (appealing  to   all  ages)  we  strongly  believe  this  segment  is  ripe  for  massive  expansion.   In   these   virtual   reality   worlds,   users   will   be   able   to   create   their   own   environments   and   from   here,   then   create   endless   applications   and   activities.  In  essence,  users  would  be  able  to  create  their  own  worlds   and  then  enter  them,  putting  them  in  complete  control  -­‐  it’s  an  amazing   thought.     !Evolving   this   concept   further,   we’ll   also   see   users   create   worlds   and   invite  others  to  enter  them  as  well  as  co-­‐operative  content  creation.   We’re  already  seeing  some  early  work  in  the  field  of  UGC  virtual  reality   with  the  creation  of  Minecrift,  a  dedicated  tool  (mod)  that  allows    users   to  interact  with  Minecraft  via  the  Oculus  Rift  and  the  Metacraft  project.   ! Brand-­‐new  Sporting  Categories   When  the  Wii  gaming  system  was  introduced,  it  ushered  in  a  new  style  of  consumer  gaming,    with  gamers  given     the  tools  to  interact  with  games  on  a  more  active  basis.  Now,  with  the  pending  introduction  of  VR  gaming,  we   strongly  believe  that  brand-­‐new  sports  and  ‘movement-­‐based’  activities  will  be  created.   ! These  new  sports  will  be  built  from  the  ground-­‐up,  starting  with  the  unique  attributes  offered  by  VR,  including     body  movement  interaction  and  the  ability  to  place  players  into  newly  constructed  3D  environments  tailored  to   leverage  VR  and  provide  the  player  with  a  dedicated  immersive  experience.  Think  Quidditch.     ! Page  9A  KZero  Worldswide  Report Active  Sports   Active  users  require  users  to  move  their  entire  body  in   order  to  participate.  From  a  timing  perspective,  this  is  a   market  we  expect  to  grow  from  mid/late  2015.   !Coupled  to  the  concept  of  using  CVRDs  to  put  the  user   within  a  dedicated  sporting  environment,  an  additional   functionality   required   to   permit   fully   active   sports   to   ‘work  properly’  is  body  movement  tracking.  And,  this  is   a   segment   expected   to   piggy-­‐back   on   the   growth   of   VR.   There   are   two   primary   ways   to   track   body   movement:   !• Camera   tracking.   Devices   such   as   the   Microsoft   Kinect  are  being  used  to  track  body  movements  of   game  players.   • Treadmills.  Certainly  positioned  more  to  the  hard-­‐ core  gaming  market  in  the  first  instance,  early  stage   companies   are   developing   omni-­‐directional   treadmills  that  allow  players  to  interact  with  games   via  body  movement.  A  company  called  Virtuix  has   developed   a   product   called   Omni   and   from   their   website:     ‘Applications   of   natural   movement   in   virtual  reality  stretch  far  beyond  gaming:  training  and   simulation,   fitness,   virtual   tourism,   virtual   trade-­‐ shows   and   events,   meet-­‐ups   and   multi-­‐person   adventures’.   • Key  sports  made  possible  via  body  tracking  include   fitness,  tennis  and  swimming.  But  don’t  expect    a   fully  virtual  Fifa14  until  at  least  2018! Passive  Sports   Classified   as   ‘Simulation   Games’,   we’ve   categorised   sports   into   either   passive   or   active.   Passive   sports/games   can   be   enjoyed   in   the   real   world   when   you’re   sitting   down   or   requiring   limited  body  movement.    Active  sports  (explained   right)  require  more  body  movement.     !Passive   sports   presented   as   simulated   environments   will   be   popular   both   as   solo   experiences   as   well   as   on   a   multi-­‐player   basis.   Examples  of  passive  sports  include:   !• Car  racing  (and  a  company  called  iRacing  is  a   key  company  to  watch  here).   • Flying  games  based  on  aeroplane  simulations.   • Fishing.   • Darts.   • Shooting  /  archery.   • Cycling.   !A   key   point   to   stress   with   the   passive   sports   identified   above   is   that   these   are   tight   vertical   markets   with   passionate   players   and   fans.   This   means   relevance   -­‐   users   with   strong   interests   in   vertical  markets  are  highly  likely  to  be  monetised  if   they’re  in  an  environment  built  specifically  to  cater   to  their  interest.   !We  expect  this  market  to  gather  pace  early  2015. Image  source:  metacraft.ch
  10. 10. Consumer  Virtual  Reality  -­‐  State  of  the  Market Mirror  Worlds  Concepts   Whereas  the  virtual  world  concept  examples  in  the  previous  section  have  3D  environments  that  have  been   ‘invented’  to  serve  the  underlying  concept  of  the  game/activity,  mirror  worlds  differ  because  they’re  based  on   actual    places  in  the  real  world.     ! The  Mirror  World  idea  of  re-­‐creating  places  from  the  real  world  and  then  allowing  avatars  to  explore  them  has   garnered  some  popularity  via  screen/browser  based  applications  such  as  Twinity  (German-­‐based  company  that   created  a  virtual  Berlin),  Second  Life  (users  specifically  building  mirror  world  destinations  inside  Second  Life)   and  even  Minecraft.  However,  the  lack  of  ‘being  in  the  space’  a  la  VR  has  largely  constrained  this  category  from   mass  adoption  -­‐  ‘the  experience  just  didn’t  feel  right’.  However,  with  the  advent  of  consumer  virtual  reality  we   anticipate  a  renaissance,  so  to  speak.     ! Tourism   Virtual  tourism  is  probably  the  lowest  hanging  fruit  in  this  market,  so  expect  many  real-­‐world  places  to  be  made   available  in  a  VR  environment.  In  practise,  this  idea  will  allow  people  to  explore  places  they’ve  never  visited.   Shown  below  is  a  working  demo  available  from  Oculus  VR  allowing  users  to  visit  virtual  Tuscany.     !And  of  course,  with  a  primary  benefit  of  VR  being  ‘anything  is  possible’,  there’s  nothing  at  all  to  stop  the   creation  of  mirror  world  initiatives  allowing  people  to  swim  on  the  sea-­‐bed  of  the  Atlantic  ocean,  hang-­‐out  at   the  top  of  Mount  Everest  or  even  walk  on  the  moon.    Before  we  move  onto  the  next  concept,  think  of  this  idea   of  tourism  as  being  ‘modern-­‐day’,  i.e.  allowing  users  to  visit  places  that  could  actually  be  visited  today.     ! Page  10A  KZero  Worldswide  Report Google  Maps,  Street  View  and  Indoor  Maps   Our  modern-­‐day  world  is  ripe  for  VR  integration  with   existing   platforms   such   as   Google   Maps   and   Street   View   already   allowing   us   to   ‘see’   into   remote   places.   Tack   onto   this   newer   products   like   Indoor   Maps   and   then  we’re  sucking  diesel.     ! Virtual  Reality  in  this  context  can  allow  us  to  take  2D   image  overlays  of  the  real-­‐world  and  enter  constructed   3D   conversions.   Early   demos   of   this   concept   already   exist,  with  the  OculusStreetView.eu.pn  project  being  a   good  example. VR  Time  Travel   Virtual  Reality  can  be  used  to  create  mirror  worlds   based   on   places   (and   events)   from   history.   So,   users  of  these  types  of  environments  will  include   students/teachers,   researchers   and   anyone   who   effectively  wants  to  travel  back  in  time  to  explore   and   experience   historic   events.   Of   course,   the   applications   here   are   endless,   but   here’s   some   examples:   !• You   don’t   read   about   the   1st   World   War   or   study  black  and  white  photos  of  key  battles.   Instead,  you’re  standing  in  the  middle  of  river   Somme,  with  bullets  flying  past  your  head.     • Being   in   the   crowd   at   the   signing   of   the   Magna  Carta.   • Jurassic  Park.  Enough  said.   • The  Titanic.  As  above.   • And  on  a  sporting  theme,  how  about  sitting  in   the  referees  chair  during  the  McEnroe  &  Borg   1980  Wimbledon  tennis  final.   Images  source:  Oculus  VR Image  source:  OculusStreetView.eu.pn
  11. 11. Consumer  Virtual  Reality  -­‐  State  of  the  Market LifeLogging  Concepts   Ok,  so  here’s  where  it  gets  interesting.  Combining  VR  with  LifeLogging  brings  in  elements  of  both  virtual  and   mirror  worlds.  In  essence,  VR  Lifelogging  will  allow  us  to  see  through  other  peoples  eyes.     ! And  interestingly,  this  is  made  possible  by  the  collaboration   between  augmented  reality  and  virtual  reality,  as  illustrated  in   the  graphic  left.     ! AR  devices  such  as  Google  Glass  and  others  coming  to  market   such  as  the  Space  Glasses  from  Meta  will  continually  improve   their  video  and  audio  capture  capabilities,  allowing  them  to   basically   be   input   channels,   recording   what   the   wearer   is   saying,  seeing,  hearing  and  doing.    The  output  of  this  content   is  VR.  Users  can  use  VR  to  see  through  the  eyes  of  other  people,  either  in  real-­‐time  or  using  pre-­‐recorded   content.  This    application  could  even  be  used  by  the  recorder  of  the  content,  in  a  diary  or  memory  fashion,   allowing  them  to  re-­‐live  moments  from  their  lives.  Here’s  some  more  examples:   ! These  memory-­‐sharing  and  life-­‐insight  type  concepts  open  up  brand-­‐new  revenue  streams  for  the  content   owners.   For   example,   consumers   will   pay   to   watch   a   football   match   through   the   eyes   of   their   favourite   quarterback,   attend   a   concert   through   the   eyes   of   the   lead   singer   or   simply   remotely   hang-­‐out   with   their   favourite  celebrity  living  their  daily  lives.  This  is  slightly  more  interesting  than  following  them  on  Twitter.     Visualising  concepts  using  the   Radar  Chart   We  have  identified  12  key  sectors  set  for  growth  within  the   consumer   VR   marketplace.   These   12   sectors,   along   with   predicted   launch   timings   are   visualised   in   the   KZero   VR   Radar  chart.     !A   segment   of   the   Radar   chart   (available   for   free   via   our   website,   kzero.co.uk)   is   shown   right.   For   example,   specifically   for   the   category   of   new   concept   MMOs   and   virtual  worlds,  we  expect  2014  growth  coming  from  older   adult  markets,  with  new  IP  tween  and  teen  concepts  hitting   in  2015.     Page  11A  KZero  Worldswide  Report Celebrities   Some   celebrities   and   famous   people   have   millions   of   Twitter   followers   and   Facebook   fans.   These   are   people   interested   in   what   their   idols   are   doing.   LifeLogging  VR  will  allow  them  to   experience   the   lifestyle   and   experiences  of  these  people. Sports   Sports  fans  will  be  able  to  watch   matches   and   games   through   the   eyes  of  the  players  or  the  officials  -­‐   or  even  sit  on  the  front  row  of  the   basketball  arena,  next  to  Jay  Z  of   course.  (because  Beyonce  will  be   wearing   the   diamond-­‐encrusted   AR  headset!) Sharing  Life  Stories   Forget   posting   photos   on   Instagram.   How   about   allowing   y o u r   f r i e n d s   t o   s e e   V R   representations   of   key   events   in   your   life   -­‐   birthdays,   holidays,   marriages  etc.  Think  of  this  life  a   VR  diary  available  on-­‐demand. Help!  I’m  Lost   Allowing   real-­‐time   sharing   of   life   content  to  other  people  via  VR  will   allow   us   to   share   what   we’re   doing,   where   we’re   doing   it   and   who  we’re  doing  it  with.  Obvious   this   concept     has   multiple   applications,   including   remote   assistance  when  we’re  lost. Phobias  and  Fears   Got   a   fear   of   heights?   VR   will   be   used   to   treat   people   with   fears   and  phobias  by  allowing  them  to   ‘virtually’   confront   their   fears.   In   this   content,   users   can   place   themselves   into   previous   or   real-­‐ time  events  with  their  friends  and   overcome  their  phobias. User  Generated  Sweat   How   about   cycling   the   Tour   de   France   from   the   relative   comfort   of  your  garage?  Or  taking  part  in  a   10,000   person   bootcamp?   We   expect   VR   to   transform   the   h e a l t h c a r e   a n d   f i t n e s s   marketplaces   along   with   the   concept  of  virtual  trainers.
  12. 12. Consumer  Virtual  Reality  -­‐  State  of  the  Market 6.  Products,  pricing  and  demand:  Market  Sizing   Of  course  everyone  wants  to  know  how  large  the  Consumer  Virtual  Reality  marketplace  will  be.  So,  this  section   contains  our  market  sizing  assessment.  We’ve  compiled  a  five-­‐year  forecast  from  2014  through  to  2018  looking   at   the   two   primary   sources   of   consumer   demand,   namely   devices   (hardware)   and   games/applications   (software).  Excluded  from  our  market  sizing  forecasts  are  Augmented  Reality  related  markets,  non-­‐consumer   VR  applications  and  VR  development  costs.     ! Unit  Sales  of  VR  Devices   Firstly,  our  device  unit  sales  analysis,  as  shown  in  the  chart  below.  Unit  sales  of  CVRDs  have  been  split  into  three   segments:   !• Hardcore  gamers:  This  market  is  comprised  mainly  by  older  gamers  aged  30+.  Importantly,  they’re  primarily   within  the  Innovator  technology  adoption  group.  We  have  forecasted  that  1%  of  this  segment  will  purchase   devices  in  2014,  rising  to  20%  in  2018.     !• Light   gamers:   Typically   Early   Innovator   types,   these  consumers  and  teenage+  age-­‐wise,  owning   gaming   consoles   and   playing   tablet/smartphone   games.   We   predict   that   2%   of   this   market   will   purchase  a  device  in  2015  (no  2014  sales),  rising  to   10%  in  2018.     !• KT&T   (Kids,   Tweens   and   Teens):   The   youth   marketplace  will  quickly  emerge  as  the  dominant   segment   in   the   marketplace,   driven   by   a   wide   variety   of   gaming   applications,   branded   devices   created   specifically   for   this   demographic   and   ‘owned   worlds’   produced   from   UGC   activities.   This   segment   also   includes   the   older   Early   Majority.   We   expect  2.5%  of  this  market  to  purchase  a  device  in  2015  (no  2014  sales),  rising  to  8%  in  2018.     !Over  the  five  year  period  from  2014  to  2018,  we  forecast  total  unit  device  sales  of  56.8m,  derived  from  10.9m   hardcore  gamers,  18.1m  light  gamers  and  27.7m  from  KT&T  and  early  majority  users.  This  represents  a  CAGR  of   160%.  Contact  us  directly  for  the  underlying  dataset  for  our  forecast.   ! Hardware  Pricing  and  Revenues   Quite  simply,  in  order  to  derive  revenues  from  device  sales,  we  have  multiplied  an  average  unit  price  by  the   forecasted  number  of  units  sold.  On  a  unit  basis  we  have  forecasted  a  $300  selling  point  for  2014  devices,  falling   to  $250  in  2015  and  a  continued  price  fall  through  to  $100  in  2018.  On  this  basis,  2014  total  device  revenue  is   $60m,  rising  to  $1.4bn  in  2015  as  more  devices  are  launched  into  the  sector  and  the  light  gaming/KT&T  segments   activate.       In  terms  of  available  devices,  we  anticipate  two  to  three   available  for  consumers  in  2014,  rising  to  five  in  2015.  By   2018  we  expect  there  to  be  10  -­‐  12  major  suppliers  of   CVRDs,  ranging  from  Apple  and  Microsoft,  through  to   Samsung,   Sony   and   of   course   the   initial   consumer-­‐ focussed  pioneers  such  Oculus  VR.   !The  chart  left  shows  annual  revenues  from  the  three   primary   market   segments.   Hardcore   gamers   and   innovators   account   for   $1.6bn   of   cumulative   sector   revenues,  light  gamers  $2.5bn  and  KT&T/early  majority   totalling  $4.2bn   ! Full  year  2018  revenues  from  device  sales  is  forecasted  at  $2.3bn  (from  23m  units  sold),  which  yields  total   cumulative  revenue  of  $8.4bn  over  the  5  year  period.  This  represents  a  CAGR  of  108%.  Putting  this  into  context,   IBISWorld  Media  forecasts  total  2018  home  gaming  console  revenues  to  reach  $46bn.   ! Page  12A  KZero  Worldswide  Report
  13. 13. Consumer  Virtual  Reality  -­‐  State  of  the  Market Software  (Game  and  Apps)  Revenues     In  addition  to  market  sizing  the  device-­‐side  hardware  element  of  the  consumer  virtual  reality  sector,  we  have   also  forecasted  revenues  from  the  games  and  apps  purchased  by  the  owners  of  the  devices/headsets.  This  is   the  software  side.     ! An  important  element  we  have  factored  into  our  assumptions  relates  to  active  users  vs  device  owners.  We   believe   that   the   consumer   VR   experience   will   have   a   major   viral   element,   meaning   owners   will   actively   encourage  their  friends  and  family  to  use  their  devices  -­‐  ‘You  gotta  see  this’.  On  this  basis  we  have  applied  a   multiplier  to  the  annual  device  sales  to  represent  more  active  users  than  actual  owners.  For  example,  in  2014  we   have  modelled  three  active  users  (purchasing  games  and  apps)  per  owned  device.  This  falls  over  time  down  to   two  in  2018.     ! From  a  business  model  and  user  monetisation  perspective,  we  expect  the  game/app  developers  to  deploy   premium  pay-­‐to-­‐play  pricing  until  mid  2015  (i.e.  100%  paying  user  conversion),  then  experience  a  similar  path  to   tablet/mobile  game  pricing  with  the  introduction  of  freemium  VR  applications.  In  2018  we  forecast  a  40%  paying   user  conversion.  ARPPU-­‐wise,  we  assume  $50  annual  average  revenue  per  paying  user  in  2014,  rising  to  $150  in   2018.  We  acknowledge  that  this  might  be  understating  the  ARPPU,  particularly  in  the  latter  years.     ! So,  on  an  overall  basis  we  forecast  software  revenues  of  $30m  in  2014,  rising  to  $947m  in  2015,  through  to   $2.8bn  in  2018.  Overall  total  cumulative  software  revenues  over  the  5  year  period  total  are  estimated  at  $7.7bn.     This  represents  a  CAGR  of  148%.  As  a  comparison  to  other  forecasts,  DFC  Intelligence  and  Live  Gamer  recently   forecasted  global  console  software  revenues  to  jump  from  $18.5  billion  this  year  to  $24  billion  in  2017.  Our   equivalent  2017  figure  is  $2.2bn  from  consumer  VR  software  sales.     ! Marketing  Sizing  Summary   From   a   relatively   humble   start   in   2014   with   total   sector   revenues   of   $90m   (from   600k   active   users),   we   forecast  growth  to  $2.3bn  in  2015  (from  15.7m  active  users)  ,  $3.8bn  in  2016  (from  27.3m  active  users),  $4.6bn  in   2017  (from  36.4m  active  users)  and  $5.2bn  in  2018  (from  47.6m  active  users).     ! This  yields  total  cumulative  revenues  of  $16.2bn  across  the  five  year  period  and  represents  a  CAGR  of  125%.  This   forecast  is  shown  in  the  chart  below.     Page  13A  KZero  Worldswide  Report
  14. 14. Consumer  Virtual  Reality  -­‐  State  of  the  Market 7.  The  Face  Race:  Companies  Developing  VR  Headsets   8.  Further  Information   Virtual   Reality   News   Weekly:   Sign-­‐up   for   our   weekly   email   covering   the   Consumer  Virtual  Reality  marketplace.  Sign-­‐up  at  kzero.co.uk/virtual-­‐reality/.   ! KZero  Slideshare  Presentations:  Search  Slideshare  for  ‘KZero’  and  you’ll  find   a  range  of  presentations  covering  the  virtual  reality  and  virtual  world  sectors.   We  have  three  dedicated  presentations  to  accompany  this  report,  including   our  Market  Sizing  analysis.   ! KZero   Virtual   Reality   Radar   Chart:   Order   our   market   segmentation   presentation  from  kzero.co.uk/virtual-­‐reality/.   ! Twitter:  @kzeroworldswide   ! Facebook:  facebook.com/KZeroWorldswide   ! Page  14A  KZero  Worldswide  Report
  15. 15. Consumer  Virtual  Reality  -­‐  State  of  the  Market ! ! ! Page  15A  KZero  Worldswide  Report