Report: Oculus Quest new VR 1.0 class leader, not market catalyst

  •   
  •   
  •   
  •   

Oculus Quest (formerly Oculus Santa Cruz) is the new class leader for premium/standalone VR, and looks like the ultimate expression of the early-stage VR 1.0 market, according to a report by Digi-Capital.

Combining Oculus Go quality graphics with inside-out tracking and Touch controllers, it gives Facebook the most compelling version of the current state of the art. But this is Oculus Quest’s challenge – it is the current state of the art. It might not become the hoped for VR market catalyst when it launches next year. This could take another two years to arrive with future generations of premium standalone VR headsets from Facebook, HTC, Microsoft and others around 2020/2021.

Digi-Capital’s VR market forecast remains largely unchanged by Facebook’s recent announcements, as the impact and timing of premium standalone VR including Oculus Quest (when it was called Santa Cruz) have been factored into the numbers for some time. Based on hard data for device sales, attachment rates and attrition rates (i.e., how many units are no longer being used), VR’s total installed base (i.e. active units, not sales) across all platforms (console, PC, mobile, standalone) could take until the end of 2022 to top 50 million units worldwide.

Premium VR in its current form was always going to have a deep but narrow installed base of core gamers, due to high cost and relatively poor user friendliness both in setup and use. Premium standalone VR addresses some setup and use issues, but is not a silver bullet for the market’s challenges.

The $399 Oculus Quest is the third, and arguably best, entry into the premium standalone VR headset market after the $399 Lenovo Mirage Solo and $600 HTC Vive Focus. Like these headsets, it has both advantages and disadvantages relative to tethered VR cousins Oculus Rift, HTC Vive/Pro, Windows VR and Sony PlayStation VR.

Oculus Quest does not require an expensive PC/GPU or external sensors to use. As a self-contained unit, it has no wires to restrict user movement. Inside-out tracking gives Oculus Quest a large play area, and it offers best-in-class image quality (apart from some very high-end competitors) and state-of-the-art controllers.

But this also means that Oculus Quest does not have an expensive PC/GPU running it, with processing power limited compared to tethered premium VR. This impacts the amount of grunt available to developers using the platform. Usage time is constrained by battery life, although relatively short duration VR session times might make this a non-issue. The base model has 64GB of memory, which limits the amount of content the device can hold at one time.

These differences aside, Oculus Quest shares the same challenges as the rest of the VR industry. VR’s user dynamics have been limited, partly because of a lack of plurality, but mainly due to user attrition. One of the challenges for VR is a primary entertainment focus (games, video), which despite its superior immersion can be done more easily and cheaply on existing devices. Also, the social side of VR hasn’t scaled – AltspaceVR was the biggest VR social app with just 35,000 Monthly Active Users (MAU) when acquired by Microsoft after reporting it was closing. So while there are active core VR users, many casual users haven’t stuck with the platform for long.

Many VR headsets get used less than once a day, with a significant proportion every few days, weekly or even monthly. Digi-Capital’s User Strategy team’s product/market fit reviews for start-ups have consistently shown this dynamic even when users love their VR apps. The words ‘evenings’, ‘weekends’ and ‘holidays’ come up frequently, particular for under-34 Snapchat demographic users. Not great for frequency.

Digi-Capital thinks about use cases for new technology platforms in terms of valuable versus critical. Valuable use cases might be cool and technically hard to do, but either don’t fundamentally transform user experience or aren’t important to users. Critical use cases enable lots of users to do something they really care about, and that couldn’t be done in any other way. Critical is interesting, valuable not so much.

VR is valuable – just ask Palmer Luckey [founder of Oculus VR and designer of the Oculus Rift]. It’s also cool, technically hard to do, and can take you to other worlds. But critical? Again VR’s entertainment focus effectively makes it a subset of the games market (as well as other use cases), but a critical use case hasn’t emerged three years into the market. For comparison, Uber launched two years after the iPhone.

On average, Americans tend to use nine mobile apps per day and 30 per month. Most download zero apps per month too. This means critical use cases are not enough. They need to be features of critical apps we already use all the time, or something so insanely great that we might actually download it. The challenges for critical VR use cases apply to critical VR apps too. “It’s hard to describe a VR app you couldn’t live without, even if you love Beat Saber,” says Digi-Capital.

And finally there’s the VC market for VR start-ups, which has slowed to a trickle. While Facebook and other platform companies will continue to invest in content, a relatively low installed based for VR has seen some early VR developers diversify to mobile AR or exit VR altogether. While there are emerging enterprise use cases, consumer VR faces the chicken-or-the-egg problem of all new platforms. VR platforms need a healthy commercial developer ecosystem to succeed, and VR developers need a large installed base to risk investing in development.

Premium standalone VR headsets could become a catalyst for premium VR sales in the medium term, but first-generation premium standalone VR like Oculus Quest might not stimulate significant consumer demand beyond current levels. Subsequent generations of premium standalone VR headsets with future generations of hardware, lower price points and critical apps could accelerate sales growth by 2020/2021. But even with that catalyst, premium standalone VR installed base (again, active units, not sales) might only reach the 10 to 15 million unit range by 2022.

Oculus Quest could be the ultimate expression of VR 1.0, but the market might need to wait for VR 2.0 to hit its inflection point.


  •   
  •   
  •   
  •   

You must be logged in to post a comment Login