How Real Is Virtual Reality?

Virtual reality isn’t quite a reality yet.

When it does enter our lives, it will be as a toy – a new and possibly thrilling way to amuse ourselves.

Possibly. How thrilling depends on the technology improving further.

Right now, nobody knows just how big virtual reality will be.

Facebook certainly believes in its potential. It bought Oculus VR for $2 billion last year.

Oculus made the world’s first commercially viable virtual reality goggles.

That’s a lot of money, even for Facebook. Especially considering that just two years before, Oculus had raised funds on Kickstarter in return for a discount on its goggles.

Was it worth it?

We probably won’t know for at least a few more years.

Facebook’s bet on Oculus is very early and very speculative. The technology should improve by leaps and bounds. In fact, it needs to in order to catch on.

And Oculus is attracting plenty of competitors.

But even though it’s early, the biggest risk in the virtual reality space won’t come back to bite early investors in the arse.

Which is why I believe Facebook made the right move.

The Timing Is Right

Oculus has three things going for it. Any startup hoping to hit it big must have them…

1. The startup is thinking big. Chief Technical Officer John Carmack says…

At its very core, virtual reality is about being freed from the limitations of actual reality. There is a sense that you are glimpsing something from the future. When you experience Oculus technology, it’s like getting religion on contact. People that try it walk out a believer. This is science fiction made real, and it’s only just the beginning.”

2. Its market is potentially massive. Gaming will soon be a big profit-making application, but it’s just the first of many. Take training. From mountain climbing to piloting a jet, virtual reality will be preparing people for the actual experience (as well as standing in as an exciting proxy for the experience).

There’s also education. For example, how would you like to be on the front lines of the Battle of Gettysburg?

Tourism and real estate will also play right into VR’s wheelhouse. Can’t beat the convenience of checking out that Guatemalan beach house from your living room, can you? Or how about touring an ancient city? What do you prefer? A street-level view or flying above the rooftops?

(How long do you have to wait for this application? You don’t. It’s commercially available right now!)

3. It’s so early in the ball game that the technology isn’t being taken seriously. OK, serious gamers know this technology is coming down the pike, but that’s it. A problem? Quite the contrary; it means this is the perfect time to invest.

You see, almost every major technology breakthrough is met with skepticism at first. One of my favorite examples is an 1878 internal memo from Western Union…

This ‘telephone’ has too many shortcomings to be seriously considered as a practical form of communication. The device is inherently of no value to us.

These naysayers serve as a great contrarian indicator…

In 1956, a year before Sputnik orbited the Earth, Dr. Richard van der Riet Woolley, astronomer royal and space advisor to the British government, said, “Space travel is utter bilge.” Nice one.

And this is what Popular Mechanics said in 1949: “Computers in the future may… perhaps only weigh 1.5 tons.”

So what are they saying about virtual reality?

From an article in Fortune two weeks ago: “Virtual reality will remain the domain of entertainment. Headsets that immerse people in a 3-D world will not become a feature of everyday life despite Facebook’s $2 billion acquisition of Oculus” (emphasis added).

The Real Shocker

Fortune is right in the short term. But VR technology is increasingly looking like it’s ready for prime time.

Processors, screens and accelerometers have all improved – putting VR on the cusp of multiple commercial applications.

It would be a shock if VR faded into oblivion or even became a niche technology.

That’s good and bad news for Facebook. Because it’s a competitor of Oculus’ that is giving us an early glimpse of VR’s commercial possibilities.

The company is a 2-year-old startup hailing from Prague, called VR Union. Its goggles offer superior resolution – a 12 million-pixel display. Oculus’ is 4 million pixels.

VR Union’s goggles are already being used to simulate a Peter Pan-style flight over the medieval towers and spires of Prague!

FlyPrague

Both VR Union and Oculus are planning to come out with higher-resolution goggles later this year. So, yes, the technology seems to be showing sufficient progress.

The legacy companies, as you’d expect, are not ceding victory without a fight. Global tech companies like Sony and Samsung (and dozens of others) are looking for ways to cash in.

Whose technology will emerge as the global standard is anybody’s guess.

No doubt, this unpredictability is a challenge to early investors. But at least early investors no longer have to worry about a much bigger risk…

That the technology won’t take hold.

Think of the zeppelin, the flying car and cold fusion.

That won’t happen here.

Virtual reality is not just knocking on the door. It’s about to knock the door clear off its hinges.

Startups will be among those leading the charge, but certainly not the only ones. Sprinkled among them will be the large incumbents.

The macro factors are lining up quite nicely. Multiple applications and potentially vast markets… made-to-order early adopters via tens of millions of gamers… a millennial generation excited by the possibilities (as attested by Oculus’ runaway success on Kickstarter)…

VR should generate several huge winners.

Yet it’s so early in the game that not many people are aware of this emerging opportunity.

In other words, it’s a great time to take a good look at the sector. Identify the hardest-charging startups in the space (like Silicon Valley-based Leap Motion). And weigh your investment choices.

This sector is going to change our lives. As an early investor, it could also change yours.

Good investing,

Andy Gordon
Founder, Early Investing