2016 will go down in history for a lot of things: Brexit, the Trump presidency, Leicester City winning the league and a sweep of celebrity deaths. But easily the biggest event in technology was the (re-)emergence of virtual reality (VR).
This year the full complement of global tech companies, from Sony to Apple via Google, either released early versions of VR headwear or announced their intention to do so. Such a unified commitment by these colossal brands is a sign of the scope of virtual reality in gaming and in business.
If anything, the arrival of Pokémon Go in early summer trounced all these previous announcements. It was downloaded by millions of new fans and caused widespread hysteria that swept around the world.
Technically, the game runs on an augmented reality (AR) platform – in other words, digital graphics layered on the real world as opposed to a total virtual experience – but the essential principle is the same.
Creating virtual versions of things and encouraging people to interact with them has ushered in a whole new pastime. It has literally changed global behaviour overnight, created new friendships and taken people to places they have never been before.
Sink or swim?
But whether the innovation we saw in 2016 is the beginning of a mega-trend or a one-off novelty still remains to be conclusively proven one way or another.
Experts at Goldman Sachs predict that the VR market could be worth $80bn by 2025, roughly the same value as the desktop computer market today. But it admits there is a downside risk to this prediction and the actual figure could be as low as $23bn.
This rather sizeable margin of error presents a problem for investors. For a start, we’ve seen emerging digital technology being hyped before, only to watch it fizzle.
Take Second Life, the avatar-based ‘massive multi-player role-playing game’ or MMORPG, which soared in popularity after its initial release in 2003. It led to several real-world businesses creating a presence in the game, including IBM, Adidas and Dell.
But soon after reaching peak hysteria, it went off the boil. Despite its owner Linden Lab claiming more than a million active users, much of the mainstream has moved on and Second Life missed its target of living up to its own name.
It’s just one of a number of tech trends that have come and gone. Even social media, a success story of the noughties, is littered with websites that briefly burned bright and then sank without a trace. The same could be said for the dotcom boom, in which investors lost their minds temporarily.
Virtual reality and augmented reality have already experienced a rocky path to today. Like 3D in cinemas, VR periodically comes and goes. Each time there has been an incremental improvement in the technology, the experience is better, but until now it hasn’t grabbed the mass market.
For its part, augmented reality splashed onto the scene circa 2010 and was initially snapped up by the media industry. It was used on magazine covers and in display advertising before the novelty wore off. It’s easy to forget there was a lull in AR applications before Pokémon Go hit the streets.
Virtual supply chain, real money
But the important difference today is that VR and AR have grown up, not just in the sense that they are better than before, but because people are seeing the enormous potential of these technologies in areas other than gaming.
An ecosystem has grown with companies specialising in different aspects of the sector, such as developing super-realistic avatars or creating software for use in the classroom. A wave of (predominantly US-based) startups are making big bets on the future and are picking up big contracts to supply increasingly immersive experiences.
This makes sense because the gaming industry alone – stripping out all the other potential uses of the tech – is so large and, according to research firm Gartner, is growing at close to 10% a year, thanks to ever bigger and better games, with more realistic graphics, never-ending stories and complex gameplay.
In fact, as computer power continues its advance it’s hard to envisage a world in which VR and AR won’t become mainstream tools of the 21st century. The trick for investors looking for a winner will be to identify the next Facebook and not the next MySpace.
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