Has VR Finally Arrived?

A seemingly endless slew of news and tech outlets have billed this as the year when virtual reality (VR) will hit critical mass. But almost as quickly as this prediction gained traction, an equally vocal array of realists raised considerable doubts.  In December 2015, Ad Age published a list of 10 reasons why 2016 won’t be “the year of VR.” In the same month, Fortune published an article citing expectations for a sluggish start to the industry. Deloitte’s prediction for VR in 2016 stated it is a “billion-dollar niche,” a number that’s not very impressive when considering that the video games industry, from which the current VR craze is primarily birthed, is valued at nearly $100 billon. So why is there so much dissent? The answer is actually very simple, and rooted in the development of expectations for this industry over the last several years.

Humble beginnings for the juggernaut of the future

The term virtual reality rose to popularity during the 1980s and saw expanded usage into the 1990s. Although an increasing number of people recognized the consumer potential, limited computing power, exorbitant costs and the rise of the internet forced innovation to take a back seat. From the 1990s into the 2000s, a variety of major companies dabbled with virtual reality hardware, most notably video game console manufacturers such as Sega and Nintendo. Few of these products ever materialized for mass market consumption and those that did (like Nintendo’s Virtual Boy) went on to become commercial failures.

How then did VR go from a wishful fantasy to the darling of every major tech firm? The turning point came in 2011 with Palmer Luckey, a longtime VR enthusiast. Luckey began work on a VR headset of his own after being unsatisfied with the quality of available products. Luckey’s early exploits propelled him to join forces with John Carmack, a famous programmer and aerospace engineer. In June 2012, the Oculus Rift prototype was demoed at the Electronics Entertainment Expo (E3) in Los Angeles. The Oculus Rift was to be the flagship VR product of the newly formed Oculus VR, and shortly after its initial E3 showing, a kickstarter was initiated for the product. The kickstarter was a massive success and secured more than $2.4 million. It signaled to the tech world that the timing was ripe for VR and ignited a fire that would expand to nearly every major player in the tech world.

In March 2014, Facebook became the first major player to make a move by announcing they had acquired Oculus VR for more than $2 billion dollars. Around the same time, Sony announced its VR solution codenamed Project Morpheus (later renamed Playstation VR), which was built to work in tandem with the Playstation 4 console. In June 2014, Google released Google Cardboard, a low-cost cardboard viewer that pairs with a smartphone to provide VR experiences.  Later in 2014, Samsung promoted Gear VR which would utilize its Galaxy smartphones and Oculus software to deliver VR games and apps. Finally in 2015, both HTC and Microsoft broadcast their entries into the space with the Vive and HoloLens respectively.

The feverish rate of VR product announcements and launches by major tech players has only built upon the high expectations for the industry’s future. For many VR supporters, the convergence of launches for three of the most promising VR technologies in 2016—the Oculus Rift, HTC’s Vive and Sony’s Playstation VR—means the great vision starting back in 2012 as a mere $250,000  kickstarter is finally being realized.

The marketing connection

Consumer enthusiasm is equally matched by marketers and content producers alike. The draw for both is the ability to place consumers in fully immersive experiences, which is ultimately more impactful and memorable. One of the drawbacks to traditional media has always been that consumers are not necessarily engaged at all times. In contrast, VR places consumers into situations where they are forced to actively engage with the environment portrayed around them. The promise is so great that there are players from every category seeking to capitalize on VR, even in this early state. For content providers, VR is a bet on their future. For advertisers, VR is a means toward the high-profile PR exposure that is associated with novel experiences.

Last year, the New York Times rolled out NYTVR by sending out Google Cardboard-based headsets to more than 1 million of its subscribers. As a part of the rollout, the New York Times developed Displaced, a VR immersive documentary putting users into the heart of war. Other content providers are also following suit. Earlier this year, The Economist announced that it too was going to feature VR documentary storytelling as a part of its reporting. One VR feature allows users to explore the Iraqi city of Mosul while another allows them to witness daily life in Osaka, Japan. Even if the bulk of current VR content is centered around gaming, these and other similar initiatives are indicative that VR is beginning to spread its wings. Back in March, Google revealed “On Ice,” an animated short which brought to the surface the question of TV and movie VR content. Not only are these two possibilities already in the works, but they may be further along than previously imagined. In June, NBC announced that 85 hours of 2016 Olympics coverage was going to be available in VR via the Samsung Gear VR headset, a harbinger of major networks entry into the VR arena.

As more VR content is brought to light, advertisers have demonstrated growing ambition. Economist Films, the production arm behind The Economist’s new VR and non-VR video content, has already partnered with various sponsors such as Salesforce, Turkish Airlines and Virgin Airlines. Virgin Airlines in particular grabbed headlines last year when developing a VR sales pitch that allowed users to experience the feel of its Upper Class accommodations. The move came after Qantas announced that it would be trialing VR headsets in select lounges, and First Class cabins that would allow customers to browse flight destinations, product offerings and in-flight movies.

It’s not just airlines; players in every category from quick-service retail and consumer packaged goods to hospitality and automotive are involved. In February, McDonalds revealed that the company was testing the idea of turning  Happy Meal boxes into foldable headsets. These “Happy Goggles” and its website are then paired with smartphones to deliver a skiing game to customers. Coca-Cola has also adopted a do-it-yourself approach by allowing 12-packs of Coke products to be converted into VR googles that pair with a smartphone. But it’s not the first exploration into VR by the beverage giant. In December 2015, the soda giant demoed a branded sleigh ride for the Oculus, which allowed participants to explore a winter wonderland while being pulled by flying reindeer. And exploration is a common go-to for most VR marketing experiences. Marriott’s Teleporter VR experience, which toured in eight cities across the U.S., utilized VR headsets, heaters and wind jets to place participants in locales like Hawaii and London, as well as in Marriott hotels.

Perhaps the most exciting aspect of VR, at least for marketers, is that it not only creates experiences, but can also virtually place products in the hands of consumers. Studies have long indicated that feel and touch often increase the likelihood that consumers will buy a product and the amount that they are willing to pay for it. This has huge implications for experience replication campaigns like that of Virgin Airlines and Marriott. And VR has the added benefit of being able to get a product in front of consumers who might otherwise be unreachable. Volvo, for example, developed a VR app that lets users test drive its newly launched XC90 SUV, convenient for any potential buyers who don’t live in the vicinity of a dealership.

Nevertheless, compelling analyses on the impact of VR marketing remains sparse, but early indications are positive. A figure from the United Nations and UNICEF regarding fundraising campaigns for Syrian refuges and Liberian Ebola victims suggested that response rates from commissioned VR experiences were 15 percent, while response rates from traditional direct marketing were only 1 percent. Conventional wisdom would seem to align as VR forces engagement and offers more intense experiences, both of which are likely to drive recall and stronger brand associations.

The trouble in realizing the future

The challenge now is that the visions of a VR-filled future have come to represent a Wild-West-style amalgamation of innovative concepts and experiences. It is telling that the Oculus Rift was built for and marketed toward the high performance gaming community. With a headset retail cost of $599, in additional to requiring a high-end computer costing a minimum of $1,000, Oculus Rift’s more immersive experience certainly remains out of reach for the average consumer. On the opposite end of the spectrum, Google Cardboard starts at as low as $10 but offers little more than a means of watching 360° YouTube videos.

The divide also extends beyond hardware itself, since VR has actually become an umbrella term for three types of artificially generated experiences: virtual reality, augmented reality and mixed reality. While once the divide was for little more than semantics, the increasing diversity of VR solutions has forced the terminology to evolve. Virtual reality places users into fully artificially rendered environments. Augmented reality, in contrast, takes a user’s real-world surroundings and overlays digital content a la Google Glass. Mixed reality, a term that evolved from augmented reality more recently, integrates elements from both virtual reality and augmented reality. With mixed reality, users have virtual elements integrated into the real world around them. Unlike augmented reality though, elements in mixed reality are fully interactive, and can actually be hidden above, under and inside real objects surrounding the user.

Beyond a sometimes confusing array of classifications, VR also has issues with consumer perception and demonstrated value. In some ways, VR in 2016 harkens back to the push toward 3-D video, which was ultimately rejected by the public. As of late last year, less than 10 percent of U.S. consumers reported owning a 3-D television. What’s similarly concerning  is that the selling point made for 3-D video content is much the same as the argument for VR: once consumers experience it, they will want it. In other words, for VR to succeed, millions of consumers must have the ability to actually experience the technology and the experiences cannot be underwhelming. This is a challenge that Luckey and other pioneers of VR are apprehensive about. Without exposure to compelling content, consumers may be turned off of the technology.
From a marketing perspective, this is all cause to be hesitant. VR potential in the short-term is dubious. The ability to reach consumers with completely undivided attention is certainly worth considering, but VR may end up being both a boon and pitfall for marketers. If consumers already demonstrate some frustrations with marketing tactics such as digital pre-roll, then pre-roll before VR content (as one potential example) may generate even more negativity. Already there are ad networks preparing to sell such content, and early VR marketing may temper audience appetites for hardware.

The same can be said for most of the previously mentioned VR marketing experiences, which offer content that is more often than not met with PR hype but mixed user reactions. These experiences are often the first interactions consumers have with VR and perpetuate muted enthusiasm for the future. During the NYTVR launch, a large number of iPhone users experienced double-vision which induced nausea. Likewise, many complained that Volvo’s test drive campaign appeared fuzzy and accordingly its Google Play reviews, averaged a lackluster 3.6 stars. Only time will tell how consumers react to evolving VR marketing integration.

Still, none of these negative aspects translate into VR having no future, as the truth is quite the opposite. Hardcore gamers are still salivating over the more immersive experiences being offered by the already released Rift and Vive or soon to be released Playstation VR. For them, 2016 certainly is the year of VR. Though for most every other consumer unwilling to fork over the extra dough, lower-cost solutions aren’t likely to convert them into true believers. So for now, the VR marketing headlines are little more than PR pieces benefiting from the halo effect of the technology’s infancy. Ultimately the industry needs VR to be more prolific with scale and reach, and consumers need VR at a better price, quality and content proposition. Technology becomes affordable quickly, revolutionary features come in bursts, and content takes time to make and even more time to adopt. VR may be the future, but for the masses that reality just hasn’t arrived yet.