Report: Virtual reality market is growing but it’s still limited by sparse content

For commercial airline passengers, reality bites. Qantas and Samsung are going to help passengers escape to a more pleasant virtual reality with Samsung's Gear VR.

Virtual reality has broad appeal among consumers and corporate enterprises and is poised for rapid growth, but the nascent industry remains limited by a lack of compelling content.

That’s according to a new report released today by Allied Business Intelligence Research Inc. The firm identified more than 460 companies operating in the virtual reality and 360-degree video markets.

According to ABI, the VR market near $60 billion worldwide by 2021. This prediction appears to exceed expectations from SuperData, which set its own estimates for VR in the year 2020 at $37.7 billion.

The upshot: “VR is not 3D,” said Michael Inouye, principal analyst at ABI Research, referring to the short-lived lifespan of the 3D television market.

Virtual reality hardware and content receives enough comparisons to the 3D TV market that analysts often feel the need to separate the hardware markets. The last two TV makers to build 3D functionality into their sets, LG and Sony, ceased production of those models this year.

The market emerged for consumers in 2010, but did not manage to catch on at home with very few media companies producing content. Eventually, media outlets such as DirecTV and ESPN stopped broadcasting in 3D by 2013. This left the market for 3D TV content somewhat barren until it finally dried up entirely.

“With first-generation hardware sales lower than expected, some industry professionals suggest parallels between VR and 3D,” Inouye said, “but the wealth of companies active in this space and deep-seeded belief in VR stand in marked contrast to the short-lived heyday of 3D.”

Many industry experts had expected or at least hoped that 2016 would be the watershed year for VR. Instead, sales fell short of predictions thanks to a lack of content and high product costs. Although numerous high-end headsets emerged last year, Facebook Inc.’s Oculus Rift launch saw several delays and PlayStation VR did not launch until November.

VR market diversity a strength

Of companies targeting specific markets, media and entertainment represent 35 percent, while retail, commerce and marketing make up just over 10 percent, according to ABI. Other industry sectors — healthcare, education, architecture/engineering/construction/real-estate and video — individually represent about 6 percent.

The report notes that the diversity of devices that emerged in 2016 has set strong expectations and that currently content is a limiting factor. However, analysts believe that video content from gaming and user-generated content will help fill that gap as more hardware fills into the market.

“This race isn’t a sprint,” said Sam Rosen, managing director and vice president at ABI Research.

Rosen believes that the short term of VR hardware and content sales do not indicate a poor market. He believes many actors are working behind the scenes on the next generation, citing the variety of companies on board with VR as a demonstration of the potential for greater reach.

The diversity of companies working in the market shows a broad spectrum of visions and business models. They include consumer-facing companies bringing high-end tethered headsets to market such as Facebook, Valve Corp. and Sony Corp., as well as the mobile VR market led by Google Inc. and Samsung Electronics Inc. Moreover, chip and hardware makers continue to work behind the scenes to empower future technology, such as Intel Corp., Qualcomm Inc., Technicolor SA and Verizon Communications Inc.

“Even though we expect growth to come on strong in the coming years, we need to think long-term,” Rosen said. “The growing list of companies is indicative of a market primed for growth, but eventually consolidation will occur as the market reaches higher levels of maturation. Along the way, there will certainly be bumps in the road, but VR and 360-degree video are on the right path toward living up to early lofty expectations.”

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