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For years the consumer virtual reality market has failed to fulfill the hype surrounding it, but that's going to change in the next five years, according to a report released Monday.

The forecast by Omdia, a market analysis firm based in London, predicts the value of the virtual reality hardware and software market to reach US$10 billion by 2025, up from $3.2 billion in 2020.
Omdia anticipates there will be 45 billion active users of VR headsets in five years' time who will be spending $4 billion on VR games and other media.

Standalone headsets appear to be leading the growth curve for VR. According to the Omdia report, some 3.3 million of those headsets will be sold in 2020, besting sales of smartphone and tethered headsets for the first time. A total of 6.4 million VR headsets will be sold this year.

"After getting caught up in the industry hype and proving unable to live up to the unrealistic expectations set in 2016, VR is now undergoing a much-needed period of readjustment," George Jijiashvili, a senior analyst at Omdia, said in a statement.

PSVR headset was developed from Sony engineers tinkering in a Lab building quietly without any executive direction.

"The product mix of the VR installed base is changing rapidly," he continued, "away from rapidly-abandoned smartphone VR headsets to more engaging standalone and tethered VR headsets."

Boost From COVID

As with the games market generally, the report noted that the VR segment benefited from people being cooped up in their homes due to the coronavirus.

Spending on VR content broke the $1 billion mark in 2020, but it added that those numbers could have been higher had there not been manufacturing challenges during the first half of the year -- and the splashy introduction of new game consoles diverting the attention and money of players away from VR during the second half of the year.

While the pandemic created demand for VR content, it also hurt the market by putting a crimp in the supply chain. "I believe the pandemic initially hindered VR, with companies like Facebook struggling to ship the first Oculus Quest in the first six months of the year while demand for headsets was skyrocketing," said Anshel Sag, a senior analyst with Moor Insights & Strategy. Although Facebook has devoted significant promotional efforts in the consumer VR space, Sag maintains the company could be a barrier to the technology's growth. "I think Facebook's dominance of consumer VR -- especially with PSVR [PlayStation VR] not being a viable option right now -- is a big barrier," he told TechNewsWorld.

It Is Global. Virtual reality is not just a thing in the United States alone. People all over the globe are learning to embrace the technology. Some of the biggest virtual reality conventions are actually held in other nations. Some of the leading companies behind virtual reality are located overseas as well. Virtual reality is gradually becoming a great way to connect with people from around the world. No matter the distance, this technology can bring people together.

"There's no clear alternative to Oculus, and while they have the most diverse and complete library of content as well as the most accessible and greatest hardware," he continued, "there are a lot of people who will stay away from VR because they don't like or want Facebook."

Aggressive Facebook Strategy

Omdia, though, asserted Facebook's Oculus headset is broadening the market by successfully balancing the all-in-one form factor with a high-quality immersive VR experience at an attractive price point.

With the Quest 2 (pictured above) price starting at $299, the report noted, Facebook is making high-quality VR more accessible than ever before. As a hybrid headset, it continued, Quest straddles both standalone and PC-tethered categories, giving its owners flexibility and access to a wider selection of content.

Omdia estimated that 1.2 million Quest units will be sold in 2020, growing to 5.6 million units in 2025.

"Facebook's aggressive loss-leader strategy has meant that other headset manufacturers simply can't compete, leading to many shifting their focus to the adjacent enterprise VR category," Jijiashvili stated.

No Single Person Invented Virtual Reality. Virtual reality enthusiasts can’t point to a single person who is responsible for the creation of VR. Instead, many people contributed to the technology’s growth. There are at least five people who can lay significant claim to the title: Morton Heilig, Jaron Lanier, Douglas Engelbart, Ivan Sutherland, and Myron Krueger.

"We nevertheless expect more successful consumer standalone VR headsets to emerge over the coming years, particularly from China," he added.

According to Omdia, Facebook's share of global standalone VR headset sales will drop over the next five years, from 48 percent in 2020 to 35 percent in 2025.

Jockeying for Market Share

Nevertheless, in the near-term, Oculus appears to have a clear path to accumulating market share.

The Omdia report noted that Valve captured the imagination of PC gamers with its tethered Index headset -- deftly timed to the release of the critically acclaimed Half Life: Alyx VR game -- but at $999, the headset's appeal was limited to hard core enthusiasts.
After some initial success, the report continued, another competitor, HTC, has started losing ground to Oculus and Valve, largely because its strategy to broaden its product range in hopes of attracting a variety of consumer types doesn't seem to be working.

"While a broad portfolio strategy is appropriate in mature markets, such as smartphones, HTC is risking spreading itself too thin in the still-nascent VR category,"Jijiashvili said.

Meanwhile, Sony is marshaling all its efforts behind its newly introduced PlayStation 5 console and won't have a new version of its PSVR product until 2022.

It Enhances The Gaming Experience. It is difficult to talk about virtual reality without discussing the use of video game technology in it. The gaming world has fully embraced virtual reality and all of its elements. There are now some games that are designed specifically for virtual reality. In some of these cases, gaming companies would produce special props that gamers can use along with their virtual reality headset. For some gamers, virtual reality has enhanced their love of playing.

Barriers to Surmount

Sag explained that the VR market is in a growth phase partially due to the global pandemic restricting travel and keeping people home and also partially due to a maturing of the industry as a whole in both the consumer and enterprise markets.

"Smartphone VR is effectively dead now with Daydream and GearVR both getting fully sunsetted by Google and Samsung," he observed.

"While the PC VR market is still fairly small -- roughly one to two million units -- there are still new and exciting headsets that have moved the needle significantly on the PC side to ensure the pinnacle of VR experiences," he continued.

"PlayStation used to own consumer VR with PSVR, but the company's mixed messaging has confused the market and left a gap until PSVR 2 launches in a year or two," he added. "By then, Facebook will have gained even more momentum with the Quest 2 and will have overtaken the PSVR in terms of units shipped."

Although in growth mode, VR still has some significant barriers to surmount.

"One issue is compatibility between systems. A lot of the stuff that works on one system doesn't work with another," observed Rob Enderle, president and principal analyst of the Enderle Group, an advisory services firm in Bend, Ore.

While headset makers like to talk about immersive experience, that's difficult to do when you're interacting with the VR content with a controller, he added.

As the technology becomes mainstream, virtual reality will make more worlds open up to customers. Think of resorts sharing virtual experiences to lure adventurers to book a desired holiday, or social channels such as YouTube housing content that are simply plug-and-play—the possibilities are endless.

"There's also a lack of truly compelling content in the consumer space," he told TechNewsWorld.

"Right now, there just isn't enough hardware out there to justify creating a AAA title to play in virtual reality," he added. "We've got a couple in the space, but it's been a difficult market to find revenue and profit in."

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