The Electronic Retailing Association

Article: What are the VR (Virtual Reality) Business Drivers in the Retail Industry?

by Maria Rua Aguete

Maria Rua Aguete, Executive Director, Media, Service Providers & Platforms, IHS Markit
Maria Rua Aguete joined Screen Digest in May 2000, where she formed and launched the Television research team before it was acquired by IHS Markit. She currently leads a team of analysts tracking the evolution of Service Providers and operators around the world. She is responsible for leading the team’s strategic development and managing its day-to-day operations and has led many consulting projects for high profile media and technology companies.
Maria holds a first class degree in Economics and Business Studies from Vigo University (Spain), and an MBA with distinction from Cardiff Business School.

The MCMS Congress 2017 offered a unique opportunity to hear from industry experts and thought leaders about topics which affect the future of, and challenges to, the modern multi-channel industry.

The first panel of the day focussed on Business drivers for Virtual Reality (VR) and Practical VR Implications in the retail industry.

There has been a lot of hype around recent VR developments, stemming from the widespread success of the kick-started oculus rift. The format has now been widely accepted by the games industry, where immersive experiences serve to enhance many applications, but how applicable is this success to other industries?

Do home-shopping channels and the ecommerce sector need to be prepared to invest in VR technology? Will companies gain a competitive edge if they have a VR app?

To discuss all these topics I had the pleasure to moderate a panel with three industry leaders:

Richard Burrell, previously at QVC - the world's leading video and ecommerce retailer; Maurits Bruggink from EMOTA - the European ecommerce and Omni Channel Trade Association; and Alex Kunawicz from Laduma - a Virtual Reality content company.

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Based on a report published by IHS Markit, VR is still a niche technology and will remain so for a good few years. The expense of specialist headsets, combined with the need for a consumer to have a technical understanding of the format means that the format is not consumer friendly and so not ready for the mass market. The fragmentation and discoverability of the format also does not lend itself well to consumer compatibility; there are many great applications already available for virtual reality, but most consumers are still not aware of them.

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Many of the current owners of VR headsets do not know where to find content, or even what platforms are available and compatible with their particular brand of headset. In order to make VR more successful, investment is needed in creating content, standardising technologies, consumer awareness and education, in both highlighting the benefits of using this technology and its availability. But who should be leading the charge to a VR future?

Facebook, Google and Samsung are heavily investing in VR: but who is going to push things forward?

Facebook has invested $2 billion on Oculus, and such a large investment from a ubiquitous global content platform implies a desire to make the technology as popular and widespread as possible – far from today’s niche user base. In order to expedite this, they will be launching live video streaming to its social VR product, Spaces, which lets users operate avatars that hang out with other users’ avatars in a virtual world. Not only an innovative application which meshes well with their social media roots – but Facebook will be hoping to create awareness and education with this initiative and make VR more popular in general. Facebook has currently a 2bn subscriber base; less than 1% own a VR headset.

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What are the current opportunities, who controls this headset market anyway?

Smartphone VR made up the vast majority of headsets in 2016 with an installed base of almost 16 million units and 87 percent share of the addressable market. By 2020 this share is forecast to have been eroded to 53 percent as other platforms find traction, but smartphone VR will still represent the biggest addressable market for VR content.

Google Daydream will become the dominant smartphone VR platform by 2019 reaching 14 million units in that year. IHS believes this next-generation Google VR platform will directly impact the potential of Samsung’s Gear VR headset in the market.

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Across the high-end VR headset market, Sony’s PlayStation VR will outsell PC-based VR headsets including Oculus Rift and HTC Vive in the early part of the forecast, but all these platforms will be relatively slowly adopted.

By 2019, the installed base of PC-based headsets will overtake PlayStation VR as adoption of Sony’s headset slows in tandem with the PS4 sales cycle.

What’s happening next, where will we be in 5 years’ time?

The VR display market will increase significantly over the next five years from 2.8 million unit shipments to 21 million in 2020. While this increase is noteworthy, sales of VR displays are only a very small portion of the overall display market. The VR display opportunity will be dominated by OLED panels, within which Samsung holds a dominant market share position.

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Consumer spending on VR entertainment content will hit $310 million in 2016 and is forecast to grow to $3.3 billion by 2020. While this is not a small market and shows good growth, this spend represents just a minor portion of the overall PC, console and smartphone entertainment opportunity. VR games – rather than video or experiences, will command a significant majority of the spending during the forecast period with 79 percent share in 2016 and 86 percent share in 2020.

Where are these opportunities happening and which markets trend most strongly?

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The USA will remain the largest market for VR entertainment content throughout the forecast from 2016 to 2020, with spending on VR entertainment reaching $1.2 billion by 2020. China is a unique market both in terms of VR hardware and in terms of VR content. Even with rapid adoption of VR headsets, a lack of effective monetisation is expected to result in relatively small VR entertainment spend, forecast to reach a little under $200 million by 2020. Funding-based investment into the VR industry in 2016 remained on par with 2015’s figure of $764 million which suggests that the market is still hot, but may have reached an activity peak as investors will start to take stock of the commercial opportunities of VR, and expect direct returns on investment, rather than the speculative investments seen up until now.

So, apart from Facebook’s ‘Spaces’ is VR only applicable for games and experiences?

Despite the low numbers on installed headsets and that most of the current VR use happens in the games industry, there have been some successful applications in the retail industry.

  • Customising cars and bespoke products (Audi)

  • Estate agents to sell properties, VR has been useful for remote selling, hotels bookings

  • Apps for decoration (IKEA)

  • Alibaba, the Chinese ecommerce-based retail giant, has launched an VR retail app called ‘Buy +’. To shop in Alibaba’s virtual reality universe, you just need to stare at the item you want to buy. This allows the Chinese customer to explore big shopping centres across other parts of the world.

For some products, like cars, flats, and hotels, VR can in fact bring lots of benefits to the end user and an investment in this technology can translate in more revenues, but this doesn’t mean that this experience should be applied to every single product, especially as the marketing hype of the format begins to wears thin.

Companies need to find a balance between big investments in VR and the uncertainty in the revenues that this investment could bring. There are still too many unknowns around VR to make it a safe and certain decision:

  • Is direct monetisation using VR realistic?

  • Should this be thought of as a marketing expense with shopping taking place on 2D screens for the foreseeable future?

What many companies are trying to avoid is to repeat the mistakes made using 3D technology; just because “you can do it” doesn’t mean that you should do it. In television, many companies that invested in 3D did so as it was a new and exciting technology; not investing risked being left out of new developments and often a justification was to protect the brand from appearing ‘old fashioned’. Most of the companies and operators who launched a 3D live channel, have now closed it down, many TV Set vendors have also abandoned production of 3D sets.

MCMS 2017: The VR panel of experts consisted of (L-R) Maurits Bruggink (Emota), Richard Burrell (independant), and Alex Kunawicz (Laduma), moderated by Maria Rua Aguete (IHS Markit)

IHS Markit latest analysis shows that VR is already performing better that 3DTV ever did.

The conclusion after a very interactive panel, is that it is probably is too early to get a clear idea of the return of investment you can get via VR in ecommerce.

How much companies should invest at this point remains uncertain, but as with all technologies is it definitely important to remain aware and up-to-date with the full potential that VR and AR (Augmented Reality) could bring to your business.