Where is the monetization potential of virtual and augmented reality?
Videogames, real-time events in sports and music, and retail are sectors where virtual reality and augmented reality are becoming an interesting business niche, as there is an increasing number of customers willing to pay high prices for this type of experience.
In the last few years, virtual reality (VR) has become one of the most promising technology sectors and a field that has become the focus of companies' attention and intentions as regards new revenue. Businesses such as Facebook and Google are directly involved in this sector after purchasing startups or developing their own products. Facebook acquired Oculus VR some time ago and is now in possession of one of the most promising VR projects in the world: Oculus Rift. As for Google, they have the Google Cardboard, low-cost VR glasses targeted at a different public; and a VR platform called DayDream, which is a more complex project.
Some studies, including research conducted by the consulting firm Digi-Capital, show that by 2020 augmented and virtual reality business could amount to 90 billion dollars and 30 billion dollars respectively. The key question for technology firms and their development teams is how to monetize these products.
There are currently some business areas where it is possible to form startups to launch products or services that can generate revenue. According to Digi-Capital, the following areas have good monetization potential: videogames, video and multimedia communication, entertainment applications and hardware-related products. In the specific case of augmented reality, they stress the importance of hardware, e-commerce, data, voice and video.
In all these areas, companies will realize how virtual reality can be used as a scenario for generating valuable advertising experiences for users. Advertising that is more real, more experimental and more personal and that results in the customers' commitment, engagement and loyalty in a totally different manner to current advertising formats (offline and online).
Advertising in virtual-reality products is being sold in the market by cost per view (CPV) or through sponsorship negotiation. Hardware producers play a key role in monetization: they need specific and attractive software to add content to their products.
Revenue-generating areas in virtual reality
A Goldman Sachs report from early 2016 lists interesting business figures in terms of both augmented and virtual reality. The report's first major projection distinguishes between expected business in hardware and software: hardware products are expected to generate around 45 billion dollars (in devices such as virtual-reality glasses, tracking systems and controllers, etc.); software products are expected to generate 35 billion dollars in revenue, of which 60% will derive from consumers vs. companies and the public sector.
Virtual reality in videogames is expected to generate around 6.9 billion dollars by 2020 and 11.6 billion dollars by 2025, with 216 million potential users. Instead of a future area for development, this is an almost unstoppable reality. Videogame manufacturers such as EA Sports and Activision are aware of how important virtual reality is for their sector; as for hardware manufacturers, in late 2015 Facebook already had more than 200,000 developers working on its Oculus Rift platform with a focus on this entertainment sector.
Virtual-reality videogames may represent an opportunity for videogame publishers for two main reasons: firstly, market research indicates that players could become more engaged with VR games and, as such, buy 2.5 games on average per year instead of buying only one two-dimension game as it happens at the moment; secondly, VR games are more expensive (60 dollars) and can generate more revenue by unit sold.
Real-time events are a major business area for social networks; and virtual and augmented reality used as special content creation formats may be an interesting stimulus. According to Goldman Sachs, the events sector is expected to generate VR and AR revenue of up to 4.1 billion dollars, with 95 million users across the world. Live broadcasting is common in sports and music where virtual reality can offer a special level of interaction between the users and the event.
Virtual reality can be a source of new revenue for large TV networks, especially networks that sell on-demand multimedia content through subscription or pay per view. VR can increase event sales and event prices. For example, sports events such as the NBA, MLB or boxing matches.
Some leading companies such as Lowe have tried virtual and augmented reality in pilot experiences such as Holoroom by Oculus VR and Facebook. Available for six months in two Toronto stores after being launched in 2014, the project allowed customers to customize their home through an immersive experience. They were able to simulate their life in the house of their dreams, which they themselves put together within the Holoroom.
According to Goldman Sachs, revenue linked to retail and virtual reality will amount to 500 million dollars by 2020 and 1.6 billion dollars by 2025.
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