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Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
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Releasedate:June2014
Version: 1.3
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Page	
  1A	
  KZero	
  Worldswide	
  Report
Thewaywewillinteractwithdigitalcontentisaboutto
rapidlychange,duetotheemergenceofConsumerVirtual
Reality.
!
ThisKZeroWorldswidereportexplainsthestateofthe
ConsumerVirtualRealitymarket,thedevicesbeingcreated,
thecompaniesoperatinginit,marketsizeforecastsand
commercialapplicationexamplesforkeyVirtualReality
markets.
Consumer	
  	
  
Virtual	
  Reality	
  	
  
State	
  of	
  the	
  Market	
  Report
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
Executive	
  Summary	
  
Intended	
  for	
  marketers,	
  brand-­‐owners,	
  entrepreneurs	
  and	
  investors,	
  this	
  KZero	
  State	
  of	
  the	
  Market	
  report	
  
examines	
  the	
  emerging	
  market	
  of	
  Consumer	
  Virtual	
  Reality	
  (VR).	
  We	
  have	
  assessed	
  the	
  hardware	
  market	
  
of	
  Consumer	
  Virtual	
  Reality	
  Devices	
  (CVRDs)	
  and	
  the	
  software	
  market	
  of	
  games	
  and	
  apps	
  for	
  VR.	
  
!Virtual	
  Reality	
  refers	
  to	
  a	
  digital	
  3D	
  environment	
  that	
  can	
  be	
  accessed	
  and	
  interacted	
  with	
  using	
  a	
  VR	
  
headset.	
  Users	
  wear	
  the	
  headset	
  and	
  then	
  place	
  themselves	
  within	
  a	
  100%	
  immersive	
  world.	
  User	
  head	
  and	
  
body	
  movements	
  are	
  tracked	
  by	
  the	
  VR	
  application	
  and	
  the	
  environment	
  (what	
  the	
  user	
  sees)	
  reacts	
  
accordingly.	
  
!The	
  CVRD	
  market	
  is	
  currently	
  being	
  pioneered	
  by	
  a	
  company	
  called	
  Oculus	
  VR	
  (acquired	
  by	
  Facebook	
  in	
  
March	
  in	
  a	
  $2bn	
  deal)	
  with	
  other	
  companies	
  such	
  as	
  Samsung,	
  Microsoft	
  and	
  Sony	
  in	
  close	
  pursuit.	
  In	
  
addition,	
  a	
  range	
  of	
  start-­‐ups	
  are	
  also	
  developing	
  their	
  own	
  headsets.	
  In	
  conjunction	
  with	
  the	
  development	
  
of	
   the	
   devices	
   (typically	
   headsets),	
   an	
   emerging	
   market	
   of	
   VR	
   game	
   developers	
   will	
   create	
   3D	
  
environments	
  to	
  be	
  explored	
  by	
  the	
  device	
  owners	
  and	
  their	
  friends.	
  
!We	
  have	
  identified	
  12	
  key	
  sectors	
  that	
  will	
  adopt	
  consumer	
  VR,	
  which	
  include	
  the	
  porting	
  over	
  of	
  existing	
  
Massive	
  Multiplayer	
  Games,	
  the	
  creation	
  of	
  brand-­‐new	
  MMOs,	
  VR	
  environments	
  allowing	
  User	
  Generated	
  
Content	
  and	
  Mirror	
  Worlds,	
  re-­‐creating	
  places	
  in	
  the	
  real	
  world.	
  	
  
!In	
  terms	
  of	
  numbers,	
  our	
  market	
  sizing	
  assessment	
  forecasts	
  almost	
  57m	
  devices	
  being	
  purchased	
  from	
  
2014	
  -­‐	
  2018	
  and	
  total	
  active	
  users	
  of	
  47.6m	
  in	
  2018.	
  Revenue-­‐wise,	
  we	
  estimate	
  device	
  (hardware)	
  sales	
  to	
  
exceed	
  $8.4bn	
  over	
  the	
  five	
  year	
  period	
  and	
  game/app	
  (software)	
  sales	
  of	
  $7.7bn.	
  This	
  equates	
  to	
  an	
  
overall	
  market	
  size	
  (cumulative	
  from	
  2014	
  -­‐	
  2018)	
  of	
  $16.2bn	
  and	
  represents	
  a	
  CAGR	
  of	
  125%.	
  
	
  
Page	
  2A	
  KZero	
  Worldswide	
  Report
Contents	
  
!
The	
  Basics	
  
Moving	
  to	
  a	
  Mixed	
  Reality	
  
Metaverse	
  Roadmap	
  
Technology:	
  Hardware	
  
What	
  Can	
  You	
  Do	
  With	
  It?	
  
Virtual	
  Worlds	
  
Mirror	
  Worlds	
  
LifeLogging	
  
Market	
  Sizing:	
  Hardware	
  
1.	
  The	
  Basics	
  
A	
   Consumer	
   Virtual	
   Reality	
   Device	
   (CVRD)	
   is	
   a	
   piece	
   of	
   hardware	
  
resembling	
  goggles.	
  A	
  user	
  places	
  this	
  unit	
  on	
  their	
  head	
  and	
  sees	
  a	
  
digital	
  image	
  on	
  a	
  display	
  as	
  opposed	
  to	
  seeing	
  the	
  real-­‐world	
  around	
  
them.	
  	
  
!This	
   image	
   is	
   a	
   a	
   3D	
   stereoscopic	
   computer-­‐generated	
   digital	
  
environment	
  or	
  virtual	
  world.	
  When	
  a	
  user	
  moves	
  their	
  head	
  to	
  the	
  
left,	
  their	
  digital	
  field	
  of	
  view	
  moves	
  accordingly,	
  allowing	
  the	
  user	
  to	
  
effectively	
  engage	
  and	
  interact	
  inside	
  the	
  virtual	
  world.	
  This	
  creates	
  a	
  
Virtual	
  Reality	
  to	
  the	
  user.	
  	
  
!In	
  order	
  to	
  operate,	
  in	
  essence	
  a	
  Virtual	
  Reality	
  Device	
  needs	
   	
  three	
  
things:	
  
• Supporting	
  graphic	
  capabilities	
  (via	
  a	
  headset)	
  in	
  order	
  to	
  display	
  
the	
  digital	
  environment	
  to	
  the	
  user.	
  This	
  display	
  is	
  delivered	
  either	
  
via	
  a	
  screen	
  or	
  by	
  projecting	
  directly	
  onto	
  the	
  retina.	
  
•3D	
  content	
  to	
  provide	
  ‘the	
  view’	
  for	
  the	
  user.	
  
•The	
   ability	
   to	
   allow	
   the	
   user	
   to	
   interact	
   directly	
   with	
   the	
  
environment.	
  
!This	
  technology	
  has	
  been	
  available	
  primarily	
  to	
  the	
  military	
  for	
  several	
  
years.	
   Recent	
   gains	
   in	
   technology	
   and	
   processing	
   speeds,	
   coupled	
  
with	
   a	
   growing	
   appetite	
   for	
   3D	
   gaming	
   content	
   has	
   stimulated	
  
consumer	
  interest.	
  A	
  number	
  of	
  companies	
  are	
  actively	
  developing	
  or	
  
about	
   to	
   develop	
   Consumer	
   Virtual	
   Reality	
   devices	
   (the	
   hardware).	
  
Many	
  more	
  will	
  develop	
  virtual	
  worlds,	
  games	
  and	
  apps	
  for	
  the	
  device	
  
owners	
  to	
  explore	
  (the	
  software).	
  
!We	
  expect	
  this	
  technology	
  and	
  supporting	
  ecosystem	
  of	
  sectors	
  to	
  
expand	
   rapidly	
   in	
   the	
   next	
   five	
   years,	
   in	
   addition	
   to	
   new	
   	
   vertical	
  
markets	
  opening	
  up	
  aside	
  from	
  the	
  core	
  gaming	
  propositions.
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
2.	
  Moving	
  to	
  a	
  Mixed	
  Reality	
  
We	
  are	
  moving	
  towards	
  a	
  Mixed	
  Reality	
  as	
  our	
  real	
  and	
  digital	
  worlds	
  continue	
  to	
  merge	
  together.	
  Our	
  digital	
  
lives	
  increasingly	
  include	
  pictures	
  and	
  video	
  of	
  our	
  surroundings	
  and	
  content	
  from	
  everywhere	
  and	
  anywhere	
  
can	
  reach	
  us	
  instantly.	
  
!The	
  way	
  that	
  we	
  will	
  interact	
  with	
  digital	
  content	
  is	
  about	
  to	
  rapidly	
  change	
  and	
  is	
  explained	
  in	
  the	
  spectrum	
  
shown	
  below.	
  
	
  
3.The	
  Metaverse	
  Roadmap	
  
From	
  Wikipedia:	
  ‘The	
  Metaverse	
  is	
  a	
  collective	
  virtual	
  shared	
  space,	
  created	
  by	
  the	
  convergence	
  of	
  virtually	
  
enhanced	
   physical	
   reality	
   and	
   physically	
   persistent	
   virtual	
   space,	
   including	
   the	
   sum	
   of	
   all	
   virtual	
   worlds,	
  
augmented	
  reality,	
  and	
  the	
  internet.	
  The	
  word	
  metaverse	
  is	
  a	
  portmanteau	
  of	
  the	
  prefix	
  "meta"	
  (meaning	
  
"beyond")	
  and	
  "universe"	
  and	
  is	
  typically	
  used	
  to	
  describe	
  the	
  concept	
  of	
  a	
  future	
  iteration	
  of	
  the	
  internet,	
  
made	
  up	
  of	
  persistent,	
  shared,	
  3D	
  virtual	
  spaces	
  linked	
  into	
  a	
  perceived	
  virtual	
  universe.’	
  Now,	
  that	
  sounds	
  a	
  bit	
  
Page	
  3A	
  KZero	
  Worldswide	
  Report
Augmented	
  Virtuality	
  
Augmented	
  Virtuality	
  (AV)	
  is	
  the	
  combination	
  of	
  real	
  
and	
  virtual	
  environments.	
  In	
  this	
  instance,	
  the	
  digital	
  
content	
  is	
  not	
  merely	
  used	
  to	
  complement	
  the	
  real	
  
view	
  but	
  instead	
  is	
  used	
  to	
  enhance	
  it.	
  	
  
!Examples	
  of	
  AV	
  concepts	
  include	
  news	
  studios	
  with	
  
digital	
  (visual)	
  backdrops	
  (or	
  the	
  weatherman),	
  the	
  
dynamic	
  yards	
  line	
  in	
  a	
  TV	
  football	
  match.	
  Whereas	
  
AR	
   would	
   typically	
   have	
   no	
   more	
   than	
   20%	
   of	
   the	
  
field	
  of	
  view	
  allocated	
  to	
  digital,	
  with	
  AV	
  this	
  ratio	
  
could	
   be	
   inverted,	
   meaning	
   digital	
   content	
   would	
  
account	
  for	
  circa	
  80%	
  of	
  the	
  total	
  view.	
  
!
Virtual	
  Reality	
  
When	
   a	
   user	
   is	
   placed	
   within	
   a	
   100%	
   digital	
  
environment	
  that	
  they	
  can	
  engage	
  and	
  interact	
  with,	
  
through	
  sight,	
  sound	
  and	
  movement,	
  they	
  are	
  in	
  a	
  
Virtual	
   Reality.	
   This	
   concept,	
   although	
   only	
   now	
  
becoming	
  commercially	
  available,	
  is	
  considered	
  ‘Star	
  
Trek	
  Tech’,	
  meaning	
  it	
  has	
  existed	
  in	
  sci-­‐fi	
  and	
  to	
  a	
  
degree	
  general	
  knowledge	
  for	
  many	
  years.	
  The	
  best	
  
example	
  of	
  this	
  is	
  the	
  ‘Holodeck’.	
  
Real	
  Environment	
  
The	
  Real	
  Environment	
  is	
  the	
  ‘good	
  old	
  way’	
  that	
  we	
  
interact	
  with	
  our	
  surroundings.	
  What	
  we	
  see	
  with	
  our	
  
eyes	
  is	
  what	
  we	
  get.	
  In	
  this	
  scenario,	
  there	
  is	
  no	
  digital	
  
content	
  added.	
  
Augmented	
  Reality	
  
Augmented	
   Reality	
   (AR)	
   is	
   the	
   real-­‐time	
   supply	
   of	
  
complementary	
   digital	
   information	
   into	
   our	
   current	
  
field	
  of	
  real	
  view.	

AR	
  applications	
  include	
  providing	
  map-­‐type	
  guidance	
  
information	
   as	
   a	
   person	
   is	
   on	
   the	
   move,	
   or	
   house	
  
pricing	
  when	
  a	
  property	
  is	
  looked	
  at.	
  These	
  types	
  of	
  
AR	
   concepts	
   rely	
   on	
   technology	
   such	
   as	
   image	
  
recognition,	
  GPS	
  and	
  Internet	
  connectivity	
  -­‐	
  basically	
  
supplying	
  additional	
  information	
  based	
  on	
  the	
  usage	
  
context.	
  
AR	
   is	
   currently	
   available	
   using	
   smartphones	
   and	
  
laptops,	
   as	
   well	
   as	
   newer	
   developments	
   utilising	
  
glasses	
  (as	
  opposed	
  to	
  headsets),	
  with	
  Google	
  Glass	
  
being	
  the	
  best	
  example.	
  
The	
  most	
  important	
  thing	
  to	
  remember	
  with	
  AR	
  is	
  
that	
  the	
  digital	
  content	
  is	
  always	
  in-­‐support	
  of	
  what	
  
the	
  user	
  is	
  actually	
  seeing	
  and	
  doing	
  in	
  the	
  real	
  world.
Image	
  courtesy	
  of	
  Google
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
fancy,	
  but	
  the	
  Metaverse	
  Roadmap	
  is	
  a	
  useful	
  tool	
  to	
  scope	
  out	
  the	
  way	
  the	
  Internet	
  is	
  developing.	
  The	
  graphic	
  
below	
  is	
  the	
  Metaverse	
  Roadmap.	
  
!!!!!!!!!!!!!!The	
   various	
   elements	
   of	
   the	
   Metaverse	
   Roadmap,	
   taken	
   from	
   MetaverseRoadmap.org,	
   are	
   explained	
   as	
  
follows.	
  
!Combining	
   these	
   different	
   elements	
   to	
   varying	
   degrees	
  in	
  turn	
  identifies	
  key	
  markets	
  for	
  Consumer	
  
Virtual	
  Reality	
  Devices	
  .	
  They	
  are	
  as	
  follows:	
  
!Virtual	
  Worlds	
  (VWs)	
  and	
  Massive	
  Multiplayer	
  Online	
  Game	
  (MMOs)	
  
This	
  market	
  segment	
  is	
  the	
  low	
  hanging	
  fruit	
  of	
  the	
  overall	
  sector.	
  The	
  initial	
  commercial	
  uses	
  of	
  Virtual	
  Reality	
  
devices	
  will	
  be	
  in	
  gaming	
  and	
  more	
  specifically,	
  Virtual	
  Worlds	
  and	
  MMOs.	
  Already	
  massively	
  popular	
  across	
  all	
  
age	
  ranges,	
  whereas	
  the	
  current	
  ‘experience’	
  for	
  virtual	
  worlds	
  is	
  simply	
  through	
  a	
  monitor	
  or	
  screen,	
  Virtual	
  
Reality	
  will	
  place	
  players	
  ‘inside’	
  the	
  game,	
  being	
  able	
  to	
  directly	
  interact	
  with	
  the	
  digital	
  environment.	
   	
  Note	
  
that	
  there	
  are	
  already	
  thousands	
  of	
  VW’s	
  already	
  created	
  (i.e.	
  the	
  3D	
  environments	
  already	
  exist)	
  and	
  used	
  by	
  
millions	
  of	
  players.	
  These	
  VW’s	
  have	
  been	
  commercially	
  created,	
  to	
  support	
  the	
  game	
  they	
  exist	
  to	
  serve	
  (for	
  
example	
  a	
  map	
  in	
  Modern	
  Warfare	
  or	
  Los	
  Santos	
  in	
  GT5)	
  as	
  well	
  as	
  from	
  User	
  Generated	
  Content	
  (of	
  all	
  ages)	
  in	
  
worlds	
  such	
  as	
  Roblox	
  and	
  Second	
  Life.	
  
!Mirror	
  Worlds	
  
Similar	
  to	
  VW’s,	
  Mirror	
  worlds	
  are	
  100%	
  digital	
  environments.	
  However,	
  rather	
  than	
  being	
  fictionally	
  invented	
  
places	
  (created	
  to	
  support	
  the	
  game),	
  Mirror	
  Worlds	
  are	
  virtual	
  versions	
  of	
  the	
  real	
  world	
  -­‐	
  they	
  are	
  based	
  on	
  
real	
  places.	
  For	
  example,	
  think	
  Times	
  Square	
  in	
  New	
  York	
  re-­‐created	
  
virtually	
  allowing	
  users	
  to	
  put	
  on	
  a	
  headset	
  and	
  walk	
  around	
  like	
  a	
  
tourist.	
  	
  
!Existing	
  VW’s	
  such	
  as	
  Second	
  Life	
  and	
  others	
  already	
  contain	
  hundreds	
  
of	
  Mirror	
  Worlds,	
  ranging	
  from	
  the	
  central	
  London,	
  Berlin	
  (created	
  by	
  
Germany	
  based	
  Twinity)	
  the	
  Eiffel	
  Tower,	
  Yankee	
  Stadium	
  and	
  even	
  
the	
  whole	
  of	
  the	
  UK.	
  Mirror	
  worlds	
  are	
  also	
  being	
  used	
  to	
  re-­‐create	
  
places	
  (and	
  then	
  events)	
  in	
  history.	
  Think	
  of	
  this	
  as	
  virtual	
  time	
  travel.	
  	
  
	
  	
  
Page	
  4A	
  KZero	
  Worldswide	
  Report
Augmentation	
  
Augmentation	
  refers	
  to	
  technologies	
  that	
  add	
  new	
  
capabilities	
  to	
  existing	
  real	
  systems;	
  in	
  the	
  Metaverse	
  
context,	
   this	
   means	
   technologies	
   that	
   layer	
   new	
  
control	
   systems	
   and	
   information	
   onto	
   our	
  
perception	
  of	
  the	
  physical	
  environment.	
  
!Simulation	
  	
  
Refers	
  to	
  technologies	
  that	
  model	
  reality	
  (or	
  parallel	
  
realities),	
  offering	
  wholly	
  new	
  environments;	
  in	
  the	
  
Metaverse	
   context,	
   this	
   means	
   technologies	
   that	
  
provide	
   simulated	
   worlds	
   as	
   the	
   focus	
   for	
  
interaction.
Intimate	
  	
  
Technologies	
   that	
   are	
   focused	
   inwardly,	
   on	
   the	
  
identity	
  and	
  actions	
  of	
  the	
  individual	
  or	
  object;	
  in	
  the	
  
Metaverse	
  context,	
  this	
  means	
  technologies	
  where	
  
the	
   user	
   has	
   agency	
   in	
   the	
   environment,	
   either	
  
through	
   the	
   use	
   of	
   an	
   avatar	
   or	
   through	
   direct	
  
appearance	
  as	
  an	
  actor	
  in	
  the	
  system.	
  
!External	
  	
  
Technologies	
  focused	
  outwardly,	
  towards	
  the	
  world	
  
at	
   large;	
   in	
   the	
   Metaverse	
   context,	
   this	
   means	
  
technologies	
   that	
   provide	
   information	
   about	
   and	
  
control	
  of	
  the	
  world	
  around	
  the	
  user.
Image	
  source:	
  	
  Second	
  Life
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
Lifelogging	
  
Lifelogging	
  is	
  essentially	
  using	
  technology	
  to	
  capture,	
  record	
  and	
  store	
  our	
  lives,	
  as	
  we	
  live	
  them.	
  These	
  means	
  
the	
  people	
  we	
  meet	
  (what	
  we	
  see),	
  the	
  things	
  we	
  say	
  and	
  listen	
  to	
  (what	
  we	
  hear)	
  and	
  the	
  places	
  we	
  visit	
  
(where	
  we	
  go).	
  Think	
  of	
  Lifelogging	
  as	
  a	
  digital	
  personal	
  diary,	
  without	
  having	
  to	
  write	
  it.	
  	
  
!
Pulling	
  Lifelogging	
  back	
  to	
  existing	
  technologies	
  and	
  applications,	
  in	
  a	
  straight-­‐forward	
  sense	
  it’s	
  simply	
  the	
  next	
  
evolution	
   of	
   ‘personal	
   information’.	
   First	
   we	
   had	
   blogging,	
   then	
   micro-­‐blogging	
   (a	
   la	
   Twitter)	
   and	
   next	
   up	
  
Lifelogging.	
  
The	
  Google	
  Glass	
  project	
  is	
  a	
  great	
  example	
  of	
  Lifelogging,	
  using	
  a	
  camera	
  (for	
  pictures	
  and	
  video),	
  GPS,	
  a	
  
heads-­‐up	
  display	
  (projected	
  to	
  one	
  eye)	
  and	
  Internet	
  connectivity,	
  users	
  of	
  Glass	
  and	
  receive	
  location-­‐specific	
  
information,	
  get	
  digital	
  content	
  on	
  demand	
  and	
  digitally	
  record	
  what	
  they	
  do.	
  	
  Although	
  some	
  people	
  think	
  the	
  
primary	
  use	
  of	
  Google	
  Glass	
  (and	
  other	
  wearable	
  devices)	
  is	
  for	
  Augmented	
  Reality	
  (receiving	
  information),	
  we	
  
believe	
  that	
  Lifelogging	
  (recording	
  information)	
  will	
  be	
  the	
  application	
  that	
  boosts	
  mass	
  adoption.	
  	
  
!
These	
  three	
  segments	
  will	
  be	
  further	
  drilled	
  into	
  and	
  expanded	
  later	
  in	
  this	
  report.	
  	
  !!!
4.	
  Technology	
  -­‐	
  What	
  makes	
  a	
  Virtual	
  Reality	
  Device?	
  !This	
  report	
  is	
  not	
  intended	
  to	
  focus	
  too	
  closely	
  on	
  the	
  underlying	
  technology	
  required	
  for	
  consumer	
  Virtual	
  
Reality.	
  However,	
  assessing	
  the	
  supply	
  chain	
  and	
  supply	
  composites	
  does	
  throw	
  an	
  interesting	
  light	
  on	
  the	
  
directions	
  this	
  market	
  is	
  moving	
  into.	
  	
  	
  
!The	
  following	
  sections	
  lay	
  out	
  the	
  high-­‐level	
  technology	
  require	
  to	
  create	
  these	
  devices/platforms	
  as	
  well	
  as	
  
actual	
  and	
  potential	
  manufacturers.	
  	
  
!
Page	
  5A	
  KZero	
  Worldswide	
  Report
Image	
  source:	
  	
  Google
Image	
  source:	
  Google
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
The	
  four	
  elements	
  above	
  are	
  the	
  core	
  aspects	
  from	
  hardware	
  and	
  technology	
  perspectives.	
  But	
  whose	
  making	
  
CVRDs?	
  We	
  have	
  identified	
  three	
  different	
  types	
  of	
  companies	
  interested	
  in	
  manufacturing,	
  as	
  follows:	
  
	
  
Specialist	
  Gaming	
  creams-­‐off	
  the	
  Innovators	
  
A	
   growing	
   number	
   of	
   early	
   stage	
   companies	
   founded	
  
specifically	
   to	
   manufacture	
   CVRD’s	
   are	
   emerging.	
   These	
  
companies,	
  at	
  the	
  cutting	
  edge	
  of	
  a	
  major	
  new	
  technology,	
  
are	
  developing	
  their	
  systems	
  initially	
  for	
  the	
  gaming	
  market	
  
with	
  some	
  utilising	
  third-­‐party	
  mobile	
  (Android)	
  devices.	
  	
  
!Oculus	
  VR,	
  Inc.	
  is	
  the	
  most	
  well	
  known	
  start-­‐up	
  in	
  this	
  space	
  
and	
  even	
  more	
  so	
  following	
  the	
  recent	
  $2bn	
  acquisition	
  by	
  
Facebook.	
   Other	
   companies	
   of	
   note	
   include	
   VRelia,	
  	
  
Avegant,	
  Sulon,	
  ANTVR	
  (shown	
  right),	
  GameFace	
  Labs	
  and	
  
True	
  Player	
  Gear.	
  There	
  is	
  also	
  a	
  number	
  of	
  stealth	
  start-­‐ups	
  on	
  the	
  verge	
  of	
  entering	
  this	
  marketplace.	
  
!
Generalist	
  Technology	
  takes	
  the	
  Early	
  Adopters	
  
Existing	
   technology	
   companies	
   with	
   product	
   presence	
   in	
  
segments	
   such	
   as	
   console	
   gaming,	
   telephony,	
   general	
  
computing	
  and	
  general	
  technology	
  are	
  already	
  in	
  NPD	
  mode	
  
for	
  CVRD.	
  These	
  include	
  Apple,	
  Sony,	
  Microsoft,	
  Samsung	
  and	
  
Google.	
  	
  
!
These	
  companies	
  will	
  strive	
  to	
  create	
  semi-­‐closed	
  technology	
  
gardens,	
  offering	
  both	
  the	
  hardware	
  (the	
  devices)	
  and	
  a	
  way	
  
of	
   obtaining	
   the	
   	
   virtual	
   reality	
   environments,	
   games	
   and	
  
other	
  applications	
  -­‐	
  think	
  App	
  stores.	
  	
  
!The	
  Sony	
  headset,	
  coded-­‐named	
  Project	
  Morpheus	
  is	
  shown	
  
in	
  the	
  image	
  left.	
  	
  
Section	
  7	
  shows	
  a	
  full-­‐	
  list	
  of	
  companies	
  developing	
  VR	
  headsets.	
  
!
Brands	
  and	
  IP’s	
  garden-­‐wall	
  the	
  Early	
  Majority	
  
Just	
  as	
  we	
  see	
  some	
  toy	
  companies	
  create	
  custom	
  dedicated	
  tablets	
  for	
  certain	
  markets,	
  we	
  expect	
  this	
  to	
  
happen	
  also	
  in	
  the	
  CVRD	
  sector.	
  We	
  expect	
  companies	
  such	
  as	
  Mattel	
  and	
  Hasbro	
  (as	
  well	
  as	
  other	
  large	
  
consumer	
   IP	
   owners)	
   to	
   acquire	
   third-­‐party	
   technology	
   and/or	
   re-­‐package	
   existing	
   technology	
   and	
   supply	
  
closed-­‐platform	
  virtual	
  reality	
  experiences	
  based	
  around	
  their	
  portfolio	
  of	
  brands	
  and	
  IPs.	
  
!
And	
  last	
  but	
  not	
  least….the	
  virtual	
  world	
  
Or	
  more	
  specifically,	
  the	
  final	
  piece	
  of	
  the	
  puzzle	
  is	
  the	
  creation	
  of	
  the	
  3D	
  environment	
  itself,	
  be	
  it	
  a	
  virtual	
  
world,	
  mirror	
  world	
  or	
  lifelogging	
  experience.	
  By	
  development,	
  we	
  mean	
  the	
  3D	
  modelling	
  of	
  virtual	
  items,	
  the	
  
terrain,	
  buildings,	
  avatars/non-­‐playing-­‐characters	
  (NPCs)	
  and	
  other	
  elements	
  required	
  to	
  place	
  a	
  user	
  into	
  a	
  
digital	
  environment,	
  as	
  well	
  as	
  the	
  created	
  mechanics,	
  objectives	
  and	
  interactions	
  needed	
  to	
  give	
  the	
  user	
  a	
  
reason	
  to	
  enter.	
  	
  
!
Page	
  6A	
  KZero	
  Worldswide	
  Report
Hardware	
  
The	
  physical	
  headset	
  and	
  accompanying	
  functionality.	
  
This	
   includes	
   processors,	
   wifi,	
   GPS	
   and	
   other	
  
technology	
  needed	
  for	
  wearable	
  computing.	
  
!Display	
  
The	
  screen	
  displayed	
  to	
  the	
  user	
  inside	
  the	
  headset.	
  
When	
   a	
   user	
   puts	
   on	
   the	
   device,	
   they	
   look	
   into	
   the	
  
display	
  and	
  ‘enter’	
  the	
  virtual	
  reality	
  environment.
Sensors	
  
Sensors	
   detect	
   where	
   the	
   person	
   is	
   looking,	
   how	
  
and	
  where	
  they	
  are	
  moving	
  and	
  generally	
  translate	
  
real-­‐world	
  movement	
  into	
  a	
  virtual	
  equivalent.	
  
!Render	
  
The	
   combined	
   technology	
   (from	
   the	
   display	
   and	
  
sensors)	
  that	
  ‘creates’	
  the	
  3D	
  environment	
  	
  and	
  how	
  
it	
  is	
  presented	
  to	
  players
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
These	
  types	
  of	
  development	
  companies	
  are	
  effectively	
  ‘World	
  Builders’.	
  We	
  expect	
  World	
  Builders	
  to	
  fall	
  into	
  
one	
  of	
  the	
  following	
  four	
  categories:	
  
!
• KT&T	
  virtual	
  world	
  developers:	
  Companies	
  already	
  making	
  browser	
  and	
  tablet	
  based	
  3D	
  virtual	
  worlds	
  and	
  
MMOs	
   for	
   the	
   Kids,	
   Tween	
   and	
   Teen	
   (KT&T)	
   sector	
   are	
   highly	
   likely	
   to	
   evolve	
   into	
   creators	
   of	
   VR	
  
environments.	
  We	
  expect	
  these	
  types	
  of	
  environments	
  to	
  be	
  based	
  on	
  existing	
  IP’s	
  that	
  already	
  have	
  a	
  
presence	
  in	
  the	
  virtual	
  world/MMO,	
  app	
  or	
  kids	
  gaming	
  markets.	
  	
  
!
We	
   asked	
   Matthew	
   Warneford,	
   CTO	
   of	
   leading	
   kids/tween	
   virtual	
   world	
   developer	
   Dubit	
   to	
   offer	
   his	
  
thoughts	
  on	
  the	
  emerging	
  market	
  of	
  virtual	
  reality	
  ‘playgrounds’	
  for	
  younger	
  players:	
  
!
"As	
  a	
  developer	
  of	
  multiple	
  virtual	
  worlds	
  and	
  online	
  games	
  for	
  brands	
  and	
  companies	
  across	
  the	
  world,	
  we've	
  
been	
  monitoring	
  the	
  progress	
  of	
  the	
  virtual	
  reality	
  sector	
  for	
  quite	
  a	
  while.	
  Although	
  the	
  majority	
  of	
  these	
  kids	
  
virtual	
  worlds	
  and	
  MMOs	
  have	
  been	
  browser-­‐based	
  and	
  more	
  recently	
  on	
  tablets,	
  we	
  expect,	
  and	
  look	
  forward	
  
to	
  be	
  working	
  with	
  companies	
  in	
  the	
  kids	
  space	
  to	
  develop	
  VR	
  specific	
  applications.	
  We	
  see	
  it	
  as	
  a	
  natural	
  
evolution	
  of	
  the	
  sector.	
  
!
For	
  brands	
  and	
  particularly	
  kids/tween	
  IPs	
  with	
  presence	
  online,	
  the	
  movies,	
  on	
  TV	
  or	
  toy-­‐based,	
  virtual	
  reality	
  
will	
  allow	
  these	
  IPs	
  to	
  fully	
  immerse	
  kids	
  into	
  their	
  branded	
  worlds	
  and	
  experiences.	
  We've	
  already	
  seen	
  how	
  
quickly	
  kids	
  embrace	
  new	
  technologies	
  and	
  we	
  expect	
  VR	
  to	
  be	
  no	
  different."	
  
!
• Console	
  game	
  developers:	
  	
  With	
  the	
  older	
  gaming	
  market	
  being	
  the	
  low-­‐hanging	
  fruit	
  of	
  this	
  marketplace,	
  
we	
   expect	
   many	
   game	
   developers,	
   primarily	
   with	
   console	
   expertise	
   to	
   develop	
   VR	
   environments.	
   Think	
  
Battlefield	
  4	
  or	
  Call	
  of	
  Duty	
  (developed	
  by	
  Dice/EA	
  and	
  Treyarch/Infinity	
  Ward/Activation	
  respectively).	
  We	
  
expect	
  these	
  environments	
  to	
  be	
  based	
  primarily	
  on	
  existing	
  games/IPs	
  in	
  the	
  short-­‐term.	
  The	
  medium	
  term	
  
will	
  see	
  them	
  create	
  brand-­‐new	
  IPs	
  and	
  games	
  specifically	
  for	
  the	
  CVRD	
  market.	
  
!
• Dedicated	
  specialists:	
  	
  i.e.	
  companies	
  created	
  specifically	
  to	
  develop	
  VR	
  environments	
  and	
  platforms.	
  These	
  
will	
  be	
  companies	
  typically	
  creating	
  new	
  IP	
  platforms	
  specifically	
  for	
  CVRD.	
  We	
  expect	
  there	
  to	
  be	
  moderate	
  
VC	
  interest	
  and	
  investment	
  into	
  this	
  category,	
  just	
  as	
  over	
  $800m	
  was	
  invested	
  in	
  the	
  KT&T	
  VW	
  sector	
  off	
  the	
  
back	
  of	
  the	
  Club	
  Penguin	
  acquisition	
  by	
  Disney.	
  Interestingly,	
  we	
  expect	
  the	
  target	
  market	
  for	
  these	
  types	
  of	
  
companies	
  to	
  be	
  adults,	
  with	
  potential	
  NPD	
  into	
  areas	
  such	
  as	
  sex	
  (of	
  course),	
  gambling	
  and	
  other	
  vertical	
  
markets.	
  	
  
!
• User	
  Generated	
  Content	
  (UGC)	
  :	
  Sandbox	
  environments	
  and	
  other	
  world-­‐based	
  platforms	
  currently	
  allowing	
  
users	
  to	
  create	
  their	
  own	
  content,	
  such	
  as	
  Minecraft	
  and	
  Second	
  Life	
  demonstrate	
  the	
  popularity	
  of	
  this	
  
activity.	
  	
  
We	
  therefore	
  expect	
  great	
  interest	
  and	
  activity	
  in	
  
the	
  market	
  for	
  users	
  to	
  create	
  their	
  own	
  worlds,	
  
either	
  on	
  their	
  own	
  or	
  with	
  others.	
  This	
  is	
  simply	
  
an	
  evolution	
  from	
  the	
  browser	
  to	
  the	
  headset.	
  	
  
!
As	
  part	
  of	
  this	
  evolution	
  we	
  expect	
  some	
  UGC	
  
platforms	
  currently	
  in	
  the	
  browser	
  (or	
  desktop	
  
client)	
  to	
  initially	
  allow	
  users	
  to	
  ‘port’	
  or	
  re-­‐create	
  
their	
  browser	
  worlds	
  easily	
  into	
  a	
  virtual	
  reality	
  
environment.	
  This	
  trend	
  has	
  already	
  started	
  with	
  	
  	
  
‘Minecrift’,	
   a	
   total	
   VR	
   conversion	
   for	
   Minecraft	
  
with	
  Oculus	
  Rift	
  support	
  (see	
  image	
  left).	
  
!
5.	
  Enough	
  of	
  the	
  tech.	
  What	
  can	
  you	
  do	
  with	
  these	
  things?	
  
This	
  section	
  of	
  the	
  document	
  provides	
  examples	
  of	
  use-­‐cases	
  for	
  consumer	
  virtual	
  reality,	
  in	
  other	
  words,	
  what	
  
you	
  can	
  do	
  with	
  it.	
  As	
  we	
  expect	
  the	
  first	
  phase	
  of	
  market	
  development	
  will	
  come	
  from	
  the	
  gaming	
  sector,	
  we	
  
have	
  focussed	
  on	
  this	
  segment,	
  although	
  we	
  provide	
  some	
  example	
  use-­‐cases	
  for	
  other	
  sectors.	
  Some	
  of	
  the	
  
concepts	
   we	
   will	
   explain	
   are	
   already	
   in	
   development	
   or	
   conceptually	
   defined,	
   whilst	
   others	
   are	
   our	
   own	
  
examples.	
  
Page	
  7A	
  KZero	
  Worldswide	
  Report
Image	
  source:	
  Oculus	
  VR
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
Virtual	
  World	
  Concepts	
  
We	
   expect	
   existing	
   virtual	
   worlds	
   and	
   MMOs	
   to	
   be	
   converted	
   into	
   virtual	
   reality	
   equivalents	
   (initially	
   with	
  
console-­‐type	
  controllers,	
  moving	
  to	
  full	
  body	
  input	
  systems).	
  This	
  will	
  be	
  the	
  first	
  consumer	
  use	
  of	
  consumer	
  VR	
  	
  
technology.	
  Listed	
  below	
  are	
  three	
  key	
  areas.	
  	
  
	
  
!
Evolving	
  on	
  from	
  taking	
  existing	
  browser/screen	
  based	
  virtual	
  worlds	
  and	
  MMOs	
  (massive	
  multiplayer	
  online	
  
games),	
  we	
  expect	
  a	
  high	
  number	
  of	
  ‘new	
  worlds’	
  created	
  and	
  therefore	
  an	
  emerging	
  ecosystem	
  of	
  new	
  start-­‐
ups	
  and	
  IP’s	
  offering	
  game-­‐based	
  VR	
  environments.	
  	
  Examples	
  include:	
  
Page	
  8A	
  KZero	
  Worldswide	
  Report
Teen	
  &	
  Young	
  Adult	
  Market	
  
Genres	
   such	
   as	
   dating,	
   fashion	
   and	
  
socialising	
  are	
  ideally	
  suited	
  to	
  a	
  more	
  
immersive	
   experience.	
   Again,	
   we	
  
expect	
   existing	
   properties	
   such	
   as	
  
IMVU	
   and	
   Stardoll	
   to	
   look	
   closely	
   at	
  
creating	
   3D	
   environments	
   for	
   their	
  
platforms.	
  	
  
!Whereas	
  with	
  the	
  adult	
  gaming	
  market	
  
the	
   environment	
   is	
   the	
   ‘draw’,	
   with	
  
dating,	
   socialising	
   etc,	
   the	
   role	
   of	
   the	
  
avatar	
  will	
  be	
  more	
  important.	
  	
  This	
  is	
  a	
  
market	
   segment	
   we	
   expect	
   to	
  
materialize	
  early	
  2015.	
  We	
  believe	
  that	
  
‘Social	
   Worlds’	
   is	
   the	
   prime	
   reason	
  
Facebook	
  acquired	
  Oculus	
  VR.
Adult	
  Gaming	
  Market	
  
Skyrim,	
  Mirror’s	
  Edge	
  and	
  Team	
  
Fortress	
   2	
   are	
   three	
   popular	
  
existing	
   games	
   that	
   have	
   been	
  
adapted/ported	
   to	
   operate	
   via	
  
CVRD	
   and	
   specifically	
   with	
   the	
  
Oculus	
  Rift.	
  Many	
  more	
  existing	
  
MMO	
  and	
  3D	
  multiplayer	
  games	
  
will	
  be	
  ported	
  from	
  the	
  monitor	
  
to	
  the	
  headset.	
  	
  
!First	
   person	
   shooters	
   (FPS)	
   are	
  
likely	
   to	
   be	
   the	
   initial	
   popular	
  
game	
   genres,	
   along	
   with	
   other	
  
RPG	
   games	
   (role-­‐playing).	
   We	
  
anticipate	
   this	
   segment	
   to	
  
gather	
  momentum	
  mid	
  2014.
Kids/Tween	
  Market	
  
The	
  most	
  popular	
  (on	
  a	
  registered	
  
account	
   basis)	
   segment	
   of	
   the	
  
existing	
  virtual	
  worlds	
  marketplace	
  
is	
   kids	
   and	
   tweens.	
   Creating	
   VR	
  
versions	
   of	
   IPs	
   such	
   as	
   Moshi	
  
Monsters,	
  Club	
  Penguin	
  and	
  Wizard	
  
101	
  are	
  logical	
  extensions.	
  	
  
!User	
   generated	
   content	
   based	
  
applications	
   for	
   the	
   kids/tween	
  
segment	
   are	
   also	
   expected	
   to	
   be	
  
very	
  popular	
  and	
  allow	
  this	
  younger	
  
market	
  to	
  create	
  fantastical	
  worlds	
  	
  
to	
   explore,	
   play	
   and	
   socialise	
   in.	
  
Initial	
  games	
  and	
  apps	
  in	
  this	
  space	
  
are	
  expected	
  throughout	
  2014.
Bespoke	
  MMOs	
  
Brand-­‐new	
  MMO	
  games	
  and	
  virtual	
  worlds	
  will	
  
be	
  created	
  specifically	
  to	
  leverage	
  and	
  fully	
  utilize	
  
the	
   opportunities	
   and	
   capabilities	
   of	
   VR.	
  	
  
Specifically	
   integrating	
   greater	
   use	
   of	
   player	
   /	
  
environment	
   interaction.	
   These	
   games	
   will	
   in-­‐
turn	
  become	
  more	
  immersive	
  as	
  a	
  result	
  of	
  the	
  
ability	
  for	
  players/users	
  to	
  direct	
  engage	
  with	
  the	
  
digital	
   content	
   around	
   them.	
   Several	
   MMOs	
   of	
  
this	
  type	
  are	
  already	
  being	
  developed	
  by	
  existing	
  
game	
  developers.	
  	
  	
  
!Late	
  2014	
  /	
  early	
  2015	
  is	
  when	
  we	
  expect	
  to	
  see	
  
the	
   first	
   of	
   these	
   types	
   of	
   games	
   launched.	
  
Evolving	
  from	
  here,	
  probably	
  from	
  mid	
  2015	
  will	
  
be	
  the	
  introduction	
  of	
  devices	
  that	
  allow	
  players	
  
to	
  physically	
  move	
  their	
  legs	
  and	
  move	
  inside	
  the	
  
virtual	
  world	
  without	
  needing	
  a	
  controller.	
  	
  
!
The	
  best	
  example	
  of	
  VR	
  player	
  movement	
  is	
  the	
  
Omni,	
   an	
   omnidirectional	
   treadmill	
   from	
   	
   a	
  
company	
  called	
  Virtuix.	
  Users	
  stand	
  in	
  the	
  middle	
  
of	
  a	
  tracking	
  unit	
  that	
  allows	
  them	
  to	
  walk	
  in	
  any	
  
direction.	
   The	
   company	
   says:	
   ‘Gaming	
   on	
   a	
  
keyboard,	
  mouse	
  or	
  gamepad	
  while	
  seated	
  pales	
  in	
  
comparison	
  to	
  the	
  intense	
  experience	
  and	
  fun	
  that	
  
comes	
   from	
   actually	
   walking,	
   running,	
   and	
  
jumping	
  in	
  games’.	
  Another	
  product	
  to	
  watch	
  is	
  
Sixense	
  Stem	
  motion	
  sensor.
Gambling	
  
It	
  is	
  not	
  unrealistic	
  to	
  expect	
  VR	
  casinos	
  and	
  3D	
  gambling	
  
to	
  be	
  both	
  popular	
  and	
  profitable.	
  Put	
  simply,	
  wearing	
  a	
  
CVRD	
   would	
   place	
   you	
   at	
   a	
   3D	
   digital	
   blackjack	
   (for	
  
example)	
  table.	
  Avatars	
  would	
  represent	
  the	
  other	
  players	
  
and	
  players’	
  hands	
  would	
  hold	
  virtual	
  cards,	
  chips	
  etc.	
  We	
  
anticipate	
  this	
  vertical	
  market	
  to	
  emerge	
  very	
  soon	
  after	
  
the	
  commercial	
  launch	
  of	
  CVRD	
  -­‐	
  late	
  2014	
  /	
  early	
  2015.	
  This	
  
push	
  will	
  come	
  from	
  existing	
  online	
  gambling	
  companies	
  
as	
  well	
  as	
  start-­‐ups.	
  	
  
!Shown	
  below	
  is	
  a	
  screenshot	
  from	
  World	
  Series	
  of	
  Poker:	
  
Full	
  House	
  Pro.	
  A	
  recently	
  launched	
  game	
  developed	
  by	
  
Pipeworks	
   Software,	
   published	
   by	
   Microsoft	
   Games	
  
Studios	
   for	
   Xbox	
   360	
   as	
   an	
   Xbox	
   Live	
   Arcade	
   title	
   and	
  
Windows	
  8.	
  
Image	
  source:	
  	
  Microsoft
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
UGC	
  Worlds	
  
Having	
   experienced	
   the	
   massive	
   success	
   of	
   User	
   Generated	
   Content	
  
virtual	
  worlds	
  such	
  as	
  Second	
  Life,	
  Minecraft	
  and	
  Roblox	
  (appealing	
  to	
  
all	
  ages)	
  we	
  strongly	
  believe	
  this	
  segment	
  is	
  ripe	
  for	
  massive	
  expansion.	
  
In	
   these	
   virtual	
   reality	
   worlds,	
   users	
   will	
   be	
   able	
   to	
   create	
   their	
   own	
  
environments	
   and	
   from	
   here,	
   then	
   create	
   endless	
   applications	
   and	
  
activities.	
  In	
  essence,	
  users	
  would	
  be	
  able	
  to	
  create	
  their	
  own	
  worlds	
  
and	
  then	
  enter	
  them,	
  putting	
  them	
  in	
  complete	
  control	
  -­‐	
  it’s	
  an	
  amazing	
  
thought.	
  	
  
!Evolving	
   this	
   concept	
   further,	
   we’ll	
   also	
   see	
   users	
   create	
   worlds	
   and	
  
invite	
  others	
  to	
  enter	
  them	
  as	
  well	
  as	
  co-­‐operative	
  content	
  creation.	
  
We’re	
  already	
  seeing	
  some	
  early	
  work	
  in	
  the	
  field	
  of	
  UGC	
  virtual	
  reality	
  
with	
  the	
  creation	
  of	
  Minecrift,	
  a	
  dedicated	
  tool	
  (mod)	
  that	
  allows	
  	
  users	
  
to	
  interact	
  with	
  Minecraft	
  via	
  the	
  Oculus	
  Rift	
  and	
  the	
  Metacraft	
  project.	
  
!
Brand-­‐new	
  Sporting	
  Categories	
  
When	
  the	
  Wii	
  gaming	
  system	
  was	
  introduced,	
  it	
  ushered	
  in	
  a	
  new	
  style	
  of	
  consumer	
  gaming,	
  	
  with	
  gamers	
  given	
  	
  
the	
  tools	
  to	
  interact	
  with	
  games	
  on	
  a	
  more	
  active	
  basis.	
  Now,	
  with	
  the	
  pending	
  introduction	
  of	
  VR	
  gaming,	
  we	
  
strongly	
  believe	
  that	
  brand-­‐new	
  sports	
  and	
  ‘movement-­‐based’	
  activities	
  will	
  be	
  created.	
  
!
These	
  new	
  sports	
  will	
  be	
  built	
  from	
  the	
  ground-­‐up,	
  starting	
  with	
  the	
  unique	
  attributes	
  offered	
  by	
  VR,	
  including	
  	
  
body	
  movement	
  interaction	
  and	
  the	
  ability	
  to	
  place	
  players	
  into	
  newly	
  constructed	
  3D	
  environments	
  tailored	
  to	
  
leverage	
  VR	
  and	
  provide	
  the	
  player	
  with	
  a	
  dedicated	
  immersive	
  experience.	
  Think	
  Quidditch.	
  	
  
!
Page	
  9A	
  KZero	
  Worldswide	
  Report
Active	
  Sports	
  
Active	
  users	
  require	
  users	
  to	
  move	
  their	
  entire	
  body	
  in	
  
order	
  to	
  participate.	
  From	
  a	
  timing	
  perspective,	
  this	
  is	
  a	
  
market	
  we	
  expect	
  to	
  grow	
  from	
  mid/late	
  2015.	
  
!Coupled	
  to	
  the	
  concept	
  of	
  using	
  CVRDs	
  to	
  put	
  the	
  user	
  
within	
  a	
  dedicated	
  sporting	
  environment,	
  an	
  additional	
  
functionality	
   required	
   to	
   permit	
   fully	
   active	
   sports	
   to	
  
‘work	
  properly’	
  is	
  body	
  movement	
  tracking.	
  And,	
  this	
  is	
  
a	
   segment	
   expected	
   to	
   piggy-­‐back	
   on	
   the	
   growth	
   of	
  
VR.	
   There	
   are	
   two	
   primary	
   ways	
   to	
   track	
   body	
  
movement:	
  
!• Camera	
   tracking.	
   Devices	
   such	
   as	
   the	
   Microsoft	
  
Kinect	
  are	
  being	
  used	
  to	
  track	
  body	
  movements	
  of	
  
game	
  players.	
  
• Treadmills.	
  Certainly	
  positioned	
  more	
  to	
  the	
  hard-­‐
core	
  gaming	
  market	
  in	
  the	
  first	
  instance,	
  early	
  stage	
  
companies	
   are	
   developing	
   omni-­‐directional	
  
treadmills	
  that	
  allow	
  players	
  to	
  interact	
  with	
  games	
  
via	
  body	
  movement.	
  A	
  company	
  called	
  Virtuix	
  has	
  
developed	
   a	
   product	
   called	
   Omni	
   and	
   from	
   their	
  
website:	
   	
   ‘Applications	
   of	
   natural	
   movement	
   in	
  
virtual	
  reality	
  stretch	
  far	
  beyond	
  gaming:	
  training	
  and	
  
simulation,	
   fitness,	
   virtual	
   tourism,	
   virtual	
   trade-­‐
shows	
   and	
   events,	
   meet-­‐ups	
   and	
   multi-­‐person	
  
adventures’.	
  
• Key	
  sports	
  made	
  possible	
  via	
  body	
  tracking	
  include	
  
fitness,	
  tennis	
  and	
  swimming.	
  But	
  don’t	
  expect	
   	
  a	
  
fully	
  virtual	
  Fifa14	
  until	
  at	
  least	
  2018!
Passive	
  Sports	
  
Classified	
   as	
   ‘Simulation	
   Games’,	
   we’ve	
  
categorised	
   sports	
   into	
   either	
   passive	
   or	
   active.	
  
Passive	
   sports/games	
   can	
   be	
   enjoyed	
   in	
   the	
   real	
  
world	
   when	
   you’re	
   sitting	
   down	
   or	
   requiring	
  
limited	
  body	
  movement.	
  	
  Active	
  sports	
  (explained	
  
right)	
  require	
  more	
  body	
  movement.	
  	
  
!Passive	
   sports	
   presented	
   as	
   simulated	
  
environments	
   will	
   be	
   popular	
   both	
   as	
   solo	
  
experiences	
   as	
   well	
   as	
   on	
   a	
   multi-­‐player	
   basis.	
  
Examples	
  of	
  passive	
  sports	
  include:	
  
!• Car	
  racing	
  (and	
  a	
  company	
  called	
  iRacing	
  is	
  a	
  
key	
  company	
  to	
  watch	
  here).	
  
• Flying	
  games	
  based	
  on	
  aeroplane	
  simulations.	
  
• Fishing.	
  
• Darts.	
  
• Shooting	
  /	
  archery.	
  
• Cycling.	
  
!A	
   key	
   point	
   to	
   stress	
   with	
   the	
   passive	
   sports	
  
identified	
   above	
   is	
   that	
   these	
   are	
   tight	
   vertical	
  
markets	
   with	
   passionate	
   players	
   and	
   fans.	
   This	
  
means	
   relevance	
   -­‐	
   users	
   with	
   strong	
   interests	
   in	
  
vertical	
  markets	
  are	
  highly	
  likely	
  to	
  be	
  monetised	
  if	
  
they’re	
  in	
  an	
  environment	
  built	
  specifically	
  to	
  cater	
  
to	
  their	
  interest.	
  
!We	
  expect	
  this	
  market	
  to	
  gather	
  pace	
  early	
  2015.
Image	
  source:	
  metacraft.ch
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
Mirror	
  Worlds	
  Concepts	
  
Whereas	
  the	
  virtual	
  world	
  concept	
  examples	
  in	
  the	
  previous	
  section	
  have	
  3D	
  environments	
  that	
  have	
  been	
  
‘invented’	
  to	
  serve	
  the	
  underlying	
  concept	
  of	
  the	
  game/activity,	
  mirror	
  worlds	
  differ	
  because	
  they’re	
  based	
  on	
  
actual	
  	
  places	
  in	
  the	
  real	
  world.	
  	
  
!
The	
  Mirror	
  World	
  idea	
  of	
  re-­‐creating	
  places	
  from	
  the	
  real	
  world	
  and	
  then	
  allowing	
  avatars	
  to	
  explore	
  them	
  has	
  
garnered	
  some	
  popularity	
  via	
  screen/browser	
  based	
  applications	
  such	
  as	
  Twinity	
  (German-­‐based	
  company	
  that	
  
created	
  a	
  virtual	
  Berlin),	
  Second	
  Life	
  (users	
  specifically	
  building	
  mirror	
  world	
  destinations	
  inside	
  Second	
  Life)	
  
and	
  even	
  Minecraft.	
  However,	
  the	
  lack	
  of	
  ‘being	
  in	
  the	
  space’	
  a	
  la	
  VR	
  has	
  largely	
  constrained	
  this	
  category	
  from	
  
mass	
  adoption	
  -­‐	
  ‘the	
  experience	
  just	
  didn’t	
  feel	
  right’.	
  However,	
  with	
  the	
  advent	
  of	
  consumer	
  virtual	
  reality	
  we	
  
anticipate	
  a	
  renaissance,	
  so	
  to	
  speak.	
  	
  
!
Tourism	
  
Virtual	
  tourism	
  is	
  probably	
  the	
  lowest	
  hanging	
  fruit	
  in	
  this	
  market,	
  so	
  expect	
  many	
  real-­‐world	
  places	
  to	
  be	
  made	
  
available	
  in	
  a	
  VR	
  environment.	
  In	
  practise,	
  this	
  idea	
  will	
  allow	
  people	
  to	
  explore	
  places	
  they’ve	
  never	
  visited.	
  
Shown	
  below	
  is	
  a	
  working	
  demo	
  available	
  from	
  Oculus	
  VR	
  allowing	
  users	
  to	
  visit	
  virtual	
  Tuscany.	
  	
  
!And	
  of	
  course,	
  with	
  a	
  primary	
  benefit	
  of	
  VR	
  being	
  ‘anything	
  is	
  possible’,	
  there’s	
  nothing	
  at	
  all	
  to	
  stop	
  the	
  
creation	
  of	
  mirror	
  world	
  initiatives	
  allowing	
  people	
  to	
  swim	
  on	
  the	
  sea-­‐bed	
  of	
  the	
  Atlantic	
  ocean,	
  hang-­‐out	
  at	
  
the	
  top	
  of	
  Mount	
  Everest	
  or	
  even	
  walk	
  on	
  the	
  moon.	
  	
  Before	
  we	
  move	
  onto	
  the	
  next	
  concept,	
  think	
  of	
  this	
  idea	
  
of	
  tourism	
  as	
  being	
  ‘modern-­‐day’,	
  i.e.	
  allowing	
  users	
  to	
  visit	
  places	
  that	
  could	
  actually	
  be	
  visited	
  today.	
  	
  
!
Page	
  10A	
  KZero	
  Worldswide	
  Report
Google	
  Maps,	
  Street	
  View	
  and	
  Indoor	
  Maps	
  
Our	
  modern-­‐day	
  world	
  is	
  ripe	
  for	
  VR	
  integration	
  with	
  
existing	
   platforms	
   such	
   as	
   Google	
   Maps	
   and	
   Street	
  
View	
   already	
   allowing	
   us	
   to	
   ‘see’	
   into	
   remote	
   places.	
  
Tack	
   onto	
   this	
   newer	
   products	
   like	
   Indoor	
   Maps	
   and	
  
then	
  we’re	
  sucking	
  diesel.	
  	
  
!
Virtual	
  Reality	
  in	
  this	
  context	
  can	
  allow	
  us	
  to	
  take	
  2D	
  
image	
  overlays	
  of	
  the	
  real-­‐world	
  and	
  enter	
  constructed	
  
3D	
   conversions.	
   Early	
   demos	
   of	
   this	
   concept	
   already	
  
exist,	
  with	
  the	
  OculusStreetView.eu.pn	
  project	
  being	
  a	
  
good	
  example.
VR	
  Time	
  Travel	
  
Virtual	
  Reality	
  can	
  be	
  used	
  to	
  create	
  mirror	
  worlds	
  
based	
   on	
   places	
   (and	
   events)	
   from	
   history.	
   So,	
  
users	
  of	
  these	
  types	
  of	
  environments	
  will	
  include	
  
students/teachers,	
   researchers	
   and	
   anyone	
   who	
  
effectively	
  wants	
  to	
  travel	
  back	
  in	
  time	
  to	
  explore	
  
and	
   experience	
   historic	
   events.	
   Of	
   course,	
   the	
  
applications	
   here	
   are	
   endless,	
   but	
   here’s	
   some	
  
examples:	
  
!• You	
   don’t	
   read	
   about	
   the	
   1st	
   World	
   War	
   or	
  
study	
  black	
  and	
  white	
  photos	
  of	
  key	
  battles.	
  
Instead,	
  you’re	
  standing	
  in	
  the	
  middle	
  of	
  river	
  
Somme,	
  with	
  bullets	
  flying	
  past	
  your	
  head.	
  	
  
• Being	
   in	
   the	
   crowd	
   at	
   the	
   signing	
   of	
   the	
  
Magna	
  Carta.	
  
• Jurassic	
  Park.	
  Enough	
  said.	
  
• The	
  Titanic.	
  As	
  above.	
  
• And	
  on	
  a	
  sporting	
  theme,	
  how	
  about	
  sitting	
  in	
  
the	
  referees	
  chair	
  during	
  the	
  McEnroe	
  &	
  Borg	
  
1980	
  Wimbledon	
  tennis	
  final.	
  
Images	
  source:	
  Oculus	
  VR
Image	
  source:	
  OculusStreetView.eu.pn
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
LifeLogging	
  Concepts	
  
Ok,	
  so	
  here’s	
  where	
  it	
  gets	
  interesting.	
  Combining	
  VR	
  with	
  LifeLogging	
  brings	
  in	
  elements	
  of	
  both	
  virtual	
  and	
  
mirror	
  worlds.	
  In	
  essence,	
  VR	
  Lifelogging	
  will	
  allow	
  us	
  to	
  see	
  through	
  other	
  peoples	
  eyes.	
  	
  
!
And	
  interestingly,	
  this	
  is	
  made	
  possible	
  by	
  the	
  collaboration	
  
between	
  augmented	
  reality	
  and	
  virtual	
  reality,	
  as	
  illustrated	
  in	
  
the	
  graphic	
  left.	
  	
  
!
AR	
  devices	
  such	
  as	
  Google	
  Glass	
  and	
  others	
  coming	
  to	
  market	
  
such	
  as	
  the	
  Space	
  Glasses	
  from	
  Meta	
  will	
  continually	
  improve	
  
their	
  video	
  and	
  audio	
  capture	
  capabilities,	
  allowing	
  them	
  to	
  
basically	
   be	
   input	
   channels,	
   recording	
   what	
   the	
   wearer	
   is	
  
saying,	
  seeing,	
  hearing	
  and	
  doing.	
  	
  The	
  output	
  of	
  this	
  content	
  
is	
  VR.	
  Users	
  can	
  use	
  VR	
  to	
  see	
  through	
  the	
  eyes	
  of	
  other	
  people,	
  either	
  in	
  real-­‐time	
  or	
  using	
  pre-­‐recorded	
  
content.	
  This	
   	
  application	
  could	
  even	
  be	
  used	
  by	
  the	
  recorder	
  of	
  the	
  content,	
  in	
  a	
  diary	
  or	
  memory	
  fashion,	
  
allowing	
  them	
  to	
  re-­‐live	
  moments	
  from	
  their	
  lives.	
  Here’s	
  some	
  more	
  examples:	
  
!
These	
  memory-­‐sharing	
  and	
  life-­‐insight	
  type	
  concepts	
  open	
  up	
  brand-­‐new	
  revenue	
  streams	
  for	
  the	
  content	
  
owners.	
   For	
   example,	
   consumers	
   will	
   pay	
   to	
   watch	
   a	
   football	
   match	
   through	
   the	
   eyes	
   of	
   their	
   favourite	
  
quarterback,	
   attend	
   a	
   concert	
   through	
   the	
   eyes	
   of	
   the	
   lead	
   singer	
   or	
   simply	
   remotely	
   hang-­‐out	
   with	
   their	
  
favourite	
  celebrity	
  living	
  their	
  daily	
  lives.	
  This	
  is	
  slightly	
  more	
  interesting	
  than	
  following	
  them	
  on	
  Twitter.	
  
	
  
Visualising	
  concepts	
  using	
  the	
  
Radar	
  Chart	
  
We	
  have	
  identified	
  12	
  key	
  sectors	
  set	
  for	
  growth	
  within	
  the	
  
consumer	
   VR	
   marketplace.	
   These	
   12	
   sectors,	
   along	
   with	
  
predicted	
   launch	
   timings	
   are	
   visualised	
   in	
   the	
   KZero	
   VR	
  
Radar	
  chart.	
  	
  
!A	
   segment	
   of	
   the	
   Radar	
   chart	
   (available	
   for	
   free	
   via	
   our	
  
website,	
   kzero.co.uk)	
   is	
   shown	
   right.	
   For	
   example,	
  
specifically	
   for	
   the	
   category	
   of	
   new	
   concept	
   MMOs	
   and	
  
virtual	
  worlds,	
  we	
  expect	
  2014	
  growth	
  coming	
  from	
  older	
  
adult	
  markets,	
  with	
  new	
  IP	
  tween	
  and	
  teen	
  concepts	
  hitting	
  
in	
  2015.	
  	
  
Page	
  11A	
  KZero	
  Worldswide	
  Report
Celebrities	
  
Some	
   celebrities	
   and	
   famous	
  
people	
   have	
   millions	
   of	
   Twitter	
  
followers	
   and	
   Facebook	
   fans.	
  
These	
   are	
   people	
   interested	
   in	
  
what	
   their	
   idols	
   are	
   doing.	
  
LifeLogging	
  VR	
  will	
  allow	
  them	
  to	
  
experience	
   the	
   lifestyle	
   and	
  
experiences	
  of	
  these	
  people.
Sports	
  
Sports	
  fans	
  will	
  be	
  able	
  to	
  watch	
  
matches	
   and	
   games	
   through	
   the	
  
eyes	
  of	
  the	
  players	
  or	
  the	
  officials	
  -­‐	
  
or	
  even	
  sit	
  on	
  the	
  front	
  row	
  of	
  the	
  
basketball	
  arena,	
  next	
  to	
  Jay	
  Z	
  of	
  
course.	
  (because	
  Beyonce	
  will	
  be	
  
wearing	
   the	
   diamond-­‐encrusted	
  
AR	
  headset!)
Sharing	
  Life	
  Stories	
  
Forget	
   posting	
   photos	
   on	
  
Instagram.	
   How	
   about	
   allowing	
  
y o u r	
   f r i e n d s	
   t o	
   s e e	
   V R	
  
representations	
   of	
   key	
   events	
   in	
  
your	
   life	
   -­‐	
   birthdays,	
   holidays,	
  
marriages	
  etc.	
  Think	
  of	
  this	
  life	
  a	
  
VR	
  diary	
  available	
  on-­‐demand.
Help!	
  I’m	
  Lost	
  
Allowing	
   real-­‐time	
   sharing	
   of	
   life	
  
content	
  to	
  other	
  people	
  via	
  VR	
  will	
  
allow	
   us	
   to	
   share	
   what	
   we’re	
  
doing,	
   where	
   we’re	
   doing	
   it	
   and	
  
who	
  we’re	
  doing	
  it	
  with.	
  Obvious	
  
this	
   concept	
   	
   has	
   multiple	
  
applications,	
   including	
   remote	
  
assistance	
  when	
  we’re	
  lost.
Phobias	
  and	
  Fears	
  
Got	
   a	
   fear	
   of	
   heights?	
   VR	
   will	
   be	
  
used	
   to	
   treat	
   people	
   with	
   fears	
  
and	
  phobias	
  by	
  allowing	
  them	
  to	
  
‘virtually’	
   confront	
   their	
   fears.	
   In	
  
this	
   content,	
   users	
   can	
   place	
  
themselves	
   into	
   previous	
   or	
   real-­‐
time	
  events	
  with	
  their	
  friends	
  and	
  
overcome	
  their	
  phobias.
User	
  Generated	
  Sweat	
  
How	
   about	
   cycling	
   the	
   Tour	
   de	
  
France	
   from	
   the	
   relative	
   comfort	
  
of	
  your	
  garage?	
  Or	
  taking	
  part	
  in	
  a	
  
10,000	
   person	
   bootcamp?	
   We	
  
expect	
   VR	
   to	
   transform	
   the	
  
h e a l t h c a r e	
   a n d	
   f i t n e s s	
  
marketplaces	
   along	
   with	
   the	
  
concept	
  of	
  virtual	
  trainers.
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
6.	
  Products,	
  pricing	
  and	
  demand:	
  Market	
  Sizing	
  
Of	
  course	
  everyone	
  wants	
  to	
  know	
  how	
  large	
  the	
  Consumer	
  Virtual	
  Reality	
  marketplace	
  will	
  be.	
  So,	
  this	
  section	
  
contains	
  our	
  market	
  sizing	
  assessment.	
  We’ve	
  compiled	
  a	
  five-­‐year	
  forecast	
  from	
  2014	
  through	
  to	
  2018	
  looking	
  
at	
   the	
   two	
   primary	
   sources	
   of	
   consumer	
   demand,	
   namely	
   devices	
   (hardware)	
   and	
   games/applications	
  
(software).	
  Excluded	
  from	
  our	
  market	
  sizing	
  forecasts	
  are	
  Augmented	
  Reality	
  related	
  markets,	
  non-­‐consumer	
  
VR	
  applications	
  and	
  VR	
  development	
  costs.	
  	
  
!
Unit	
  Sales	
  of	
  VR	
  Devices	
  
Firstly,	
  our	
  device	
  unit	
  sales	
  analysis,	
  as	
  shown	
  in	
  the	
  chart	
  below.	
  Unit	
  sales	
  of	
  CVRDs	
  have	
  been	
  split	
  into	
  three	
  
segments:	
  
!• Hardcore	
  gamers:	
  This	
  market	
  is	
  comprised	
  mainly	
  by	
  older	
  gamers	
  aged	
  30+.	
  Importantly,	
  they’re	
  primarily	
  
within	
  the	
  Innovator	
  technology	
  adoption	
  group.	
  We	
  have	
  forecasted	
  that	
  1%	
  of	
  this	
  segment	
  will	
  purchase	
  
devices	
  in	
  2014,	
  rising	
  to	
  20%	
  in	
  2018.	
  	
  
!• Light	
   gamers:	
   Typically	
   Early	
   Innovator	
   types,	
  
these	
  consumers	
  and	
  teenage+	
  age-­‐wise,	
  owning	
  
gaming	
   consoles	
   and	
   playing	
   tablet/smartphone	
  
games.	
   We	
   predict	
   that	
   2%	
   of	
   this	
   market	
   will	
  
purchase	
  a	
  device	
  in	
  2015	
  (no	
  2014	
  sales),	
  rising	
  to	
  
10%	
  in	
  2018.	
  	
  
!• KT&T	
   (Kids,	
   Tweens	
   and	
   Teens):	
   The	
   youth	
  
marketplace	
  will	
  quickly	
  emerge	
  as	
  the	
  dominant	
  
segment	
   in	
   the	
   marketplace,	
   driven	
   by	
   a	
   wide	
  
variety	
   of	
   gaming	
   applications,	
   branded	
   devices	
  
created	
   specifically	
   for	
   this	
   demographic	
   and	
  
‘owned	
   worlds’	
   produced	
   from	
   UGC	
   activities.	
   This	
   segment	
   also	
   includes	
   the	
   older	
   Early	
   Majority.	
   We	
  
expect	
  2.5%	
  of	
  this	
  market	
  to	
  purchase	
  a	
  device	
  in	
  2015	
  (no	
  2014	
  sales),	
  rising	
  to	
  8%	
  in	
  2018.	
  	
  
!Over	
  the	
  five	
  year	
  period	
  from	
  2014	
  to	
  2018,	
  we	
  forecast	
  total	
  unit	
  device	
  sales	
  of	
  56.8m,	
  derived	
  from	
  10.9m	
  
hardcore	
  gamers,	
  18.1m	
  light	
  gamers	
  and	
  27.7m	
  from	
  KT&T	
  and	
  early	
  majority	
  users.	
  This	
  represents	
  a	
  CAGR	
  of	
  
160%.	
  Contact	
  us	
  directly	
  for	
  the	
  underlying	
  dataset	
  for	
  our	
  forecast.	
  
!
Hardware	
  Pricing	
  and	
  Revenues	
  
Quite	
  simply,	
  in	
  order	
  to	
  derive	
  revenues	
  from	
  device	
  sales,	
  we	
  have	
  multiplied	
  an	
  average	
  unit	
  price	
  by	
  the	
  
forecasted	
  number	
  of	
  units	
  sold.	
  On	
  a	
  unit	
  basis	
  we	
  have	
  forecasted	
  a	
  $300	
  selling	
  point	
  for	
  2014	
  devices,	
  falling	
  
to	
  $250	
  in	
  2015	
  and	
  a	
  continued	
  price	
  fall	
  through	
  to	
  $100	
  in	
  2018.	
  On	
  this	
  basis,	
  2014	
  total	
  device	
  revenue	
  is	
  
$60m,	
  rising	
  to	
  $1.4bn	
  in	
  2015	
  as	
  more	
  devices	
  are	
  launched	
  into	
  the	
  sector	
  and	
  the	
  light	
  gaming/KT&T	
  segments	
  
activate.	
  	
  	
  
In	
  terms	
  of	
  available	
  devices,	
  we	
  anticipate	
  two	
  to	
  three	
  
available	
  for	
  consumers	
  in	
  2014,	
  rising	
  to	
  five	
  in	
  2015.	
  By	
  
2018	
  we	
  expect	
  there	
  to	
  be	
  10	
  -­‐	
  12	
  major	
  suppliers	
  of	
  
CVRDs,	
  ranging	
  from	
  Apple	
  and	
  Microsoft,	
  through	
  to	
  
Samsung,	
   Sony	
   and	
   of	
   course	
   the	
   initial	
   consumer-­‐
focussed	
  pioneers	
  such	
  Oculus	
  VR.	
  
!The	
  chart	
  left	
  shows	
  annual	
  revenues	
  from	
  the	
  three	
  
primary	
   market	
   segments.	
   Hardcore	
   gamers	
   and	
  
innovators	
   account	
   for	
   $1.6bn	
   of	
   cumulative	
   sector	
  
revenues,	
  light	
  gamers	
  $2.5bn	
  and	
  KT&T/early	
  majority	
  
totalling	
  $4.2bn	
  
!
Full	
  year	
  2018	
  revenues	
  from	
  device	
  sales	
  is	
  forecasted	
  at	
  $2.3bn	
  (from	
  23m	
  units	
  sold),	
  which	
  yields	
  total	
  
cumulative	
  revenue	
  of	
  $8.4bn	
  over	
  the	
  5	
  year	
  period.	
  This	
  represents	
  a	
  CAGR	
  of	
  108%.	
  Putting	
  this	
  into	
  context,	
  
IBISWorld	
  Media	
  forecasts	
  total	
  2018	
  home	
  gaming	
  console	
  revenues	
  to	
  reach	
  $46bn.	
  
!
Page	
  12A	
  KZero	
  Worldswide	
  Report
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
Software	
  (Game	
  and	
  Apps)	
  Revenues	
  	
  
In	
  addition	
  to	
  market	
  sizing	
  the	
  device-­‐side	
  hardware	
  element	
  of	
  the	
  consumer	
  virtual	
  reality	
  sector,	
  we	
  have	
  
also	
  forecasted	
  revenues	
  from	
  the	
  games	
  and	
  apps	
  purchased	
  by	
  the	
  owners	
  of	
  the	
  devices/headsets.	
  This	
  is	
  
the	
  software	
  side.	
  	
  
!
An	
  important	
  element	
  we	
  have	
  factored	
  into	
  our	
  assumptions	
  relates	
  to	
  active	
  users	
  vs	
  device	
  owners.	
  We	
  
believe	
   that	
   the	
   consumer	
   VR	
   experience	
   will	
   have	
   a	
   major	
   viral	
   element,	
   meaning	
   owners	
   will	
   actively	
  
encourage	
  their	
  friends	
  and	
  family	
  to	
  use	
  their	
  devices	
  -­‐	
  ‘You	
  gotta	
  see	
  this’.	
  On	
  this	
  basis	
  we	
  have	
  applied	
  a	
  
multiplier	
  to	
  the	
  annual	
  device	
  sales	
  to	
  represent	
  more	
  active	
  users	
  than	
  actual	
  owners.	
  For	
  example,	
  in	
  2014	
  we	
  
have	
  modelled	
  three	
  active	
  users	
  (purchasing	
  games	
  and	
  apps)	
  per	
  owned	
  device.	
  This	
  falls	
  over	
  time	
  down	
  to	
  
two	
  in	
  2018.	
  	
  
!
From	
  a	
  business	
  model	
  and	
  user	
  monetisation	
  perspective,	
  we	
  expect	
  the	
  game/app	
  developers	
  to	
  deploy	
  
premium	
  pay-­‐to-­‐play	
  pricing	
  until	
  mid	
  2015	
  (i.e.	
  100%	
  paying	
  user	
  conversion),	
  then	
  experience	
  a	
  similar	
  path	
  to	
  
tablet/mobile	
  game	
  pricing	
  with	
  the	
  introduction	
  of	
  freemium	
  VR	
  applications.	
  In	
  2018	
  we	
  forecast	
  a	
  40%	
  paying	
  
user	
  conversion.	
  ARPPU-­‐wise,	
  we	
  assume	
  $50	
  annual	
  average	
  revenue	
  per	
  paying	
  user	
  in	
  2014,	
  rising	
  to	
  $150	
  in	
  
2018.	
  We	
  acknowledge	
  that	
  this	
  might	
  be	
  understating	
  the	
  ARPPU,	
  particularly	
  in	
  the	
  latter	
  years.	
  	
  
!
So,	
  on	
  an	
  overall	
  basis	
  we	
  forecast	
  software	
  revenues	
  of	
  $30m	
  in	
  2014,	
  rising	
  to	
  $947m	
  in	
  2015,	
  through	
  to	
  
$2.8bn	
  in	
  2018.	
  Overall	
  total	
  cumulative	
  software	
  revenues	
  over	
  the	
  5	
  year	
  period	
  total	
  are	
  estimated	
  at	
  $7.7bn.	
  	
  
This	
  represents	
  a	
  CAGR	
  of	
  148%.	
  As	
  a	
  comparison	
  to	
  other	
  forecasts,	
  DFC	
  Intelligence	
  and	
  Live	
  Gamer	
  recently	
  
forecasted	
  global	
  console	
  software	
  revenues	
  to	
  jump	
  from	
  $18.5	
  billion	
  this	
  year	
  to	
  $24	
  billion	
  in	
  2017.	
  Our	
  
equivalent	
  2017	
  figure	
  is	
  $2.2bn	
  from	
  consumer	
  VR	
  software	
  sales.	
  	
  
!
Marketing	
  Sizing	
  Summary	
  
From	
   a	
   relatively	
   humble	
   start	
   in	
   2014	
   with	
   total	
   sector	
   revenues	
   of	
   $90m	
   (from	
   600k	
   active	
   users),	
   we	
  
forecast	
  growth	
  to	
  $2.3bn	
  in	
  2015	
  (from	
  15.7m	
  active	
  users)	
  ,	
  $3.8bn	
  in	
  2016	
  (from	
  27.3m	
  active	
  users),	
  $4.6bn	
  in	
  
2017	
  (from	
  36.4m	
  active	
  users)	
  and	
  $5.2bn	
  in	
  2018	
  (from	
  47.6m	
  active	
  users).	
  	
  
!
This	
  yields	
  total	
  cumulative	
  revenues	
  of	
  $16.2bn	
  across	
  the	
  five	
  year	
  period	
  and	
  represents	
  a	
  CAGR	
  of	
  125%.	
  This	
  
forecast	
  is	
  shown	
  in	
  the	
  chart	
  below.	
  	
  
Page	
  13A	
  KZero	
  Worldswide	
  Report
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
7.	
  The	
  Face	
  Race:	
  Companies	
  Developing	
  VR	
  Headsets	
  
8.	
  Further	
  Information	
  
Virtual	
   Reality	
   News	
   Weekly:	
   Sign-­‐up	
   for	
   our	
   weekly	
   email	
   covering	
   the	
  
Consumer	
  Virtual	
  Reality	
  marketplace.	
  Sign-­‐up	
  at	
  kzero.co.uk/virtual-­‐reality/.	
  
!
KZero	
  Slideshare	
  Presentations:	
  Search	
  Slideshare	
  for	
  ‘KZero’	
  and	
  you’ll	
  find	
  
a	
  range	
  of	
  presentations	
  covering	
  the	
  virtual	
  reality	
  and	
  virtual	
  world	
  sectors.	
  
We	
  have	
  three	
  dedicated	
  presentations	
  to	
  accompany	
  this	
  report,	
  including	
  
our	
  Market	
  Sizing	
  analysis.	
  
!
KZero	
   Virtual	
   Reality	
   Radar	
   Chart:	
   Order	
   our	
   market	
   segmentation	
  
presentation	
  from	
  kzero.co.uk/virtual-­‐reality/.	
  
!
Twitter:	
  @kzeroworldswide	
  
!
Facebook:	
  facebook.com/KZeroWorldswide	
  
!
Page	
  14A	
  KZero	
  Worldswide	
  Report
Consumer	
  Virtual	
  Reality	
  -­‐	
  State	
  of	
  the	
  Market
!
!
!
Page	
  15A	
  KZero	
  Worldswide	
  Report

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Consumer Virtual Reality: State of the Market

  • 1. Consumer  Virtual  Reality  -­‐  State  of  the  Market ! ! ! ! ! ! ! Releasedate:June2014 Version: 1.3 ! ! ! ! Page  1A  KZero  Worldswide  Report Thewaywewillinteractwithdigitalcontentisaboutto rapidlychange,duetotheemergenceofConsumerVirtual Reality. ! ThisKZeroWorldswidereportexplainsthestateofthe ConsumerVirtualRealitymarket,thedevicesbeingcreated, thecompaniesoperatinginit,marketsizeforecastsand commercialapplicationexamplesforkeyVirtualReality markets. Consumer     Virtual  Reality     State  of  the  Market  Report
  • 2. Consumer  Virtual  Reality  -­‐  State  of  the  Market Executive  Summary   Intended  for  marketers,  brand-­‐owners,  entrepreneurs  and  investors,  this  KZero  State  of  the  Market  report   examines  the  emerging  market  of  Consumer  Virtual  Reality  (VR).  We  have  assessed  the  hardware  market   of  Consumer  Virtual  Reality  Devices  (CVRDs)  and  the  software  market  of  games  and  apps  for  VR.   !Virtual  Reality  refers  to  a  digital  3D  environment  that  can  be  accessed  and  interacted  with  using  a  VR   headset.  Users  wear  the  headset  and  then  place  themselves  within  a  100%  immersive  world.  User  head  and   body  movements  are  tracked  by  the  VR  application  and  the  environment  (what  the  user  sees)  reacts   accordingly.   !The  CVRD  market  is  currently  being  pioneered  by  a  company  called  Oculus  VR  (acquired  by  Facebook  in   March  in  a  $2bn  deal)  with  other  companies  such  as  Samsung,  Microsoft  and  Sony  in  close  pursuit.  In   addition,  a  range  of  start-­‐ups  are  also  developing  their  own  headsets.  In  conjunction  with  the  development   of   the   devices   (typically   headsets),   an   emerging   market   of   VR   game   developers   will   create   3D   environments  to  be  explored  by  the  device  owners  and  their  friends.   !We  have  identified  12  key  sectors  that  will  adopt  consumer  VR,  which  include  the  porting  over  of  existing   Massive  Multiplayer  Games,  the  creation  of  brand-­‐new  MMOs,  VR  environments  allowing  User  Generated   Content  and  Mirror  Worlds,  re-­‐creating  places  in  the  real  world.     !In  terms  of  numbers,  our  market  sizing  assessment  forecasts  almost  57m  devices  being  purchased  from   2014  -­‐  2018  and  total  active  users  of  47.6m  in  2018.  Revenue-­‐wise,  we  estimate  device  (hardware)  sales  to   exceed  $8.4bn  over  the  five  year  period  and  game/app  (software)  sales  of  $7.7bn.  This  equates  to  an   overall  market  size  (cumulative  from  2014  -­‐  2018)  of  $16.2bn  and  represents  a  CAGR  of  125%.     Page  2A  KZero  Worldswide  Report Contents   ! The  Basics   Moving  to  a  Mixed  Reality   Metaverse  Roadmap   Technology:  Hardware   What  Can  You  Do  With  It?   Virtual  Worlds   Mirror  Worlds   LifeLogging   Market  Sizing:  Hardware   1.  The  Basics   A   Consumer   Virtual   Reality   Device   (CVRD)   is   a   piece   of   hardware   resembling  goggles.  A  user  places  this  unit  on  their  head  and  sees  a   digital  image  on  a  display  as  opposed  to  seeing  the  real-­‐world  around   them.     !This   image   is   a   a   3D   stereoscopic   computer-­‐generated   digital   environment  or  virtual  world.  When  a  user  moves  their  head  to  the   left,  their  digital  field  of  view  moves  accordingly,  allowing  the  user  to   effectively  engage  and  interact  inside  the  virtual  world.  This  creates  a   Virtual  Reality  to  the  user.     !In  order  to  operate,  in  essence  a  Virtual  Reality  Device  needs    three   things:   • Supporting  graphic  capabilities  (via  a  headset)  in  order  to  display   the  digital  environment  to  the  user.  This  display  is  delivered  either   via  a  screen  or  by  projecting  directly  onto  the  retina.   •3D  content  to  provide  ‘the  view’  for  the  user.   •The   ability   to   allow   the   user   to   interact   directly   with   the   environment.   !This  technology  has  been  available  primarily  to  the  military  for  several   years.   Recent   gains   in   technology   and   processing   speeds,   coupled   with   a   growing   appetite   for   3D   gaming   content   has   stimulated   consumer  interest.  A  number  of  companies  are  actively  developing  or   about   to   develop   Consumer   Virtual   Reality   devices   (the   hardware).   Many  more  will  develop  virtual  worlds,  games  and  apps  for  the  device   owners  to  explore  (the  software).   !We  expect  this  technology  and  supporting  ecosystem  of  sectors  to   expand   rapidly   in   the   next   five   years,   in   addition   to   new     vertical   markets  opening  up  aside  from  the  core  gaming  propositions.
  • 3. Consumer  Virtual  Reality  -­‐  State  of  the  Market 2.  Moving  to  a  Mixed  Reality   We  are  moving  towards  a  Mixed  Reality  as  our  real  and  digital  worlds  continue  to  merge  together.  Our  digital   lives  increasingly  include  pictures  and  video  of  our  surroundings  and  content  from  everywhere  and  anywhere   can  reach  us  instantly.   !The  way  that  we  will  interact  with  digital  content  is  about  to  rapidly  change  and  is  explained  in  the  spectrum   shown  below.     3.The  Metaverse  Roadmap   From  Wikipedia:  ‘The  Metaverse  is  a  collective  virtual  shared  space,  created  by  the  convergence  of  virtually   enhanced   physical   reality   and   physically   persistent   virtual   space,   including   the   sum   of   all   virtual   worlds,   augmented  reality,  and  the  internet.  The  word  metaverse  is  a  portmanteau  of  the  prefix  "meta"  (meaning   "beyond")  and  "universe"  and  is  typically  used  to  describe  the  concept  of  a  future  iteration  of  the  internet,   made  up  of  persistent,  shared,  3D  virtual  spaces  linked  into  a  perceived  virtual  universe.’  Now,  that  sounds  a  bit   Page  3A  KZero  Worldswide  Report Augmented  Virtuality   Augmented  Virtuality  (AV)  is  the  combination  of  real   and  virtual  environments.  In  this  instance,  the  digital   content  is  not  merely  used  to  complement  the  real   view  but  instead  is  used  to  enhance  it.     !Examples  of  AV  concepts  include  news  studios  with   digital  (visual)  backdrops  (or  the  weatherman),  the   dynamic  yards  line  in  a  TV  football  match.  Whereas   AR   would   typically   have   no   more   than   20%   of   the   field  of  view  allocated  to  digital,  with  AV  this  ratio   could   be   inverted,   meaning   digital   content   would   account  for  circa  80%  of  the  total  view.   ! Virtual  Reality   When   a   user   is   placed   within   a   100%   digital   environment  that  they  can  engage  and  interact  with,   through  sight,  sound  and  movement,  they  are  in  a   Virtual   Reality.   This   concept,   although   only   now   becoming  commercially  available,  is  considered  ‘Star   Trek  Tech’,  meaning  it  has  existed  in  sci-­‐fi  and  to  a   degree  general  knowledge  for  many  years.  The  best   example  of  this  is  the  ‘Holodeck’.   Real  Environment   The  Real  Environment  is  the  ‘good  old  way’  that  we   interact  with  our  surroundings.  What  we  see  with  our   eyes  is  what  we  get.  In  this  scenario,  there  is  no  digital   content  added.   Augmented  Reality   Augmented   Reality   (AR)   is   the   real-­‐time   supply   of   complementary   digital   information   into   our   current   field  of  real  view. AR  applications  include  providing  map-­‐type  guidance   information   as   a   person   is   on   the   move,   or   house   pricing  when  a  property  is  looked  at.  These  types  of   AR   concepts   rely   on   technology   such   as   image   recognition,  GPS  and  Internet  connectivity  -­‐  basically   supplying  additional  information  based  on  the  usage   context.   AR   is   currently   available   using   smartphones   and   laptops,   as   well   as   newer   developments   utilising   glasses  (as  opposed  to  headsets),  with  Google  Glass   being  the  best  example.   The  most  important  thing  to  remember  with  AR  is   that  the  digital  content  is  always  in-­‐support  of  what   the  user  is  actually  seeing  and  doing  in  the  real  world. Image  courtesy  of  Google
  • 4. Consumer  Virtual  Reality  -­‐  State  of  the  Market fancy,  but  the  Metaverse  Roadmap  is  a  useful  tool  to  scope  out  the  way  the  Internet  is  developing.  The  graphic   below  is  the  Metaverse  Roadmap.   !!!!!!!!!!!!!!The   various   elements   of   the   Metaverse   Roadmap,   taken   from   MetaverseRoadmap.org,   are   explained   as   follows.   !Combining   these   different   elements   to   varying   degrees  in  turn  identifies  key  markets  for  Consumer   Virtual  Reality  Devices  .  They  are  as  follows:   !Virtual  Worlds  (VWs)  and  Massive  Multiplayer  Online  Game  (MMOs)   This  market  segment  is  the  low  hanging  fruit  of  the  overall  sector.  The  initial  commercial  uses  of  Virtual  Reality   devices  will  be  in  gaming  and  more  specifically,  Virtual  Worlds  and  MMOs.  Already  massively  popular  across  all   age  ranges,  whereas  the  current  ‘experience’  for  virtual  worlds  is  simply  through  a  monitor  or  screen,  Virtual   Reality  will  place  players  ‘inside’  the  game,  being  able  to  directly  interact  with  the  digital  environment.    Note   that  there  are  already  thousands  of  VW’s  already  created  (i.e.  the  3D  environments  already  exist)  and  used  by   millions  of  players.  These  VW’s  have  been  commercially  created,  to  support  the  game  they  exist  to  serve  (for   example  a  map  in  Modern  Warfare  or  Los  Santos  in  GT5)  as  well  as  from  User  Generated  Content  (of  all  ages)  in   worlds  such  as  Roblox  and  Second  Life.   !Mirror  Worlds   Similar  to  VW’s,  Mirror  worlds  are  100%  digital  environments.  However,  rather  than  being  fictionally  invented   places  (created  to  support  the  game),  Mirror  Worlds  are  virtual  versions  of  the  real  world  -­‐  they  are  based  on   real  places.  For  example,  think  Times  Square  in  New  York  re-­‐created   virtually  allowing  users  to  put  on  a  headset  and  walk  around  like  a   tourist.     !Existing  VW’s  such  as  Second  Life  and  others  already  contain  hundreds   of  Mirror  Worlds,  ranging  from  the  central  London,  Berlin  (created  by   Germany  based  Twinity)  the  Eiffel  Tower,  Yankee  Stadium  and  even   the  whole  of  the  UK.  Mirror  worlds  are  also  being  used  to  re-­‐create   places  (and  then  events)  in  history.  Think  of  this  as  virtual  time  travel.         Page  4A  KZero  Worldswide  Report Augmentation   Augmentation  refers  to  technologies  that  add  new   capabilities  to  existing  real  systems;  in  the  Metaverse   context,   this   means   technologies   that   layer   new   control   systems   and   information   onto   our   perception  of  the  physical  environment.   !Simulation     Refers  to  technologies  that  model  reality  (or  parallel   realities),  offering  wholly  new  environments;  in  the   Metaverse   context,   this   means   technologies   that   provide   simulated   worlds   as   the   focus   for   interaction. Intimate     Technologies   that   are   focused   inwardly,   on   the   identity  and  actions  of  the  individual  or  object;  in  the   Metaverse  context,  this  means  technologies  where   the   user   has   agency   in   the   environment,   either   through   the   use   of   an   avatar   or   through   direct   appearance  as  an  actor  in  the  system.   !External     Technologies  focused  outwardly,  towards  the  world   at   large;   in   the   Metaverse   context,   this   means   technologies   that   provide   information   about   and   control  of  the  world  around  the  user. Image  source:    Second  Life
  • 5. Consumer  Virtual  Reality  -­‐  State  of  the  Market Lifelogging   Lifelogging  is  essentially  using  technology  to  capture,  record  and  store  our  lives,  as  we  live  them.  These  means   the  people  we  meet  (what  we  see),  the  things  we  say  and  listen  to  (what  we  hear)  and  the  places  we  visit   (where  we  go).  Think  of  Lifelogging  as  a  digital  personal  diary,  without  having  to  write  it.     ! Pulling  Lifelogging  back  to  existing  technologies  and  applications,  in  a  straight-­‐forward  sense  it’s  simply  the  next   evolution   of   ‘personal   information’.   First   we   had   blogging,   then   micro-­‐blogging   (a   la   Twitter)   and   next   up   Lifelogging.   The  Google  Glass  project  is  a  great  example  of  Lifelogging,  using  a  camera  (for  pictures  and  video),  GPS,  a   heads-­‐up  display  (projected  to  one  eye)  and  Internet  connectivity,  users  of  Glass  and  receive  location-­‐specific   information,  get  digital  content  on  demand  and  digitally  record  what  they  do.    Although  some  people  think  the   primary  use  of  Google  Glass  (and  other  wearable  devices)  is  for  Augmented  Reality  (receiving  information),  we   believe  that  Lifelogging  (recording  information)  will  be  the  application  that  boosts  mass  adoption.     ! These  three  segments  will  be  further  drilled  into  and  expanded  later  in  this  report.    !!! 4.  Technology  -­‐  What  makes  a  Virtual  Reality  Device?  !This  report  is  not  intended  to  focus  too  closely  on  the  underlying  technology  required  for  consumer  Virtual   Reality.  However,  assessing  the  supply  chain  and  supply  composites  does  throw  an  interesting  light  on  the   directions  this  market  is  moving  into.       !The  following  sections  lay  out  the  high-­‐level  technology  require  to  create  these  devices/platforms  as  well  as   actual  and  potential  manufacturers.     ! Page  5A  KZero  Worldswide  Report Image  source:    Google Image  source:  Google
  • 6. Consumer  Virtual  Reality  -­‐  State  of  the  Market The  four  elements  above  are  the  core  aspects  from  hardware  and  technology  perspectives.  But  whose  making   CVRDs?  We  have  identified  three  different  types  of  companies  interested  in  manufacturing,  as  follows:     Specialist  Gaming  creams-­‐off  the  Innovators   A   growing   number   of   early   stage   companies   founded   specifically   to   manufacture   CVRD’s   are   emerging.   These   companies,  at  the  cutting  edge  of  a  major  new  technology,   are  developing  their  systems  initially  for  the  gaming  market   with  some  utilising  third-­‐party  mobile  (Android)  devices.     !Oculus  VR,  Inc.  is  the  most  well  known  start-­‐up  in  this  space   and  even  more  so  following  the  recent  $2bn  acquisition  by   Facebook.   Other   companies   of   note   include   VRelia,     Avegant,  Sulon,  ANTVR  (shown  right),  GameFace  Labs  and   True  Player  Gear.  There  is  also  a  number  of  stealth  start-­‐ups  on  the  verge  of  entering  this  marketplace.   ! Generalist  Technology  takes  the  Early  Adopters   Existing   technology   companies   with   product   presence   in   segments   such   as   console   gaming,   telephony,   general   computing  and  general  technology  are  already  in  NPD  mode   for  CVRD.  These  include  Apple,  Sony,  Microsoft,  Samsung  and   Google.     ! These  companies  will  strive  to  create  semi-­‐closed  technology   gardens,  offering  both  the  hardware  (the  devices)  and  a  way   of   obtaining   the     virtual   reality   environments,   games   and   other  applications  -­‐  think  App  stores.     !The  Sony  headset,  coded-­‐named  Project  Morpheus  is  shown   in  the  image  left.     Section  7  shows  a  full-­‐  list  of  companies  developing  VR  headsets.   ! Brands  and  IP’s  garden-­‐wall  the  Early  Majority   Just  as  we  see  some  toy  companies  create  custom  dedicated  tablets  for  certain  markets,  we  expect  this  to   happen  also  in  the  CVRD  sector.  We  expect  companies  such  as  Mattel  and  Hasbro  (as  well  as  other  large   consumer   IP   owners)   to   acquire   third-­‐party   technology   and/or   re-­‐package   existing   technology   and   supply   closed-­‐platform  virtual  reality  experiences  based  around  their  portfolio  of  brands  and  IPs.   ! And  last  but  not  least….the  virtual  world   Or  more  specifically,  the  final  piece  of  the  puzzle  is  the  creation  of  the  3D  environment  itself,  be  it  a  virtual   world,  mirror  world  or  lifelogging  experience.  By  development,  we  mean  the  3D  modelling  of  virtual  items,  the   terrain,  buildings,  avatars/non-­‐playing-­‐characters  (NPCs)  and  other  elements  required  to  place  a  user  into  a   digital  environment,  as  well  as  the  created  mechanics,  objectives  and  interactions  needed  to  give  the  user  a   reason  to  enter.     ! Page  6A  KZero  Worldswide  Report Hardware   The  physical  headset  and  accompanying  functionality.   This   includes   processors,   wifi,   GPS   and   other   technology  needed  for  wearable  computing.   !Display   The  screen  displayed  to  the  user  inside  the  headset.   When   a   user   puts   on   the   device,   they   look   into   the   display  and  ‘enter’  the  virtual  reality  environment. Sensors   Sensors   detect   where   the   person   is   looking,   how   and  where  they  are  moving  and  generally  translate   real-­‐world  movement  into  a  virtual  equivalent.   !Render   The   combined   technology   (from   the   display   and   sensors)  that  ‘creates’  the  3D  environment    and  how   it  is  presented  to  players
  • 7. Consumer  Virtual  Reality  -­‐  State  of  the  Market These  types  of  development  companies  are  effectively  ‘World  Builders’.  We  expect  World  Builders  to  fall  into   one  of  the  following  four  categories:   ! • KT&T  virtual  world  developers:  Companies  already  making  browser  and  tablet  based  3D  virtual  worlds  and   MMOs   for   the   Kids,   Tween   and   Teen   (KT&T)   sector   are   highly   likely   to   evolve   into   creators   of   VR   environments.  We  expect  these  types  of  environments  to  be  based  on  existing  IP’s  that  already  have  a   presence  in  the  virtual  world/MMO,  app  or  kids  gaming  markets.     ! We   asked   Matthew   Warneford,   CTO   of   leading   kids/tween   virtual   world   developer   Dubit   to   offer   his   thoughts  on  the  emerging  market  of  virtual  reality  ‘playgrounds’  for  younger  players:   ! "As  a  developer  of  multiple  virtual  worlds  and  online  games  for  brands  and  companies  across  the  world,  we've   been  monitoring  the  progress  of  the  virtual  reality  sector  for  quite  a  while.  Although  the  majority  of  these  kids   virtual  worlds  and  MMOs  have  been  browser-­‐based  and  more  recently  on  tablets,  we  expect,  and  look  forward   to  be  working  with  companies  in  the  kids  space  to  develop  VR  specific  applications.  We  see  it  as  a  natural   evolution  of  the  sector.   ! For  brands  and  particularly  kids/tween  IPs  with  presence  online,  the  movies,  on  TV  or  toy-­‐based,  virtual  reality   will  allow  these  IPs  to  fully  immerse  kids  into  their  branded  worlds  and  experiences.  We've  already  seen  how   quickly  kids  embrace  new  technologies  and  we  expect  VR  to  be  no  different."   ! • Console  game  developers:    With  the  older  gaming  market  being  the  low-­‐hanging  fruit  of  this  marketplace,   we   expect   many   game   developers,   primarily   with   console   expertise   to   develop   VR   environments.   Think   Battlefield  4  or  Call  of  Duty  (developed  by  Dice/EA  and  Treyarch/Infinity  Ward/Activation  respectively).  We   expect  these  environments  to  be  based  primarily  on  existing  games/IPs  in  the  short-­‐term.  The  medium  term   will  see  them  create  brand-­‐new  IPs  and  games  specifically  for  the  CVRD  market.   ! • Dedicated  specialists:    i.e.  companies  created  specifically  to  develop  VR  environments  and  platforms.  These   will  be  companies  typically  creating  new  IP  platforms  specifically  for  CVRD.  We  expect  there  to  be  moderate   VC  interest  and  investment  into  this  category,  just  as  over  $800m  was  invested  in  the  KT&T  VW  sector  off  the   back  of  the  Club  Penguin  acquisition  by  Disney.  Interestingly,  we  expect  the  target  market  for  these  types  of   companies  to  be  adults,  with  potential  NPD  into  areas  such  as  sex  (of  course),  gambling  and  other  vertical   markets.     ! • User  Generated  Content  (UGC)  :  Sandbox  environments  and  other  world-­‐based  platforms  currently  allowing   users  to  create  their  own  content,  such  as  Minecraft  and  Second  Life  demonstrate  the  popularity  of  this   activity.     We  therefore  expect  great  interest  and  activity  in   the  market  for  users  to  create  their  own  worlds,   either  on  their  own  or  with  others.  This  is  simply   an  evolution  from  the  browser  to  the  headset.     ! As  part  of  this  evolution  we  expect  some  UGC   platforms  currently  in  the  browser  (or  desktop   client)  to  initially  allow  users  to  ‘port’  or  re-­‐create   their  browser  worlds  easily  into  a  virtual  reality   environment.  This  trend  has  already  started  with       ‘Minecrift’,   a   total   VR   conversion   for   Minecraft   with  Oculus  Rift  support  (see  image  left).   ! 5.  Enough  of  the  tech.  What  can  you  do  with  these  things?   This  section  of  the  document  provides  examples  of  use-­‐cases  for  consumer  virtual  reality,  in  other  words,  what   you  can  do  with  it.  As  we  expect  the  first  phase  of  market  development  will  come  from  the  gaming  sector,  we   have  focussed  on  this  segment,  although  we  provide  some  example  use-­‐cases  for  other  sectors.  Some  of  the   concepts   we   will   explain   are   already   in   development   or   conceptually   defined,   whilst   others   are   our   own   examples.   Page  7A  KZero  Worldswide  Report Image  source:  Oculus  VR
  • 8. Consumer  Virtual  Reality  -­‐  State  of  the  Market Virtual  World  Concepts   We   expect   existing   virtual   worlds   and   MMOs   to   be   converted   into   virtual   reality   equivalents   (initially   with   console-­‐type  controllers,  moving  to  full  body  input  systems).  This  will  be  the  first  consumer  use  of  consumer  VR     technology.  Listed  below  are  three  key  areas.       ! Evolving  on  from  taking  existing  browser/screen  based  virtual  worlds  and  MMOs  (massive  multiplayer  online   games),  we  expect  a  high  number  of  ‘new  worlds’  created  and  therefore  an  emerging  ecosystem  of  new  start-­‐ ups  and  IP’s  offering  game-­‐based  VR  environments.    Examples  include:   Page  8A  KZero  Worldswide  Report Teen  &  Young  Adult  Market   Genres   such   as   dating,   fashion   and   socialising  are  ideally  suited  to  a  more   immersive   experience.   Again,   we   expect   existing   properties   such   as   IMVU   and   Stardoll   to   look   closely   at   creating   3D   environments   for   their   platforms.     !Whereas  with  the  adult  gaming  market   the   environment   is   the   ‘draw’,   with   dating,   socialising   etc,   the   role   of   the   avatar  will  be  more  important.    This  is  a   market   segment   we   expect   to   materialize  early  2015.  We  believe  that   ‘Social   Worlds’   is   the   prime   reason   Facebook  acquired  Oculus  VR. Adult  Gaming  Market   Skyrim,  Mirror’s  Edge  and  Team   Fortress   2   are   three   popular   existing   games   that   have   been   adapted/ported   to   operate   via   CVRD   and   specifically   with   the   Oculus  Rift.  Many  more  existing   MMO  and  3D  multiplayer  games   will  be  ported  from  the  monitor   to  the  headset.     !First   person   shooters   (FPS)   are   likely   to   be   the   initial   popular   game   genres,   along   with   other   RPG   games   (role-­‐playing).   We   anticipate   this   segment   to   gather  momentum  mid  2014. Kids/Tween  Market   The  most  popular  (on  a  registered   account   basis)   segment   of   the   existing  virtual  worlds  marketplace   is   kids   and   tweens.   Creating   VR   versions   of   IPs   such   as   Moshi   Monsters,  Club  Penguin  and  Wizard   101  are  logical  extensions.     !User   generated   content   based   applications   for   the   kids/tween   segment   are   also   expected   to   be   very  popular  and  allow  this  younger   market  to  create  fantastical  worlds     to   explore,   play   and   socialise   in.   Initial  games  and  apps  in  this  space   are  expected  throughout  2014. Bespoke  MMOs   Brand-­‐new  MMO  games  and  virtual  worlds  will   be  created  specifically  to  leverage  and  fully  utilize   the   opportunities   and   capabilities   of   VR.     Specifically   integrating   greater   use   of   player   /   environment   interaction.   These   games   will   in-­‐ turn  become  more  immersive  as  a  result  of  the   ability  for  players/users  to  direct  engage  with  the   digital   content   around   them.   Several   MMOs   of   this  type  are  already  being  developed  by  existing   game  developers.       !Late  2014  /  early  2015  is  when  we  expect  to  see   the   first   of   these   types   of   games   launched.   Evolving  from  here,  probably  from  mid  2015  will   be  the  introduction  of  devices  that  allow  players   to  physically  move  their  legs  and  move  inside  the   virtual  world  without  needing  a  controller.     ! The  best  example  of  VR  player  movement  is  the   Omni,   an   omnidirectional   treadmill   from     a   company  called  Virtuix.  Users  stand  in  the  middle   of  a  tracking  unit  that  allows  them  to  walk  in  any   direction.   The   company   says:   ‘Gaming   on   a   keyboard,  mouse  or  gamepad  while  seated  pales  in   comparison  to  the  intense  experience  and  fun  that   comes   from   actually   walking,   running,   and   jumping  in  games’.  Another  product  to  watch  is   Sixense  Stem  motion  sensor. Gambling   It  is  not  unrealistic  to  expect  VR  casinos  and  3D  gambling   to  be  both  popular  and  profitable.  Put  simply,  wearing  a   CVRD   would   place   you   at   a   3D   digital   blackjack   (for   example)  table.  Avatars  would  represent  the  other  players   and  players’  hands  would  hold  virtual  cards,  chips  etc.  We   anticipate  this  vertical  market  to  emerge  very  soon  after   the  commercial  launch  of  CVRD  -­‐  late  2014  /  early  2015.  This   push  will  come  from  existing  online  gambling  companies   as  well  as  start-­‐ups.     !Shown  below  is  a  screenshot  from  World  Series  of  Poker:   Full  House  Pro.  A  recently  launched  game  developed  by   Pipeworks   Software,   published   by   Microsoft   Games   Studios   for   Xbox   360   as   an   Xbox   Live   Arcade   title   and   Windows  8.   Image  source:    Microsoft
  • 9. Consumer  Virtual  Reality  -­‐  State  of  the  Market UGC  Worlds   Having   experienced   the   massive   success   of   User   Generated   Content   virtual  worlds  such  as  Second  Life,  Minecraft  and  Roblox  (appealing  to   all  ages)  we  strongly  believe  this  segment  is  ripe  for  massive  expansion.   In   these   virtual   reality   worlds,   users   will   be   able   to   create   their   own   environments   and   from   here,   then   create   endless   applications   and   activities.  In  essence,  users  would  be  able  to  create  their  own  worlds   and  then  enter  them,  putting  them  in  complete  control  -­‐  it’s  an  amazing   thought.     !Evolving   this   concept   further,   we’ll   also   see   users   create   worlds   and   invite  others  to  enter  them  as  well  as  co-­‐operative  content  creation.   We’re  already  seeing  some  early  work  in  the  field  of  UGC  virtual  reality   with  the  creation  of  Minecrift,  a  dedicated  tool  (mod)  that  allows    users   to  interact  with  Minecraft  via  the  Oculus  Rift  and  the  Metacraft  project.   ! Brand-­‐new  Sporting  Categories   When  the  Wii  gaming  system  was  introduced,  it  ushered  in  a  new  style  of  consumer  gaming,    with  gamers  given     the  tools  to  interact  with  games  on  a  more  active  basis.  Now,  with  the  pending  introduction  of  VR  gaming,  we   strongly  believe  that  brand-­‐new  sports  and  ‘movement-­‐based’  activities  will  be  created.   ! These  new  sports  will  be  built  from  the  ground-­‐up,  starting  with  the  unique  attributes  offered  by  VR,  including     body  movement  interaction  and  the  ability  to  place  players  into  newly  constructed  3D  environments  tailored  to   leverage  VR  and  provide  the  player  with  a  dedicated  immersive  experience.  Think  Quidditch.     ! Page  9A  KZero  Worldswide  Report Active  Sports   Active  users  require  users  to  move  their  entire  body  in   order  to  participate.  From  a  timing  perspective,  this  is  a   market  we  expect  to  grow  from  mid/late  2015.   !Coupled  to  the  concept  of  using  CVRDs  to  put  the  user   within  a  dedicated  sporting  environment,  an  additional   functionality   required   to   permit   fully   active   sports   to   ‘work  properly’  is  body  movement  tracking.  And,  this  is   a   segment   expected   to   piggy-­‐back   on   the   growth   of   VR.   There   are   two   primary   ways   to   track   body   movement:   !• Camera   tracking.   Devices   such   as   the   Microsoft   Kinect  are  being  used  to  track  body  movements  of   game  players.   • Treadmills.  Certainly  positioned  more  to  the  hard-­‐ core  gaming  market  in  the  first  instance,  early  stage   companies   are   developing   omni-­‐directional   treadmills  that  allow  players  to  interact  with  games   via  body  movement.  A  company  called  Virtuix  has   developed   a   product   called   Omni   and   from   their   website:     ‘Applications   of   natural   movement   in   virtual  reality  stretch  far  beyond  gaming:  training  and   simulation,   fitness,   virtual   tourism,   virtual   trade-­‐ shows   and   events,   meet-­‐ups   and   multi-­‐person   adventures’.   • Key  sports  made  possible  via  body  tracking  include   fitness,  tennis  and  swimming.  But  don’t  expect    a   fully  virtual  Fifa14  until  at  least  2018! Passive  Sports   Classified   as   ‘Simulation   Games’,   we’ve   categorised   sports   into   either   passive   or   active.   Passive   sports/games   can   be   enjoyed   in   the   real   world   when   you’re   sitting   down   or   requiring   limited  body  movement.    Active  sports  (explained   right)  require  more  body  movement.     !Passive   sports   presented   as   simulated   environments   will   be   popular   both   as   solo   experiences   as   well   as   on   a   multi-­‐player   basis.   Examples  of  passive  sports  include:   !• Car  racing  (and  a  company  called  iRacing  is  a   key  company  to  watch  here).   • Flying  games  based  on  aeroplane  simulations.   • Fishing.   • Darts.   • Shooting  /  archery.   • Cycling.   !A   key   point   to   stress   with   the   passive   sports   identified   above   is   that   these   are   tight   vertical   markets   with   passionate   players   and   fans.   This   means   relevance   -­‐   users   with   strong   interests   in   vertical  markets  are  highly  likely  to  be  monetised  if   they’re  in  an  environment  built  specifically  to  cater   to  their  interest.   !We  expect  this  market  to  gather  pace  early  2015. Image  source:  metacraft.ch
  • 10. Consumer  Virtual  Reality  -­‐  State  of  the  Market Mirror  Worlds  Concepts   Whereas  the  virtual  world  concept  examples  in  the  previous  section  have  3D  environments  that  have  been   ‘invented’  to  serve  the  underlying  concept  of  the  game/activity,  mirror  worlds  differ  because  they’re  based  on   actual    places  in  the  real  world.     ! The  Mirror  World  idea  of  re-­‐creating  places  from  the  real  world  and  then  allowing  avatars  to  explore  them  has   garnered  some  popularity  via  screen/browser  based  applications  such  as  Twinity  (German-­‐based  company  that   created  a  virtual  Berlin),  Second  Life  (users  specifically  building  mirror  world  destinations  inside  Second  Life)   and  even  Minecraft.  However,  the  lack  of  ‘being  in  the  space’  a  la  VR  has  largely  constrained  this  category  from   mass  adoption  -­‐  ‘the  experience  just  didn’t  feel  right’.  However,  with  the  advent  of  consumer  virtual  reality  we   anticipate  a  renaissance,  so  to  speak.     ! Tourism   Virtual  tourism  is  probably  the  lowest  hanging  fruit  in  this  market,  so  expect  many  real-­‐world  places  to  be  made   available  in  a  VR  environment.  In  practise,  this  idea  will  allow  people  to  explore  places  they’ve  never  visited.   Shown  below  is  a  working  demo  available  from  Oculus  VR  allowing  users  to  visit  virtual  Tuscany.     !And  of  course,  with  a  primary  benefit  of  VR  being  ‘anything  is  possible’,  there’s  nothing  at  all  to  stop  the   creation  of  mirror  world  initiatives  allowing  people  to  swim  on  the  sea-­‐bed  of  the  Atlantic  ocean,  hang-­‐out  at   the  top  of  Mount  Everest  or  even  walk  on  the  moon.    Before  we  move  onto  the  next  concept,  think  of  this  idea   of  tourism  as  being  ‘modern-­‐day’,  i.e.  allowing  users  to  visit  places  that  could  actually  be  visited  today.     ! Page  10A  KZero  Worldswide  Report Google  Maps,  Street  View  and  Indoor  Maps   Our  modern-­‐day  world  is  ripe  for  VR  integration  with   existing   platforms   such   as   Google   Maps   and   Street   View   already   allowing   us   to   ‘see’   into   remote   places.   Tack   onto   this   newer   products   like   Indoor   Maps   and   then  we’re  sucking  diesel.     ! Virtual  Reality  in  this  context  can  allow  us  to  take  2D   image  overlays  of  the  real-­‐world  and  enter  constructed   3D   conversions.   Early   demos   of   this   concept   already   exist,  with  the  OculusStreetView.eu.pn  project  being  a   good  example. VR  Time  Travel   Virtual  Reality  can  be  used  to  create  mirror  worlds   based   on   places   (and   events)   from   history.   So,   users  of  these  types  of  environments  will  include   students/teachers,   researchers   and   anyone   who   effectively  wants  to  travel  back  in  time  to  explore   and   experience   historic   events.   Of   course,   the   applications   here   are   endless,   but   here’s   some   examples:   !• You   don’t   read   about   the   1st   World   War   or   study  black  and  white  photos  of  key  battles.   Instead,  you’re  standing  in  the  middle  of  river   Somme,  with  bullets  flying  past  your  head.     • Being   in   the   crowd   at   the   signing   of   the   Magna  Carta.   • Jurassic  Park.  Enough  said.   • The  Titanic.  As  above.   • And  on  a  sporting  theme,  how  about  sitting  in   the  referees  chair  during  the  McEnroe  &  Borg   1980  Wimbledon  tennis  final.   Images  source:  Oculus  VR Image  source:  OculusStreetView.eu.pn
  • 11. Consumer  Virtual  Reality  -­‐  State  of  the  Market LifeLogging  Concepts   Ok,  so  here’s  where  it  gets  interesting.  Combining  VR  with  LifeLogging  brings  in  elements  of  both  virtual  and   mirror  worlds.  In  essence,  VR  Lifelogging  will  allow  us  to  see  through  other  peoples  eyes.     ! And  interestingly,  this  is  made  possible  by  the  collaboration   between  augmented  reality  and  virtual  reality,  as  illustrated  in   the  graphic  left.     ! AR  devices  such  as  Google  Glass  and  others  coming  to  market   such  as  the  Space  Glasses  from  Meta  will  continually  improve   their  video  and  audio  capture  capabilities,  allowing  them  to   basically   be   input   channels,   recording   what   the   wearer   is   saying,  seeing,  hearing  and  doing.    The  output  of  this  content   is  VR.  Users  can  use  VR  to  see  through  the  eyes  of  other  people,  either  in  real-­‐time  or  using  pre-­‐recorded   content.  This    application  could  even  be  used  by  the  recorder  of  the  content,  in  a  diary  or  memory  fashion,   allowing  them  to  re-­‐live  moments  from  their  lives.  Here’s  some  more  examples:   ! These  memory-­‐sharing  and  life-­‐insight  type  concepts  open  up  brand-­‐new  revenue  streams  for  the  content   owners.   For   example,   consumers   will   pay   to   watch   a   football   match   through   the   eyes   of   their   favourite   quarterback,   attend   a   concert   through   the   eyes   of   the   lead   singer   or   simply   remotely   hang-­‐out   with   their   favourite  celebrity  living  their  daily  lives.  This  is  slightly  more  interesting  than  following  them  on  Twitter.     Visualising  concepts  using  the   Radar  Chart   We  have  identified  12  key  sectors  set  for  growth  within  the   consumer   VR   marketplace.   These   12   sectors,   along   with   predicted   launch   timings   are   visualised   in   the   KZero   VR   Radar  chart.     !A   segment   of   the   Radar   chart   (available   for   free   via   our   website,   kzero.co.uk)   is   shown   right.   For   example,   specifically   for   the   category   of   new   concept   MMOs   and   virtual  worlds,  we  expect  2014  growth  coming  from  older   adult  markets,  with  new  IP  tween  and  teen  concepts  hitting   in  2015.     Page  11A  KZero  Worldswide  Report Celebrities   Some   celebrities   and   famous   people   have   millions   of   Twitter   followers   and   Facebook   fans.   These   are   people   interested   in   what   their   idols   are   doing.   LifeLogging  VR  will  allow  them  to   experience   the   lifestyle   and   experiences  of  these  people. Sports   Sports  fans  will  be  able  to  watch   matches   and   games   through   the   eyes  of  the  players  or  the  officials  -­‐   or  even  sit  on  the  front  row  of  the   basketball  arena,  next  to  Jay  Z  of   course.  (because  Beyonce  will  be   wearing   the   diamond-­‐encrusted   AR  headset!) Sharing  Life  Stories   Forget   posting   photos   on   Instagram.   How   about   allowing   y o u r   f r i e n d s   t o   s e e   V R   representations   of   key   events   in   your   life   -­‐   birthdays,   holidays,   marriages  etc.  Think  of  this  life  a   VR  diary  available  on-­‐demand. Help!  I’m  Lost   Allowing   real-­‐time   sharing   of   life   content  to  other  people  via  VR  will   allow   us   to   share   what   we’re   doing,   where   we’re   doing   it   and   who  we’re  doing  it  with.  Obvious   this   concept     has   multiple   applications,   including   remote   assistance  when  we’re  lost. Phobias  and  Fears   Got   a   fear   of   heights?   VR   will   be   used   to   treat   people   with   fears   and  phobias  by  allowing  them  to   ‘virtually’   confront   their   fears.   In   this   content,   users   can   place   themselves   into   previous   or   real-­‐ time  events  with  their  friends  and   overcome  their  phobias. User  Generated  Sweat   How   about   cycling   the   Tour   de   France   from   the   relative   comfort   of  your  garage?  Or  taking  part  in  a   10,000   person   bootcamp?   We   expect   VR   to   transform   the   h e a l t h c a r e   a n d   f i t n e s s   marketplaces   along   with   the   concept  of  virtual  trainers.
  • 12. Consumer  Virtual  Reality  -­‐  State  of  the  Market 6.  Products,  pricing  and  demand:  Market  Sizing   Of  course  everyone  wants  to  know  how  large  the  Consumer  Virtual  Reality  marketplace  will  be.  So,  this  section   contains  our  market  sizing  assessment.  We’ve  compiled  a  five-­‐year  forecast  from  2014  through  to  2018  looking   at   the   two   primary   sources   of   consumer   demand,   namely   devices   (hardware)   and   games/applications   (software).  Excluded  from  our  market  sizing  forecasts  are  Augmented  Reality  related  markets,  non-­‐consumer   VR  applications  and  VR  development  costs.     ! Unit  Sales  of  VR  Devices   Firstly,  our  device  unit  sales  analysis,  as  shown  in  the  chart  below.  Unit  sales  of  CVRDs  have  been  split  into  three   segments:   !• Hardcore  gamers:  This  market  is  comprised  mainly  by  older  gamers  aged  30+.  Importantly,  they’re  primarily   within  the  Innovator  technology  adoption  group.  We  have  forecasted  that  1%  of  this  segment  will  purchase   devices  in  2014,  rising  to  20%  in  2018.     !• Light   gamers:   Typically   Early   Innovator   types,   these  consumers  and  teenage+  age-­‐wise,  owning   gaming   consoles   and   playing   tablet/smartphone   games.   We   predict   that   2%   of   this   market   will   purchase  a  device  in  2015  (no  2014  sales),  rising  to   10%  in  2018.     !• KT&T   (Kids,   Tweens   and   Teens):   The   youth   marketplace  will  quickly  emerge  as  the  dominant   segment   in   the   marketplace,   driven   by   a   wide   variety   of   gaming   applications,   branded   devices   created   specifically   for   this   demographic   and   ‘owned   worlds’   produced   from   UGC   activities.   This   segment   also   includes   the   older   Early   Majority.   We   expect  2.5%  of  this  market  to  purchase  a  device  in  2015  (no  2014  sales),  rising  to  8%  in  2018.     !Over  the  five  year  period  from  2014  to  2018,  we  forecast  total  unit  device  sales  of  56.8m,  derived  from  10.9m   hardcore  gamers,  18.1m  light  gamers  and  27.7m  from  KT&T  and  early  majority  users.  This  represents  a  CAGR  of   160%.  Contact  us  directly  for  the  underlying  dataset  for  our  forecast.   ! Hardware  Pricing  and  Revenues   Quite  simply,  in  order  to  derive  revenues  from  device  sales,  we  have  multiplied  an  average  unit  price  by  the   forecasted  number  of  units  sold.  On  a  unit  basis  we  have  forecasted  a  $300  selling  point  for  2014  devices,  falling   to  $250  in  2015  and  a  continued  price  fall  through  to  $100  in  2018.  On  this  basis,  2014  total  device  revenue  is   $60m,  rising  to  $1.4bn  in  2015  as  more  devices  are  launched  into  the  sector  and  the  light  gaming/KT&T  segments   activate.       In  terms  of  available  devices,  we  anticipate  two  to  three   available  for  consumers  in  2014,  rising  to  five  in  2015.  By   2018  we  expect  there  to  be  10  -­‐  12  major  suppliers  of   CVRDs,  ranging  from  Apple  and  Microsoft,  through  to   Samsung,   Sony   and   of   course   the   initial   consumer-­‐ focussed  pioneers  such  Oculus  VR.   !The  chart  left  shows  annual  revenues  from  the  three   primary   market   segments.   Hardcore   gamers   and   innovators   account   for   $1.6bn   of   cumulative   sector   revenues,  light  gamers  $2.5bn  and  KT&T/early  majority   totalling  $4.2bn   ! Full  year  2018  revenues  from  device  sales  is  forecasted  at  $2.3bn  (from  23m  units  sold),  which  yields  total   cumulative  revenue  of  $8.4bn  over  the  5  year  period.  This  represents  a  CAGR  of  108%.  Putting  this  into  context,   IBISWorld  Media  forecasts  total  2018  home  gaming  console  revenues  to  reach  $46bn.   ! Page  12A  KZero  Worldswide  Report
  • 13. Consumer  Virtual  Reality  -­‐  State  of  the  Market Software  (Game  and  Apps)  Revenues     In  addition  to  market  sizing  the  device-­‐side  hardware  element  of  the  consumer  virtual  reality  sector,  we  have   also  forecasted  revenues  from  the  games  and  apps  purchased  by  the  owners  of  the  devices/headsets.  This  is   the  software  side.     ! An  important  element  we  have  factored  into  our  assumptions  relates  to  active  users  vs  device  owners.  We   believe   that   the   consumer   VR   experience   will   have   a   major   viral   element,   meaning   owners   will   actively   encourage  their  friends  and  family  to  use  their  devices  -­‐  ‘You  gotta  see  this’.  On  this  basis  we  have  applied  a   multiplier  to  the  annual  device  sales  to  represent  more  active  users  than  actual  owners.  For  example,  in  2014  we   have  modelled  three  active  users  (purchasing  games  and  apps)  per  owned  device.  This  falls  over  time  down  to   two  in  2018.     ! From  a  business  model  and  user  monetisation  perspective,  we  expect  the  game/app  developers  to  deploy   premium  pay-­‐to-­‐play  pricing  until  mid  2015  (i.e.  100%  paying  user  conversion),  then  experience  a  similar  path  to   tablet/mobile  game  pricing  with  the  introduction  of  freemium  VR  applications.  In  2018  we  forecast  a  40%  paying   user  conversion.  ARPPU-­‐wise,  we  assume  $50  annual  average  revenue  per  paying  user  in  2014,  rising  to  $150  in   2018.  We  acknowledge  that  this  might  be  understating  the  ARPPU,  particularly  in  the  latter  years.     ! So,  on  an  overall  basis  we  forecast  software  revenues  of  $30m  in  2014,  rising  to  $947m  in  2015,  through  to   $2.8bn  in  2018.  Overall  total  cumulative  software  revenues  over  the  5  year  period  total  are  estimated  at  $7.7bn.     This  represents  a  CAGR  of  148%.  As  a  comparison  to  other  forecasts,  DFC  Intelligence  and  Live  Gamer  recently   forecasted  global  console  software  revenues  to  jump  from  $18.5  billion  this  year  to  $24  billion  in  2017.  Our   equivalent  2017  figure  is  $2.2bn  from  consumer  VR  software  sales.     ! Marketing  Sizing  Summary   From   a   relatively   humble   start   in   2014   with   total   sector   revenues   of   $90m   (from   600k   active   users),   we   forecast  growth  to  $2.3bn  in  2015  (from  15.7m  active  users)  ,  $3.8bn  in  2016  (from  27.3m  active  users),  $4.6bn  in   2017  (from  36.4m  active  users)  and  $5.2bn  in  2018  (from  47.6m  active  users).     ! This  yields  total  cumulative  revenues  of  $16.2bn  across  the  five  year  period  and  represents  a  CAGR  of  125%.  This   forecast  is  shown  in  the  chart  below.     Page  13A  KZero  Worldswide  Report
  • 14. Consumer  Virtual  Reality  -­‐  State  of  the  Market 7.  The  Face  Race:  Companies  Developing  VR  Headsets   8.  Further  Information   Virtual   Reality   News   Weekly:   Sign-­‐up   for   our   weekly   email   covering   the   Consumer  Virtual  Reality  marketplace.  Sign-­‐up  at  kzero.co.uk/virtual-­‐reality/.   ! KZero  Slideshare  Presentations:  Search  Slideshare  for  ‘KZero’  and  you’ll  find   a  range  of  presentations  covering  the  virtual  reality  and  virtual  world  sectors.   We  have  three  dedicated  presentations  to  accompany  this  report,  including   our  Market  Sizing  analysis.   ! KZero   Virtual   Reality   Radar   Chart:   Order   our   market   segmentation   presentation  from  kzero.co.uk/virtual-­‐reality/.   ! Twitter:  @kzeroworldswide   ! Facebook:  facebook.com/KZeroWorldswide   ! Page  14A  KZero  Worldswide  Report
  • 15. Consumer  Virtual  Reality  -­‐  State  of  the  Market ! ! ! Page  15A  KZero  Worldswide  Report