Virtual reality (VR) is a computer-generated environment that can be experienced through headsets. In most cases, the headsets are entirely self-contained and enable an immersive 3D experience. The areas of application are wide-ranging and extend across many sectors.

What are the main uses?

In our view, the following six areas are the most important ones with the biggest economic benefits:

Entertainment: VR offers new opportunities to engage, entertain, and interact, which opens up new opportunities in the gaming, film, and sports sectors. Gaming is an area where many people have already experienced VR, and the popularity of these technologies is sure to grow in the coming decade.

Healthcare: VR’s impact on the healthcare sector is growing every year through applications for front-line patient care and training. VR can potentially be used therapeutically too, through applications that help people to cope with anxiety. The value that VR brings to the surgical realm is not only cost-reducing but also life-saving and accessible to everyone.

Product design: VR has the potential to not only enhance and augment existing product design and development but also enable entirely new techniques. For example, it facilitates engineers’ and designers’ ability to experiment with the appearance and structure of a product before commissioning expensive prototypes.

Education: VR creates a more interactive and immersive experience that makes learning more engaging. It allows students to enter a simulated world that can enhance their understanding and retention. Through gamified lessons, interactive simulations, or virtual field trips, students can be offered a more personalised and productive learning experience.

Retail: VR can be easily integrated into retail software. Interactive VR showrooms allow customers to view products from different angles or in every possible configuration. These possibilities help retailers to make shopping more attractive, improve traditional customer interactions, and thus stand out from the competition.

Real estate: Through VR recordings of real estate, potential buyers can explore properties as if they were physically present. This opportunity has become a game changer in the industry.

Why are VR headsets not a mainstream product yet?

In addition to the price of the VR headsets exceeding most consumers’ willingness to pay, there are two main reasons why VR headsets are not yet a mainstream product: physical discomfort and the technical limits of the technology.

First, the wearing experience is often described as uncomfortable, which is largely due to the weight of the device. It is a technical challenge to accommodate all the required technology in such a small housing that can be worn on the head and is light enough not to cause discomfort. Hence, this has not yet been achieved. Furthermore, some users, mainly women, report dizziness and feelings of nausea when using these devices. This is due to the delay between the user’s head movements and the movement shown on the display.

Second, VR headsets have many technical problems to contend with, including battery life. Most batteries, even those of premium devices, need to be recharged after just 1.5 hours of normal use. In addition, the technology of the displays is not yet advanced enough to enable a realistic representation of the environment. The most modern displays on the market have a resolution of 4K per eye, which is very good, but a resolution of 8K per eye is required for the eye to perceive VR as reality.

Another technical problem is finding a suitable input source for VR headsets. Although there have been advances made in the recognition of hand movements, which eliminates the need for controllers, no solution has yet been found for discerning hand movements that are not visible to sensors and cameras. Furthermore, the voice input function is not optimal, because it does not protect privacy, and its use is limited when other people are in the room.

Smartphones: A role model for VR headsets?

The VR headset market can only be compared to the smartphone market to a limited extent. Since the release of the first modern VR headset in 2013, eleven years have already passed, and a ground-breaking product has not yet been released. Due to the technological revolution, smartphones sold in very large quantities and grew strongly over a long period of time. Considering the weaker sales figures, VR headsets can only be regarded as a niche market, but one that has seen constant sales growth.

In order to achieve a high distribution of VR headsets, a sufficient ecosystem of applications and new functions must be available like it was for smartphones to bring additional value to consumers and drive adoption. However, without high sales figures for VR headsets, it is not yet profitable for developers to bring new software to the market.

Future enablers of VR: 5G and cloud computing

The further development of other technologies, such as 5G and cloud computing, offers opportunities to solve or minimise the existing problems for VR headsets now and in the future.

5G mobile network technology provides a speedy and dependable way to access the internet and communicate with others. 5G networks are projected to outperform the current networks in every manner.

Cloud computing is the delivery of computing services – including servers, storage, databases, networking, software, analytics, and intelligence – over the internet (‘the cloud’) to offer faster in-novation, flexible resources, and economies of scale. Thanks to 5G technology, the cloud can be accessed reliably and with low latency.

How could these technologies affect VR headsets?

With cloud computing, computing processes are not carried out directly in the end device itself. The data to be processed is sent to an external server, which processes the data and then sends it back to the end device, where it only needs to be displayed. This process makes hardware components, such as memory cards, powerful processors, and cooling units, superfluous, and it could help to reduce the weight of VR headsets. For cloud computing to work properly and for the user not to notice any difference compared to built-in components, a stable internet connection with very low latency is essential. The network technology that currently fulfils these requirements is 5G. However, this is not yet available across the board.

What does this mean for investors?

Ten years ago, VR headsets were said to be on the verge of a breakthrough. While the technology has made progress in recent years, it is still in its infancy, and a lot of development work is needed. This has a significant impact on the market’s investment opportunities.

The limited size of the market is one of the factors why the VR theme is currently not attractive. Another reason is the lack of pure players with appealing risk-return profiles. Indeed, major players in the market are all large technology companies that see VR as an option for future growth, but not as the core of today’s business. If the market grows in the future, the bet on VR could become a key driver of business growth, but this is not the case yet as we are many years away from that scenario. In addition to large technology companies, the value chain includes small players that mostly focus on components for VR headsets. These players are usually privately owned companies with a high-risk profile, which are neither available nor recommendable for the average investor.