How VR startups can survive the slow growth of 2017

Question: We’re in a period where we have to wait until consumers learn how to enjoy VR. It’s a two-step process to make a killer app in VR. That’s one of the challenges that I see at a lot of VR studios. The iPhone had to have a couple of things happen in the ecosystem before you could get to see really amazing things.

When the iPhone came out it was 1G, no copy and paste, no App Store. You could have Instagram pretty soon after the iPhone launch, but it didn’t actually exist because no one was loading photos through that kind of connection, especially when there was no one else on that same network. Same thing with Uber. You had to get to a certain level of trust behind social proof as a mechanism for safety before people would say, “We’ll get into a car with a complete stranger.”

There are lots of people who have not yet tried VR. We spent a year in Paris, leaving the echo chamber of the Valley and Los Angeles. Not a single person we talked to, whether they were moviemakers or fashion designer or all our friends, had tried it. It’s an amazing experience to be faced with just how much further we have to go, and have to wait. VR is a contact religion. You can’t understand it until you try it. You need people to be in VR. Then, a year or two from now, you’ll start to see really successful VR experiences.

The question is, how do you cross the chasm? How do you survive to get to the point where you can create a completely genre-defining game experience?

Castle: There’s basic hardware problems that still haven’t been overcome. The ergonomics still suck. I still am in Rec Room for 15 minutes and start to get sweaty and shit fogs up. That’s just a basic issue at the moment. What keeps me up at night about VR—it’s the isolating nature of VR. That’s something that concerns me in general. People naturally like to gather together and experience things together. If you take it forward to the singularity, maybe it’s no difference. We’re all in VR together and that’s cool. But we’re quite a ways away from that. I think about whether or not people really want to be all in their own cube, all in their own home, with their headsets on watching a sports game together, as opposed to being together with a game on the TV.

That concerns me with certain applications. The general thing I lose sleep over is just the time it’s going to take, though. Is there going to be a catastrophic implosion by something like Magic Leap that makes everybody scared? Is a string of failures going to spook everybody and make investment draw back? Ultimately it’s still not if, it’s when. I think it will happen. All of the big guys are behind this. But an investment you make at the wrong time is a bad investment. That’s still just how it works. The timing issue is what makes me lose sleep.

Chennavasin: For me I worry about a couple of things. We talk about how people are thinking about scale in the wrong way. Especially with mobile VR. The biggest problem I see in mobile VR—okay, there are five million Gear VRs out there, awesome. How many software developers are actually making money from consumers in that ecosystem? I can’t count many.

The other thing I worry about is the overreliance on 360 video. That’s the biggest bubble in VR right now. You have Hollywood and all these other people pumping so much money into it, and that’s the 3D TV. No consumer is buying any of that, except for maybe porn. If the bubble isn’t filled with real consumer spending, it’s empty. On the game side we’re starting to see people buy games. That’s going to be a healthy ecosystem. On the 360 video side, not much.

One other thing I worry about for VR is that people think it’s an entertainment platform. It’s a computing platform. It’s great for health care, for enterprise, for so many applications. VR is a great chance to change your work flow. Everyone in games that’s working in 3D—VR is a native interface for working and creating in 3D. These tools like Medium and Tilt Brush might not be production ready, but what’s interesting about them is what they can be concepts for.

We need to do two things. We need to bring down the cost of making VR content, and we need to make it easier for people to make VR content. Those are things that will really drive VR forward.

Question: It’s about finding those opportunities to take VR into a different place. We look at that and say, “Yes, we agree. We’re going to jump in and deal with that.” We created the intelligent conversation system, which allow us to help address some of those issues. That can drive the platform forward in ways we haven’t thought of yet.

What’s surprising to me is we’re really not seeing anybody do interactive 360 video made to really drive the market in that kind of content. Everyone’s just throwing content out there without thinking about the model. There are going to be innovators who take that forward, but we don’t see them yet.

GB: One question I’d have related to that – how finished is the platform? How is it going to change? This week Qualcomm is showing off its completely wireless headset.

Castle: I think there’s a bunch of low-hanging fruit that we all know is going to get picked. The wires are going away, for sure. The optics are going to improve. The ergonomics are going to improve.

Wires going away is an interesting one to think about. Everyone’s designing right now for home application, or at least everyone who’s designing for the Rift and the Vive. How does an experience change if you don’t have to be in your home for it? What if you’re at work and you want to step outside for something? I’m sure a bunch of you have been to Japan, where you go outside on lunch break and everyone is out there playing on their handhelds. They go out, have a smoke, eat, and get into their games. Could it be the same way with VR? If so, how do you potentially design for that, for these smaller experiences? Longer term is where you get into the convergence of VR and AR, which I think is where things really start to get interesting.

Chennavasin: The most exciting thing to me about VR and how it’s evolving, as a former game dev, is input. When Oculus first shipped it was just a game pad, and that’s not the right input for VR. The Vive wands were a good first step, and then Oculus showed off Touch. Now Steam has their own prototype of what a hand presence controller is going to look like. We’re going to see improvements there, and not just with the hands, but with voice and all these other ways we interact with the real world. Those are going to become much more important for VR experiences. Understanding how that evolves is very important when it comes to predicting what VR games will be like.

GB: The Qualcomm demo here uses Leap Motion, so it recognizes your hand and finger gestures.

Question: What can you say about ads in VR? What can advertising do for VR, if that turns out to be your focus?

Castle: There’s two ways of looking at it. In general, ads are great for scale businesses looking for another way to monetize. But we can’t think about that right now. We have to show that if you make a movie or make a game, customers are willing to pay for it. You can’t use ads to shortcut that process, or you’ll end up with a lot of false positives.

Question: One way to think about ads is to think about sponsorships. Plenty of tech companies are involved in VR and willing to sponsor content and events. That can be a way to help fund your projects.

Question: I’ve worked on a platform called Skyview, a collaborative virtual place-builder. We’ve found that online retailers want to get their customers exposed to VR as a promotional tool. They want to improve their profile as far as being high-tech. We’ve worked with online furniture retailers to get their products in our platform.

Question: What can you say about the fragmentation issue in VR? We have Gear VR, Cardboard, Oculus, Vive, and all these other platforms and devices. Do you see that fragmentation going away any time soon? Will there be a convergence of some kind?

Castle: Fragmentation can actually be a very good thing right now. We’re in an experimentation phase, just like the early days of mobile phones. All these companies are spending a ton of money testing all these new hardware ideas and giving developers as many options as possible.

As a developer, if you’re asking where to focus, the first thing to consider is who’s giving you money. If you can get money from a platform holder, go for that. If you can’t, then look at where users are spending. Start with Steam. Build something for high-end VR, that you think is going to make a difference and stand out. That’s a good place to start.

Fragmentation does mean you can’t focus on everything. You can’t do all the platforms at once. That does force you to deal with the question of where you put development resources. Something you should check out, the Khronos Group has a new standard called OpenXL. If you go by their booth, it’s a very interesting standard that’s trying to assist with that issue from a technical standpoint. There are going to be different standardizations that continue to come out. This is the job of Unity and Unreal and all these things, so you can have quick exports. I understand that we still have a ways to go, but the effect of that fragmentation will probably decrease over time.

Question: Having lived through a very fragmented console game and PC game ecosystem, one thing I would say is that the person who has an HTC Vive doesn’t care what other platforms your game is on. They want the best experience on the machine they just spent a lot of money on. The other thing I’d say, when it comes to advertising, we don’t have the installed base to advertise games that make only 10 cents per download. We have to stay with the premium model as long as we can.

Chennavasin: Coming from social gaming, it was always about the whale hunt. A lot of people think it’s about having millions of users, but it’s really about finding those super spenders that will spend thousands of dollars in your shitty clicking game. With the Vive, you’re finding the whales. That’s the most targeted concentration of potential whales possible. Build the best, most amazing experience, or people won’t spend even $20 or $50. Think about something people might spend $1,000 or $3,000 for, because at this point we’re having to sell hardware, too.

Question: In that case, do you see in-app purchases being a viable model for VR?

Chennavasin: Potentially, yeah. There are no examples as yet, but a lot of it—we’re starting with the premium model because it’s the easiest one to get to. But I think we’re going to see a premium plus–

Castle: All the mechanisms are there. I’m trying to think about what I just bought from Oculus, when it asked me for my PIN. That’s only going to get easier and more integrated.

Question: In the next year or two years, people are going to settle on the ideals as far as what the cost of content should be. We’re going to have short iteration cycles. We have to make games that don’t take two years, or by the time you finish your game the entire world has changed.

Castle: That’s sage advice Tipatat just mentioned. Develop a game that somebody is willing to pay $1,000 for, regardless of what platform it’s for. Develop the absolute best experience. It’s been my experience throughout my career that taking zero shortcuts on the demo, on the product, regardless of cost, making sure that people try that experience it blows their mind, is absolutely vital for success. You need that to get investors on board, to get sales, to get sponsorships, all that stuff. Figure out the benefit of all the different platforms and where your product will shine the most. Go with that.