Virtual reality has arrived - so what happens next?

Earlier this month, a hardware/software survey published by Steam caused a small current of concern. The survey, which pooled data taken from Steam users, claimed sales of the major VR headsets, Oculus Rift and HTC Vive, had come to a halt in August. It may not have been a great barometer of the overall market, but it got people talking.

Oculus founder Palmer Luckey was quick to enter the conversation, pointing out that the data was very limited. While he was right - it was a restricted test - the fact it showed a significant slow-down was still notable enough to create a discussion about the state of the market.

And in the vacuum of solid sales data from either Oculus or HTC, it's inevitable that there will be speculation. While it may have been around in various forms for decades, VR is still very much a fledgling category - no one's entirely sure how it's going to play out.

Even in 2016, held up as the Grand Year of VR, we're still waiting for PlayStation VR's October arrival, which will be a major driving force for VR by balancing quality with cost of access. Then there's Oculus Touch, the wireless controllers that will launch this October and complete the Oculus experience, ushering in a whole new generation of games only months after the headset was made available.

Come the end of the year, we'll have three fully-fledged systems on the market and a wealth of mobile devices, games and experiences to play with. We will be drowning in VR, but where does it go next, and where will the momentum lie?

The Chinese VR superpower

Once you've tried the best Vive and Oculus have to offer you'd be forgiven for wondering how mobile VR can ever compete. But you've probably heard this time and time again: Mobile is going to be one of, if not the key drive in VR.

Here's something you might not have heard: China is a bigger deal for VR than you realise. "With 100s of millions of smartphone users, mobile VR adoption has been surpassing expectations in China whilst high-end VR headsets have struggled" says Daniel Ahmad, analyst at Niko Partners.

"Gear VR already has over 1 million users and Chinese brands such as Baofeng Mojing have already sold over 1 million units. The majority of headsets being sold in China are under $50 and designed to work with mobile phones."

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Demonstrating how serious the country is about the tech, China's President Xi Jinping mentioned VR in his B20 speech earlier this month, declaring that he intends China to be a leader in virtual reality. And it could well happen - right now there are hundreds of startups working on VR hardware and software in China, which is getting into the hands (and on the faces) of many people thanks to the mass availability of mobile VR.

If only a small proportion of owners buy a PS VR, the volumes will be significant in the wider context of the VR market

Brian Blau, research vice president at Gartner, has an interesting theory as to why VR is booming in China. "Based on some information I found out, the main driver in China is to watch 2D movies in their VR headsets," he tells Wareable. "I had the chance to interview Baofeng, which is the main HMD provider in China, and I asked them to list the top couple of popular apps, and at the top of their list was video."

A number of VR arcades have also opened up in China over the past few months, giving people access to high-end VR for a tiny fee. The popularity of these arcades, as indicated by analysts we spoke to, proves that there's certainly a thirst for the bigger VR experiences - it's just that many people can't afford it yet.

The months to come

Looking globally, Blau says he believes we will see a "maturing" of the VR ecosystems in the coming months, as companies decide which part of virtual reality they want to own: The devices, the ecosystems, the content, or the distribution.

"In the short term I think we'll see a continued expansion of companies offering devices," says Blau. "But if i look more into the future I see a contraction. You may only have five companies providing 80% of the devices. So the market will start to look more like the traditional devices market."

Despite having dissimilar hardware refresh times, the VR market may look much like that of the smartphone in five years time, with more companies moving to software and just a few focusing on the hardware itself.

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I have worked with Apple on various VR projects over many years... they are not unfamiliar to it

While it's certainly possible that high-end VR sales have slowed in recent weeks as Oculus and HTC have caught up with demand and early adopters receive their systems, it's also worth noting that everyone is positioning themselves for the Holiday period. Christmas is going to be huge for VR, and by the time it comes around Oculus, HTC/Valve and Sony will have their complete systems ready to be bought and played with.

In fact, by launching earlier in the year, Blau believes Oculus and HTC/Valve were ensuring they had enough runway to improve the software and - in the case of Oculus Touch - the hardware in time for the gift-giving season.

Who does what next?

Which brings us to the next big question: Who will those companies be? Blau says he expects every top 25 tech company is considering, or has considered, how they can make a play in virtual and augmented reality, which wouldn't be a huge revelation.

He also thinks Valve may soon open its ecosystem beyond the HTC Vive, letting other hardware manufacturers start building on the platform.

"They've even talked about having an early ecosystem with Vive. I wouldn't be surprised if they tried to expand their ecosystem."

Of course, PlayStation is certain to be a big driver, thanks largely to the fact the headset's power source is already sitting in people's living rooms. "There is an installed base of over 40 million PS4s," Ben Wood, chief of research at CCS Insight, tells Wareable. "If only a small proportion of owners decided to purchase a PS VR the volumes will be significant in the wider context of the VR market."

But who else might enter that we haven't already hear from? Nintendo? That seems unlikely - Miyamoto doesn't think it's a good fit for Mario. Microsoft is taking its hand to AR with the HoloLens, but it's the partnership with Oculus and Xbox that could prove most interesting - will we see the Xbox One working with the Rift before long?

Must read: Everything you need to know about AR

Gartner's Brian Blau is hesitant to make any other guesses on who could enter the space, but when we suggest that Apple might have only started paying attention properly to AR and VR, he quickly dismisses the idea.

"I've been in AR/VR for a very long time - 25 years - I have worked with Apple on various VR projects over many years," he says. "They are not unfamiliar to it. I know whole teams of people that have worked at Apple, that are no longer there, who have come and gone. These projects split up and they go away."

"I'm not going to name people or specifics, but there were VR projects at Apple. There were people working on computer graphics and using VR. Some of them were public, some of them were back in the 90s. Some of them might not be on the internet because, well, the internet wasn't around back then to a large degree."

Tim Cook has certainly been stirring the pot with some comments on virtual and augmented reality. If we see any movement from Apple in this space soon, it will likely be through the iPhone, perhaps with a competing platform to Daydream.

And even if it doesn't, VR will probably be just fine. "The market will take some time to coalesce," says Blau. "Who are the players? What do they offer? What type of content is there? How am I going to use it? All those questions are still unanswered".

As he puts it, "It's not necessarily going to grow fast, but it's going to be interesting"