TWIG 146: The Real Problem with VR

But, we haven't really talked about VR for a while, and I just wanted to I make this mistake and joining these calls uh BWG, and they have like a bunch of industry experts that are on these calls that talk about either a company or about like an industry, and this one was about VR. And it was just a bunch of pundits that are just all like all in, right? You know, their companies, everything they're doing is is related to VR. And so, unfortunately, I didn't get a chance to talk cuz I was probably the only person that would have like been objective in the call. But anyway, so it totally triggered me, and I just want to make make clear on my perception of VR right now. First of all, make no mistake, VR died. It died a very, very quick death when it was first released by by Oculus, right? But Facebook, a worldwide pandemic, Quest 2 brought it back to life, right? Get out the paddles, get that heart going again. But we are still on life support for base for for VR. Without Facebook, VR would have gone

away, fundamentally, I think, anyway. And look, I think Facebook is an amazing amazing big huge company, and it is a very expensive life support system, and so they will continue to support VR for the next decade. Because, you know, as the foreign as the foreign factor changes, as AR systems are developed and deployed, but without Facebook, dead, in my opinion, anyway. So, trying to be a little bit objective, the fact is that Quest has been an amazing device, Quest 2, right? Over 10 million units likely have been sold. That's not nothing to sneeze at, right? Facebook is clearly in to win it, like you cannot get Zuckerberg off a off a off a presentation without talking about AR VR going nuts on it, right? So, he's not giving up anytime soon. So, that's good. I still think that social is the biggest opportunity here, you know, building out social experiences will likely be the key to success to build out big audiences, you know, Rec Room and other things like that, like VRchat, etc. will will be kind of the must-have experiences, I think, going

forward. But, we're just not there there yet, right? Because even though consumer demand was very, very strong during the global pandemic, right? And the release of a great device, per se, engagement is falling across the board in video games, generally speaking, but for VR, it's got to be the worst. And I think you know, during Adam has some stats from Steam charts that comes to mind. took a look at this just to double-check it. And yeah, Steam charts corroborates this. So, looking at like VR titles on Steam, most have less than 100 CCU. Right? Like that that pretty much implies very, very little DAU. And like Alex, Half-Life Alex, I think, would be the peak of what you'd expect on Steam VR. That's less than 400. Last I checked, the top game is actually VRchat, which had like 16,000 CCU, right? Which is great, but it's actually but it's just a mod-based chat server that doesn't mandate VR at all. So, I'm assuming most people don't really use the VR. The name's just misleading. So,

you're right. I I double-checked this. Engagement does not look good on VR. No, and so I think people are completely overestimating the the notion that yes, people were engaged during the pandemic and and and the ecosystem was was vibrant, but people are extrapolating that to insane levels and you know, forecasts are going up. You know, even even VCs are getting more and more more interested or or engaged, but the the the there's there there's just a very few standout titles that like Superhot, Walking Dead, and Beat Saber. These volumes, even even with the pandemic, were have been relatively low, with the exception of Beat Saber, which did quite well. But, I don't really see these vol even the volumes during the pandemic justifying big investment from bigger developers, right? And so, there's and there's no killer app right now. You know, Beat Saber is kind of close, but it's still I think you need a social game that inspires consumers and influencers to get involved. Um And the other thing is it's really hard to share experiences in VR, which is kind of critical to what's going on on the in

the ecosystem right now. And again, without the significant install base and the 10 million inactive users is not significant. You're not going to get the development resources allocated to build the killer app. And again, Mike Verdu leaving to Netflix is not a good look. You know, he was pretty pretty instrumental in in to building their efforts to attract developers, etc. But I'm sure they have a deep staff there and they'll continue to support it, right? But I guess it what it comes down to is there's fundamental problems with VR that that that seem seem almost impossible to overcome to some consumers is that consumers really don't consume content this way. You know, they they want immersive experiences, don't get me wrong, but they don't want it at the exclusion of all other things, right? This is not a multitasking generation, right? Using the phone, playing computer, watching TV, right? And you need content that is super compelling to change that behavior, which is not easy, right? And AR in general is a much better fit with

this current generation in my my opinion. Not to exclude all other things. You can play and and be part of the world, right? Um And again, the value proposition for the consumer is is not there with VR. It's like they're used to getting a 100-hour experience for 60 bucks, not a 2-hour experience in VR. And it's really hard to build a business model for 20 to 30 dollars per product in HD given how expensive it is to build. So, the console is a much better value proposition for the consumer. And it to go a little bit deeper here, what makes console so freaking compelling is that you have hundreds of games coming out every year to support the platforms and maintain engagement. You have tentpole titles, FIFA, Madden, Call of Duty, Assassin's, and and then big longer-term titles like GTA, Elder Scrolls coming out on a regular basis to keep people engaged. And this is absolutely critical to building a sustainable platform, but you will never see this with VR until like abs- the bigger publishers get on board that have the resources to to, you know, uh iterate as much as they do. Um and

again, the big 30 third-party developers are not going to support a platform without the big install base. Hell, they're not even supporting the Switch, right, for other obvious reasons. But the consumer will will not come on board without compelling content delivered frequently, right? And it won't make sense for third parties to build games unless they're getting insane amounts of money for Facebook. So, for me, this seems like a 5-to-10-year thing at best. It may ultimately The only way it's going to be successful, I think, is if they combine AR VR, build social experiences, um and the amount of money that Facebook is going to to spend on this project is going to be staggering to keep this thing going, in my opinion, right? Um Now, I'm not going to speak to the VR stuff that that that on the enterprise level, that's something completely different. I'm more more focused on the consumer side. So, I just wanted to I just wanted to get that out there. Any other thoughts on this, guys? Yeah, I mean, I think just when you when you talk about the amount of money they're going to spend, I mean, they they are dedicated to spending that. I

mean, I think that they are in They do see this as like their long-term uh you know, strategic imperative is to transition a lot of that social engagement not not necessarily over to VR, but I think they see VR as like one touch point, right? It's like one form factor that you can use to sort of um plug into this this sort of this sort of new kind of content pool that they want to create that they're they're calling the metaverse, but that's not really what it is, right? It's just a, you know, persistent Facebook that exists off of off of Apple and and off of the App Store and Google Play. That's really what they want to create, but that that but that's not necessarily even tied to like the web interface, right? And so, like you've got Portal, you've got VR, um and then they've just got to come up with like a couple other touch points to create that like, you know, kind of multi-form factor like all day, every day, part-time, full-time, you know, while you're watching movies, you know, or dedicated um interaction profile that that people demand, right? Cuz no one,

you know, putting on a set of glasses and playing a game for 30 minutes, that's not the next Facebook. That can't be. There's just not enough engagement there. But having that be one piece of like your daily interaction with with Facebook that that spans like three to four different hardware interfaces, that could be. Um and I feel like that's what that when they say when they talk about metaverse, I mean, they're really just sort of like co-opting that buzzword, but that's what they mean. They mean that, you know, we've got to get off uh the App Store. We've got to get off Android. Um and we'll find ways to do that, you know, with these other uh sort of initiatives. I think one one thing that like really sharpened my thinking around Facebook's plans here was uh Mark Zuckerberg apparently Face- Facebook was considering buying Unity a couple years ago. And uh it like many like like I think I don't remember when it was, but it was 5, 6 years ago. And Mark Zuckerberg wrote a letter to like or an email like a memo to his his top lieutenants and he was talking about like just the need to shift off of these platforms they don't own. And it totally has um you know, it it it totally explains the playbook that they've taken the last few years and I think it it

really helps to understand what playbook they'll use the next couple years going forward. I cop- I I quoted from it in an article I wrote called um uh is VR the bear case for Facebook that I published like in March, but I I quoted pretty heavily from it. I If people are interested, they can go find it there. Um but you know, I mean, I basically make the same case that you're making, Eric, that this is not a big market. This is not a big revenue opportunity. There's got to be something else here. VR VR I think is just one component of it. Right. And I I I just, you know, we have some friends Deconstructor Fund groups and stuff that are involved in VR and stuff and we see some people moving that direction. I just would be, you know, buyer beware, right? Like, ask Facebook, what is the active install install base right now of the 10 to 12 million units that are out there between uh um uh the two devices. Sorry, I'm just totally blanking, but um because that's your addressable market, right? And and you can you make a business work

over the long term on that? I don't know. It's like it's scary, you know, but anyway. Um but I I The thing is that I freaking love VR. I think it's freaking amazing. It's an amazing experience. I just can't wait till you can [ __ ] get a jack in the back of your head and plug [ __ ] in, dude, and just live, you know, in a different life. I think it's awesome, right? The idea of it's incredible. Yeah, and AR is incredible, too, but we are so far freaking away from this. It's like it's crazy, and people are talking like it's like around the corner, you know? Anyway, and and the forecasts are going out there, too. I'm sure Newzoo will have something soon, right? Be ridiculous. Um All right. Move on.