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Meta Disaster or 5th time's a charm for VR/AR?


In the category of more wasted investor money, I'm making a prediction once again that VR/AR is a losing bet in 2022 & 2023. Virtual Reality (VR) is a term used to define an immersive experience in a confined Head Mounted Display (HMD) where your vision is completely isolated from the real world. Augmented Reality (AR), is a blend of real-world images and computer imaging through the use of externally facing camera lenses blended with 3D generated content on internally facing displays. Some AR systems like AR Glasses project the 3D imaging directly onto the Glass lenses overlaying the real-world images your eyes see.

A little background on why I am giving my opinion on this is two-fold. META has switched focus to try and drive the "MetaVerse" via Occulus headsets and I've been in and out of the VR/AR space since the 1990s. I worked on the Sega Genesis VR helmet with a game called Nuclear Rush in the early 1990s, an AR/VR system called Impression Pi for Usens, and Facebook Spaces (Chat Room VR System) in 2010-2020. I never really believed that AR/VR would be a commercial success.

In the mid to late 1980s, NASA started the hype around VR and several companies started developing products in the early 1990s.

FB/Meta bought Occulus in 2014 for $1.6 billion. In just the last 3 years alone, Meta has lost $10.2 billion for 2021, $6.6 billion in 2020, and $4.5 billion in 2019. Total losses in the last 3 years of $20+ Billion. That's close to the entire estimated market for VR/AR in 2021. Let that sink in! FB/Meta hasn't had a profitable year in this space since buying Occulus in 2014.

This AR/VR business has failed at least 4 times and META is the latest to attempt to make AR/VR a profitable and successful business. In my own opinion, I think they will fail, but I personally will hedge against META by buying options similar to the long strangle. This way, no matter if they fail or succeed, I will be able to make a profit, if the price of the stock is volatile enough, which I believe it will be, there is profit to be made. If the price hovers around the current price (highly unlikely), I would lose a small amount of premium I paid for the options chain. META is already down 50% from their highs, so the strangle strategy is probably the best option.

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Since 2015 there have been calls that VR will hit $150 billion by 2020. The VR market size in 2021 was estimated to be $21.83 Billion. Far from hitting the mark, the hype around VR/AR has never been based in reality (pun intended). We are seeing a repeat of this hype in 2021/2022. See this article from Techcrunch in 2015.

Attempts at Making VR/AR a Succesful Business

VR 1957-1979 - Attempt #1

The VR headset was actually born in 1957 and patented in 1960 and was called the Telesphere Mask by Morton Heilig. The product was not a commercial success and most articles give credit to "The Sword of Damocles" as the first HMD VR headset, but this is really the original VR headset.

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The 80's VR Era - Attempt #2

During most of the 1980s, VR technology was targeted at governments and big corporation projects. VPL research was considered the first company to sell VR goggles and gloves. The product was wired directly to very expensive computers. and Sun Microsystems bought the graphics-related patents and the products never produced a viable commercial market.

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The 90's VR Era - Attempt #3

Attempt #2: Virtuality, considered the first company to attempt to take VR mainstream, was showing their VR headset in 1991 and used Amiga 3000 s for the computer to drive the headsets. These products also were not considered a commercial success

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Also, in 1991, I cofounded, with Kevin McGrath, a company, called Futurescape Productions and we were working on VR headsets for the Sega Genesis/MegaDrive.

That product was killed due to concerns over eye strain/physical injury, and it looks to be the right decision. We had completed a game for the system, which was never shipped. Nuclear Rush.

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VR/AR 2000-2019 ERA - Attempt #4

Augmented Reality has been around since the late 1960s and still hasn't been a commercial success. In the 2000's several companies started trying to make businesses out of Augmented Reality technologies, soon after the previous failures to make Virtual Reality technology a commercial success. Google introduced Google Glass, which was a commercial failure, Microsoft started shipping the Hololens in 2016, also not considered a commercial success.

In reality (no pun intended), the only real success of an AR technology was Pokemon Go, which was an AR Pokemon capture game that piggybacked off the success of the Pokemon series.

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I had a chance to work on an AR/VR system that incorporated Gesture+Position tracking with AR/VR called Impression Pi, for Usens. Great product, but no commercial viability for the company.

I also worked on Facebook Spaces for 6 months which was a Virtual 3D Metaverse for Chat rooms. While an interesting idea, it was only tolerable for a few minutes, before the users were taking off their HMDs and didn't like to stay in the "immersive" experience for very long. This was my 3rd venture into the AR/VR space.

AR/VR 2020-Present Era Attempt #5

AR is having some adoption success and may be slightly profitable for some software companies, but the newest AR is geared towards Funny filters you can apply to your face.

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For META's current attempt using Occulus and the "MetaVerse". I don't believe this will succeed either. This is why I'm bearish about META and other VR/AR Companies. Is this final attempt really going to succeed and be "Ready Player One"?. My vote is NO! My reasons for this vote of "no confidence." 1. Eye Strain 2. Lack of engagement by users of Occulus and other HMDs 3. The usefulness of VR (Novelty item). But the stock is already down 50%, so the punishment might have already been inflicted.

As anecdotal evidence, I personally feel the eye strain when playing VR. I cannot keep the helmet on for more than 5 minutes without feeling it. I also purchased Occulus for both my daughters, one for Roblox VR and another took a course on building VR Applications on an Occulus. The HMDs now sit on shelves gathering dust after 1-2 days of use.

Games should be a good use case for VR, but it just does not seem that the kids want to put on the HMDs and be immersed, shutting out the entire world. Maybe Google Glass 2.0 will be better and work, but then again, How does it make your life better or solve a problem?

I've always said throughout the years, VR/AR was a technology solution looking for a problem and in my opinion, that is the worst type of investment one can make.

Until Next Time!