Sony And Oculus Will Make Virtual Reality...A Reality

| About: Sony Corporation (SNE)


Recent announcements by Sony and Oculus VR highlight the transformation of virtual reality from research project to consumer product.

Sony introduced the Morpheus virtual reality headset in March, which appeared to be only a small step away from actual consumer hardware.

Oculus VR has captured the imagination of gamers with its headset, and with the Facebook purchase, will have enough capital to productize its headset.

Sony and Oculus/Facebook will compete in the immersive gaming market with over 200 million users.

In the span of a week, Sony (NYSE:SNE) and Oculus VR pushed the field of virtual reality (VR) research much closer to consumer reality. Sony showed Project Morpheus at Game Developers Conference 2014, a very close to consumer-ready VR headset. Facebook (NASDAQ:FB) bought Oculus VR for $2 billion, providing Oculus with the deep pockets it needs to face off against Sony and other potential competitors. The two companies will bring VR to consumers, and in so doing disrupt the interactive entertainment (electronic games) industry. The disruption may not stop with games, but may fundamentally alter the way we interact with computers, the Internet, and each other.

The Deeper Immersion

Virtual reality has long been the stuff of science fiction, and writers from William Gibson (Neuromancer), to Neil Stephenson (Snow Crash), to Richard K. Morgan (Altered Carbon) have featured it prominently. While we don't yet have the ability to interface the human brain directly with computers, the VR glasses of Oculus and Sony bring us very close, because we're so visually oriented.

The tech behind the glasses is straight forward, but has only recently become economical for consumers. The glasses present the wearer with a wide field of view (90-100 degrees horizontal) stereoscopic scene provided by a small LCD or OLED screen. The glasses also contain motion sensors such as are found in most phones and tablets. Software running in a fairly powerful (desktop class) computer generates the image projected in the glasses. In response to movements of the user's head, the software shifts the image in such a way as to simulate how an external scene changes subjectively when a person looks around.

The software has become powerful enough to simulate in real time changes in parallax (changes in the way objects align when the head shifts position), changes in occlusion (an object blocking another object behind it), and changes in light reflections off objects. Because computers, sensors and displays have all become faster, motion effects can be simulated with negligible latency. Lack of latency is very important for a sense of realism, or what Sony calls presence.

These kinds of effects can't be captured in a stereoscopic "3D" movie, which keeps the user's viewpoint and focus fixed. The VR glasses produce an effect much more akin to another fictionalized technology, holography.

I expect the impact on immersive games to be profound. Like many others, I draw a loose distinction between immersive games and casual games. Casual games are predominantly 2D diversions, suitable for low powered mobile devices. The growing importance of casual games (Kandy Crush Saga comes to mind) convinced some game industry observers that more traditional game platforms such as consoles and gaming PCs were in decline.

I and others who are fans of immersive games knew that was never true. Immersive games typically create 3D worlds that can be freely explored on a "first person" basis. First person action games, such as the Modern Warfare series or Skyrim, render their worlds in exquisite detail, but such games are typically beyond the computational reach of mobile platforms. In many ways, these games already anticipate and solve many of the same computational problems of VR such as parallax, occlusion, and lighting.

The VR Market

So the extension of VR to immersive gaming is not such a great leap, although implementing the nuts and bolts of it will certainly tax developers. Most importantly, the immersive gaming market is ready made for VR adoption. The enthusiastic response to Oculus among gamers and the debut of Morpheus at GDC 2014 make this very clear. If we include the users of consoles and gaming PCs, the target market for VR is very substantial.

We can get an idea of the size of the market from the number of users for the three most important on-line platforms:


Number of Users in millions

Playstation Network


Xbox Live


Steam (PC)


I use these numbers rather than just the number of consoles sold, because I think it better represents the size of the target market of avid immersive game players.

Immersive games are also often very social, in that they feature the capability for multiplayer interactions over the Internet. Massively Multiplayer Online (MMO) games go beyond ad hoc multiplayer sessions to permanent independent virtual worlds, of which the largest is still the classic World of Warcraft from Activision/Blizzard (NASDAQ:ATVI), with 8.5 million members. Including other prominent MMOs such as Guild Wars 2 (3 million users), Rift (1.4 million), Star Wars: the Old Republic (1 million) and we have about 14 million participants in these very social forms of online interactive entertainment.

So we have a potential market for VR glasses of well over 200 million users just in the immersive gaming category, not counting all the other potential uses of VR. A recent article by fellow SA contributor Alex Cho on the Facebook acquisition estimated that Oculus would have to sell 33 million head sets for Facebook to recoup its $2 billion investment. Given the size of the target market (here it would be PC gamers), that doesn't seem so implausible, especially since that sales volume will be spread over a period of years.

Virtual Market Segmentation

Initially I thought of writing this article as a race to market between Oculus and Sony, but in fact the two have already carved out separate markets with Oculus focused on PC gaming and Sony focused on the PS 4. Oculus has the potential to be the higher performance/price point system since it will use higher performing PC graphics hardware. Sony may have an ecosystem advantage in that they control their platform and can make sure that sensors from Morpheus, the PS 4 camera, and even the Playstation Move work well together. Sony also has considerable in-house development capability and can jump start game development for Morpheus as well as provide development tools to third parties.

From Sony's presentation at GDC 2014, it's apparent that they have jumped out in front of Oculus in level of technical maturity. Their system looks and feels much more like a consumer product and is generally acknowledged to be more comfortable to wear. Although some have questioned whether PS4 is really up to the task, Sony made it very clear at the conference that PS4 is their only intended platform for Morpheus.

That doesn't mean that PS4 couldn't receive an upgraded graphics capability by the end of the year. In my article on the console wars I pointed out that the AMD SOC architecture lends itself to console makers upgrading the consoles with higher performance processors as they become available. From the article comments, it appears that some readers mistook this to mean "user upgradeable" which was never my intention.

Adding higher performance graphics capability to support Morpheus would certainly make sense, and would be in keeping with my expected scenario of annual processor upgrades driving adoption of PS4 by users of older Playstation generations.

Based on the maturity of the prototype Morpheus, it looks like it could be ready in time for this year's Holiday season, but content readiness will probably push that into 2015. Sony may make a small number of headsets available in 2014 with Sony produced demonstration games in order to test the market.

Oculus is in the process of receiving a huge cash infusion, but that doesn't necessarily make things go faster at first. The Oculus Developer Kit 2 is now up for pre-order, but it still lags the Sony in consumer friendliness. Oculus Rift is definitely not happening in the consumer space until next year.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.