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I look at value and contrarian ideas as well as emerging technologies/growth stocks worldwide, both on the long and short side. I also like to discuss the influence of monetary policy on stock markets. I usually do not engage in short-term trading and myopic analysis (quarter by quarter,... More
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  • The Second Coming? Augmented Reality To Virtual Reality And Everything In Between 9 comments
    Mar 31, 2014 6:18 AM | about stocks: FB, SNE, MSFT, GOOG

    There are at least five projects in this space (AR, Augmented Reality and VR, Virtual Reality) worth watching after (NASDAQ:FB) announced it will buy Oculus Rift (see a brief Oculus history for a timeline from a mid 2012 Kickstarter project up to the FB acquisition in March 2014):

    Given the many approaches between the two extremes

    • starting with GOOG Glass which technically can be used like normal glasses (except for the potential social backlash) all day long
    • up to Oculus Rift and Sony's Project Morpheus which promises a fully "immersive" VR experience in a sitting or standing position without moving, i.e mainly intended for living room/home use.

    one can see many different approaches and usage scenarios where AR and VR might be headed one day.

    Many approaches and a tiny market full of prototpyes makes me wary of Facebook's claims that it bought something so special (and worth $2 billion) that the competition will have a hard time catching up and that "fully immersive" will be accepted by customers and is the way to go in AR / VR (outside of entertainment, core gaming).

    Speaking of VR and gaming, many problems in VR have been around since the early days* that prevented adoption and mass-market acceptance:

    Bulky design and motion sickness still remain a problem in VR today - even if newer devices such as Oculus manage to shave off a few milliseconds in screen lag time and use OLED screens etc. to reduce the motion sickness.

    More generally and even if all these technical kinks can be worked out a crucial question remains:

    Why did FB buy a company today for over $2 billion for a mass-market product that is (most probably) 5 to 10 years out?

    If this timeline is accurate, FB could have started a VR project from scratch in 3-5 years from now, technology moves very fast. A VR headset could look very different a few years from now on the range of possibilities between GOOG Glass (very light, see through, usable 24/7) and Oculus (heavy, immersive, stationary).

    I remain skeptical on VR potential in the short term and see the following stumbling blocks for FB:

    - Is FB trying to become a hardware entertainment company or content vendor? FB has no experience distributing and servicing hardware globally. Competitors like SNE and MSFT have a platform to "marry" their own VR hardware with content, namely fine-tuned games. As I pointed out in the list above, both SNE and MSFT are working on their own new VR sets. SNE just announced theirs ("Morpheus" for PS4) a few weeks ago, MSFT may do so soon with project "Fortaleza" for XBox One: http://cnet.co/1dydYU1). FB has no console or other hardware to "feed" Oculus. I see no business case for FB for the time being - this is in stark contrast to SNE and MSFT who both manufacture game consoles and therefore have an ecosystem to bundle their VR hardware.

    - Does VR solve any buyer problem or need outside of gaming or a few niche use cases in business and military usage (for now, may be different in 5-10 years)?

    - In the short term (next few years), I only see "core" games as a usage scenario for VR as I outlined above.

    - The long-term VR entertainment scenario ("attending" sports games and other events, virtual trips...) is likely 5-10 years away. I see completely new products coming in that timeframe, more similar in size/weight to traditional sunglasses, more similar to the GOOG Glass approach.

    I therefore see no advantage for FB even if it's a "first mover" (in VR hardware) because only SNE and MSFT (or maybe Steam on PC if Steam builds VR hardware one day**) have the ecosystem to sell software and services for VR hardware.

    Much like GOOG buying the small company Nest for a few billion USD recently, the promised "value" / rate of return for this FB-Oculus transaction leaves me more than puzzled - but then again FB's stock is currently so high that FB can do these deals and pay for most of them using their "own currency" (i.e. inflated FB stock).

    Caveat emptor.

    Summary: Oculus' sticker price and uncertain future in VR/AR return on investment is another piece of the "tech bubble 2.0" scenario in my opinion.

    _____________

    * VR is not a new thing. The technology has been around since the late 80s. Does anyone remember Jaron Lanier and VPL Research? That VR pioneering company went bankrupt back in 1990 working on the very first VR solutions (and coining the term VR in the first place, according to many).

    Shortly thereafter first VR arcade machines complete with a barrier (that is another problem in immersive VR, unless a person is seated one could stumble and fall down without a barrier for standing players) around the player were beginning to show up in arcade game centers:

    A 1994 video about Virtuality VR, the company behind the arcade machine pictured above: www.youtube.com/watch?v=2Imyn6QSq9s

    ** That seems unlikely since the founders of CastAR were former employees at Valve, the company decided not to press ahead with the project. They left Valve and founded CastAR.

    PS: I wonder if $FB CEO Zuckerberg is so enthusiastic about VR in 2014 because he is too young to have witnessed all these commercial VR failures back in the late 80s and 90s.

    Disclosure: I am long SNE.

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Comments (9)
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  • Tales From The Future
    , contributor
    Comments (4117) | Send Message
     
    Author’s reply » As a PS, the Virtuality company also had to give up in 1997:

     

    " The virtual reality industry has fallen on hard times. A few weeks back, Virtuality Inc., a Palo Alto maker of virtual reality games, filed for Chapter 11 bankruptcy, just four months after its British parent filed for similar protection from creditors. "

     

    http://bit.ly/1i7wEHd

     

    If I had to pick a winner, I would choose SNE, MSFT and upstart CastAR because they seem to focus on games - and two of them have a game console to connect to.

     

    I also think CastAR's device is much more social and suited for real-life interaction than "immersive" VR - kind of ironic since FB bought Oculus and not CastAR.
    31 Mar, 06:49 AM Reply Like
  • Pimust
    , contributor
    Comments (594) | Send Message
     
    Where's Vuzix?

     

    http://bit.ly/1gHcPZI
    31 Mar, 08:42 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4117) | Send Message
     
    Author’s reply » I see ongoing financial problems for Vuzix (see stock dilution), that's why I didn't include them.

     

    I guess the best way out for them would be a merger or buyout from someone with lots of cash.

     

    PS: Their military division has been spun off, that was probably easier than consumer markets to get early sales:

     

    "Six15 Technologies, formerly Vuzix TDG, is a world leader in rugged, high-resolution head mounted displays (HMD) and OEM optoelectronic module manufacturing."

     

    http://www.six-15.com
    31 Mar, 08:58 AM Reply Like
  • Pimust
    , contributor
    Comments (594) | Send Message
     
    How about Nokia buying Vuzix? After the D&S deal they'd have the cash to do so. After all Vuzix is already using Nokia's waveguide technology in some of their products so it should be quite possible.
    31 Mar, 09:26 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4117) | Send Message
     
    Author’s reply » Yes, as I wrote above, another company buying Vuzix may be the best outcome.

     

    I don't follow OTC stocks closely, so I don't know the details and haven't looked into M&A rumors about Vuzix lately (2014).

     

    Last time I looked at the company back in 2013, the number of outstanding shares, ongoing dilution and very tight liquidity made me wary...
    31 Mar, 10:21 AM Reply Like
  • User 9322321
    , contributor
    Comment (1) | Send Message
     
    Thoughts on Emagin? Direct patterning displays coming out soon should be very relevant to upcoming AR market. Problem is if they can actually manufacture at a consumer cost, they say they will be able too.
    26 Apr, 03:05 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4117) | Send Message
     
    Author’s reply » I didn't follow this company closely because of the lacking fundamentals (although better numbers than Vuzix).

     

    What I don't get about both (Vuzix and Emagin) companies: If their technology is so great, a big tech company (or military contractor since both dabbled in this market) could buy them so easily, both market caps are well 100M USD.
    28 Apr, 02:21 AM Reply Like
  • Tales From The Future
    , contributor
    Comments (4117) | Send Message
     
    Author’s reply » "Virtual reality's biggest enemy is bad virtual reality, says Oculus founder"

     

    http://bit.ly/1k5RJ8S
    21 May, 02:46 PM Reply Like
  • Tales From The Future
    , contributor
    Comments (4117) | Send Message
     
    Author’s reply » I wrote: "Much like GOOG buying the small company Nest for a few billion USD recently, the promised "value" / rate of return for this FB-Oculus transaction leaves me more than puzzled"

     

    We now see Honeywell introduce a Nest competitor:

     

    http://bit.ly/1oIvo2E

     

    Which should reiterate the point made above that Nest was probably not worth at over $3 billion; then again, GOOG has a lot of cash...
    10 Jun, 09:57 AM Reply Like
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