Introduction
Many people may think that the VR boom is over. In fact, VR startups, especially in the US, are booming again.
The number of VR devices shipped worldwide is expected to be approximately 18 million units in 2020 and approximately 28 million units in 2021. (Source: CCS Insight)
The VR device-related market is estimated to be about 7.8 billion dollars worldwide in 2020, and the CAGR (annual average growth rate) is estimated to be 28.2% from 2021 to 2028, and VR is finally on the rise. It seems that it has entered the growing season. (Source: GRAND VIEW RESEARCH)
Facebook CEO Mark Zuckerberg said in July 2021 that he would "make Facebook a metaverse company."
As you know, it was in March 2014 that Facebook acquired "Oculus", which was a representative of VR startups at that time, for 2 billion dollars. The data for 2020 is said to have been greatly influenced by "Oculus Quest 2", but it shows that Oculus still has the top share and continues to be the center of VR (in this article, we will analyze and consider the VR market with a focus on Oculus).
Seven years have passed since then, and it can be said that the VR market has returned with the buzzword "metaverse," which means "meta (transcendent) and universe (world)."
Without an analysis of the VR market, the essence of the Metaverse cannot be understood. So, this time, I would like to summarize in a note the path leading to "Metaverse" based on what is happening in VR now.
Exciting "VR Startup" Financing
Below is a table summarizing "final round funding only" to see the most recent activity of funding for major VR startups since 2019.
In the US, the leading social VR "Rec Room" has succeeded in large-scale procurement of $100M, and "VRChat" has succeeded in large-scale procurement of $80M. In addition, entertainment-related VR startups such as "Sandbox VR", which develops VR games and entertainment facilities, and "Wave", which develops VR live performances such as music, stand out.
Is "VR not profitable" true?
In the past, people in the startup area were whispering that "VR is not profitable", but is that true?
The official Oculus blog (as of February 2021) has some very interesting data. There were 69 apps with sales of $ 1M or more and 6 apps with sales of $ 10M or more. The company is (daringly) comparing gray as of September 2020 and purple as of February 2021, just five months later.
The VR rhythm game "Beat Saber" has become a title with sales of over $10M in about a year and a half since its release, that is, at a pace of $5-7M.
The VR battle royale game "POPULATION: ONE" has achieved $10M in a few months since its launch, and if it is 3 months, it is earning $20-40M annually. You can see that (* Since there is an additional charge, it is calculated in the low range of the initial charge weight).
I think it's difficult to understand if you don't watch the VR market all the time, but you can see that the perception that "VR is not profitable" is becoming misunderstood, especially in the US.
So where can we get a hint of "the way to the Metaverse" from the analysis of the VR market? In fact, you can see that the ranking of VR apps is really suggestive.
Read "VR App Ranking"
Oculus has two rankings, "Top Selling" and "Most Popular". In fact, there is a difference between high-selling apps and downloaded apps (the "ranking" is as of August 1, 2021). Let's take a closer look.
Oculus Quest "Top Selling"
It's easy to see that there are many VR games that were released in 2019 accounting for half. Many VR apps are paid apps regardless of genre, and it is presumed that new users will be ranked at the top of sales as they are by purchasing standard apps (* The above is probably a ranking that does not include additional charges).
On the other hand, three games released in 2021 are also ranked in, and you can see that new VR games are born and widely accepted by users.
By the way, only 5 are ranked in the "Sales Ranking" and "Download Ranking" in duplicate. Why? Let's take a look at the "Download Ranking" to solve your doubts.
Oculus Quest "Most Popular"
The "Download Ranking" can be broadly classified into the following three categories.
(1) Games: Games that incorporate VR-like movements such as waving their arms and looking around 360 degrees, such as the VR rhythm game "Beat Saber" and the VR shooting game "Onward" mentioned above, are popular.
(2) Communication: Social VR apps that enjoy communication in virtual space, such as "Rec Room" and "VR Chat", which are raising large amounts of funds, are popular.
(3) Utilities and other entertainment apps: The only VR app other than games that was ranked in both DL and sales was the app "Virtual Desktop" for operating the desktop environment in the VR space. Although not in the ranking, photo and video viewer apps also fall into this category. In addition, "YouTube VR" is ranked as an entertainment application other than games.
Among these, I would like to pay attention to "(2) Communication" which keeps the top number of downloads in recent years.
Bored in virtual world experience
Social VR, such as 2nd place "Rec Room" and 4th place "VR Chat", is becoming a new trend.
Both have characters on the platform and enjoy walking around the world and communicating with their friends. You don't have to be a real-world friend. It can be said that the social desire to "talk to someone" and "want to interact" is generating the number of downloads.
The location of "where to meet" is also important. There is a space called a room in "Rec Room" and a space called a world in "VRChat", and the implementation method depends on the platform, but developers and creators can create their own space.
There are spaces such as the streets of New York and Japanese gardens that have transformed the real world into virtual spaces, and there are spaces that cannot be experienced in the real world, such as the scenery of anime. It can be said that such an extraordinary space excites communication.
A virtual space experience is very important. But what if that continues forever? Whether it's New York, Tokyo, Egypt, or anime space, the moment when it changes from "unusual to everyday" will surely come. In other words, static content is "sick".
So how will social VR evolve?
The hint is the popular game "Fortnite" of the US Epic Games, which provides the game engine "Unreal Engine" that is also very active in VR application production.
Charge for communication, not games
Fortnite is a representative game of battle royale games along with "PUBG" and "KNIVES OUT". Compete to survive to the end in a specific stage.
Of course, the goal is to win, but that's not the only goal, and you can log in at the same time as your fellow gamers to form a team and play cooperatively while talking.
When you are playing with your friends, it is close to "Communication > Game", and other players appear while you are talking to your friends, so it feels like you are shooting (defeating).
It's free to play, and the billing element is to decorate your avatar such as "skins", not because it makes it easier to defeat your enemies, but because you enjoy communicating with your friends more.
Try on hairstyles that are embarrassing and impossible in the real world, try on flashy clothes and costumes of popular characters, and equip weapons with your favorite patterns. Just like your friends will notice you when you wear new clothes, compliment you when you change your hairstyle, and sometimes you'll be ridiculed if you have a wacky bag.
"Emotes (dance)" is the best way to share the joy of winning with your friends.
For such communication, we play the game and charge for it.
In freemium-type games, the purpose of additional charges varies from game to game. They can be broadly classified into two types.
Efficiency type: A kind of "time saving type" item that you have to wait for a certain period of time to challenge the next stage, and you can challenge immediately if you purchase a recovery item. Includes items (weapons, cards, etc.) to make you stronger. There are also many gachas.
Avatar: Customize the avatar with characters, item skins, etc.
In Fortnite, you cannot buy weapons to make it easier to clear the game. Even so, it is said that many users make about $5 billion in sales by charging avatars to express themselves (including non-skin charges).
"Why do games and communication merge?" Three reasons
In the history of smartphone games, when the App Store first appeared, buy-out games were the mainstream, but after that, freemium-type games became the top sellers.
In that sense, I think it was only natural that free-to-play games like "Fortnite" became popular all over the world. If you think so, VR should change in the order of "free download → billing".
Thinking this way, there are some interesting changes in two apps: VR games and social VR. In other words, VR games that are sold out will move toward additional billing through "communication," while free social VR will move toward "games" to incorporate billing factors.
In other words, I think that the fusion of games and communication will accelerate even in VR. In conclusion, I would like to summarize the reasons for the following three.
(1) There are precedent cases of rapidly growing "games" in the world
"Fortnite" isn't the only case where people were supposed to get together to play a game, but before they knew it, they got together to communicate. The same thing is happening with the popular US game platform "Roblox", which was listed in March 2021.
Most of the fastest-growing games in the world have an element of "communication". We believe that this trend will accelerate in the VR market in the future.
(2) Communication requires topics
It is actually a high hurdle to keep communicating synchronously all the time. Appropriate “topics (contents and services)" are required there. The most powerful content is "games".
Of course, depending on the person, it may be "music," "video," "art," etc., but history proves that "games" are still the most profitable.
(3) Increasing needs for synchronous communication
I think that many people feel that conversations (especially synchronous communication) have decreased due to the increase in telework from 2020 due to the corona situation. In the questionnaire, 70.9% of respondents answered that "conversation" and "chat" were "significantly reduced" and "decreased" in telework compared to when they arrived at the office.
VR is a device with strong synchronization, and we believe that needs will increase in a world where synchronous communication has decreased.
Finally
We believe that "Game x Communication" will grow significantly in the VR market as well. This is the future of digital entertainment, and there is no doubt that there is a "metaverse" beyond that. The definition of the metaverse varies from person to person, but it is certain that one of the important contents in the space is "game".
However, looking at the trend of social VR, I felt that "games" are not indispensable, and that "communication" is the most important. I think that all kinds of content such as "games," "shopping," "media," and "business" will be integrated there.
People use the Metaverse to communicate.
Comic, animation, drama, movies, games, and any entertainment content that you can enjoy solo will end there, and content centered on communication elements and services will shine in the Metaverse era.
So what is the role of VR in the Metaverse?
Swinging a sword, throwing something in your hand ... One of the features is operability that you can't experience with a smartphone. But the most important essence is that there is "immersive". Vision overlooking 360 degrees, 3D avatars that can be someone else, virtual experiences that cannot be achieved in the real world.
VR with such an experience will be the best device and content to enjoy communication in the Metaverse era.
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Self-Introduction
Yuji Kumagai
Crypto Investment Manager at Akatsuki
About Akatsuki Inc.
A Japanese digital entertainment company, went public in 2016. Mainly develops mobile games and IP businesses, including comics and anime. Our mobile games with Japanese popular IPs got the top sale on US and a lot of European App Stores. Invested in 100 startups around US, India, Japan.