Note. The estimates quoted in the article below are based on a personal forecast and are not related to any estimates from my employer (Niko partners).
PlayStation VR will launch next week, marking the first time that Virtual Reality hardware and software will be available on a dedicated home console (If you ignore Nintendo’s attempt two decades ago). Sony has made it clear that they want to bring Virtual Reality into the mainstream through lower price and a more comfortable and controlled experience. The below is some of my general thoughts on why PlayStation VR will do well, but also why it won’t be as big as some are predicting. Note that these are just my personal estimates and I could very easily be wrong.
Sony have ticked the box on price, with the headset available in two SKU’s, one costing $399 with the PS VR headset and the other costing $499 which comes with the headset, camera, two move controllers and a copy of VR Worlds. This is considerably cheaper than its competitors in the PC space which come in at $599 (Oculus Rift) and $799 (HTC Vive) respectively. The cost of the Oculus is also somewhat inflated by the yet to be released touch controllers which are rumoured to come in at over $150, effectively making the device as expensive as the Vive.
The entry price for the PS4 console itself is now $299 which means that a consumer can be VR ready with PlayStation at the same price as it would cost them to buy the HTC Vive alone. This is a huge advantage to Sony and that advantage gets even bigger when you realise that they already have an install base of over 45 million PlayStation 4 customers that are VR ready. This is a very large number compared to the 20 million or so PC’s that are compatible with the HTC Vive’s and Oculus Rift’s high required specs. These PC’s also cost hundreds, if not over $1000 dollars to build, making the entry price for PC based VR considerably higher than for console based VR.
Sony also has a huge advantage in creating a closed and controlled system with PS4 and PS VR. It allows them to create a controlled environment that provides a more polished and consistent experience to gamers. PC VR will always provide a higher quality experience in terms of visuals and processing power, but it is currently on a fragmented platform. PlayStation can certainly use this advantage to drive adoption of their more polished and standardised experience through positive word of mouth and marketing.
The company has done well to tailor the experience to gamers in the living room by allowing games to be played seated or standing with minimal need to move around the room. Space is a key issue and the HTC Vive requires a lot of it for games, PS VR does not. PlayStation VR also makes Virtual Reality more social by introducing the second screen concept. It allows them to market their games as experiences for the entire family or a group of friends. This increases the appeal of the product significantly over competitor devices.
In addition, more than 230 developers are working on creating games and applications for PlayStation VR with 50 due to launch before the end of the year and a further 110+ announced titles in development for 2017. Sony will also ship a demo disc with the PlayStation VR allowing gamers to try out 18 different titles, a great way to encourage spend on premium priced software. The software development landscape certainly looks good on PlayStation VR and whilst a lot of the early titles are tech demos or full console games with VR added on, I expect we will see more immersive VR experiences in 2017 and 2018 as the industry grows.
Sony is well positioned to take the lead in the high end VR space due to all the reasons listed above. The Oculus Rift and HTC Vive have fallen short of expectations this year and it all comes down to the high price of entry, lack of innovative and new software, a fragmented experience on PC and the inability for consumers to experience/understand VR. John Riccitello’s gap of disappointment is very much real and I wouldn’t expect adoption in the PC space to grow until all four issues are addressed.
Whilst I expect Sony to be the leader in the space, this doesn’t mean that they don’t have issues that need to be addressed too. The biggest issue right now is that Virtual Reality is a very new medium in the eyes of the world. It is not based off an established technology and it is not something that everyone can experience or relate to through a traditional video demonstration or billboard ad. This has led to Sony rolling out demo stations across GameStop to engage consumers and allow them to experience the sense of presence that VR brings. It has also led to them marketing VR in creative ways by introducing the second screen concept and by creating a transparent headset in adverts to allow viewers to see the expression of joy on peoples faces that would otherwise be hidden by the HMD.
The second issue is cost. Whilst the headset is considerably cheaper than its competitors, it is still a minimum of $399. This is $100 more expensive than the actual console itself and so it makes sense why Sony are trying to position PlayStation VR as its own platform, rather than a simple add on. Whist the addressable market is huge, the number of people willing to spend $400+ isn’t according to various surveys and this is one of the reasons why Mobile VR is set to be adopted much faster than console and pc based VR.
The PlayStation VR headset itself is also one factor holding back the adoption of console based VR. Whilst the design is very consumer friendly, it is still slightly bulky, awkward to wear and requires a number of cables and connections to work. The Move controllers were not designed from the ground up for VR and so some have noted that they can be uncomfortable during gameplay and not feel natural.In addition, the hardware specs are not at a level that allows for the same level of graphics that a HD Console game would have. That being said, the headset is providing a ‘good enough’ experience for early adopters to VR.
The final point holding back PlayStation VR is software. Right now the software titles being released are a cross of tech demos and add on VR content to a full HD console game. It allows big franchises to cross over to the VR world, but right now they’re not offering a more compelling experience than what can be found on the console itself. PlayStation VR needs a continuous stream of both big franchises and unique VR only software in order to push hardware sales. Sony also need to enhance their non game offerings in order to increase mass market appeal. We’ve already seen Anywhere VR and a few other non game apps which are a start. We should expect to see more non game apps for PlayStation VR beginning in 2017.
It’s clear to me that PlayStation VR is best positioned to take the high end space easily and even take market share away from Oculus and HTC. However, we are still very early in the VR lifecycle and with the factors listed above, high end VR will struggle to meet mainstream status for a while. Initial demand for PlayStation VR from the early adopter crowd has been there like it was with Oculus and HTC, but we saw that sales started to drop off once the supply issues were sorted . PlayStation VR could see a similar drop off, but I am actually slightly more bullish and expect the support from Sony and third party to be a huge driver of sales for PlayStation VR in 2017 and beyond as the PS4 becomes more attractive at a mass market price with big franchises appearing on both PS4 and PS VR exclusively. Not to mention that Sony are selling PS VR at a profit from day 1 which gives them additional flexibility when it comes to price drops to encourage adoption.
Console VR will also receive a boost from Project Scorpio at the end of 2017, which is due to support VR. It’s not 100% clear if Microsoft will release their own headset or partner with Oculus, but it means that more software will come to console VR and boost the space even further. Oculus Rift and HTC Vive are expected to ship under 1 million (significantly under 1m) units combined in 2016 and the reason for this low number is primarily due to all the factors listed above. I believe that it will take a hardware refresh in the high end PC VR space for adoption to grow.
Sony has noted numerous times that they are being cautious with PlayStation VR and have used a pre order system to see what sort of demand there is for the headset. A good chunk of early adopters, mainly those who purchased the PS4 day 1, have registered interest in the system and it looks like PS VR will easily outsell both Oculus Rift and HTC Vive on an individual level, if not combined, in 2016. That being said, a number of PS4 early adopters are also interested in the PS4 Pro which limits the appeal of PS VR this year due to the high price of both.
Overall, I expect Sony to use this year as way to test the waters for demand of VR hardware and software in comparison to their other more established products. Sony has hinted that supply may be constrained through the end of the fiscal year and we could see a product that has more demand than supply because of this. That being said, the demand right now is from early adopters who are aware of the 50 titles at launch and the capabilities of the system. Sony will no doubt increase supply in line with demand as new software is released, positive word of mouth begins to spread and more are able to experience VR in store through 2017.
Having looked into all the available data and reading some of the feedback today, I expect Sony to ship 300,000 units of PlayStation VR hardware to stores during the launch period with an additional 300,000 units shipped during the holiday selling season for a cumulative total of 600,000 units sold by the end of 2016. EDIT FOR NOVEMBER: After a statement from Sony saying that they will increase production to meet demand I now expect a further 200,000 or so units to be shipped before the end of this year for a cumulative total of 800,000.
I am also expecting 2017 and 2018 to be the peak years for the product, assuming Sony are able to deliver on the three points noted in the last paragraph. A total of 3 to 4 million units could be sold during 2017 and 2018. The numbers may seem low but I would say that the appeal for high end VR will remain limited overall with Mobile VR taking the biggest share of the pie first and a second gen PC/Console VR generation succeeding that.
Overall, I expect PlayStation VR to be treated by consumers as an add on to the PlayStation 4, similar to that of PS Eye on PS2, even if Sony are trying to position it as its own platform. We may have to wait for a second revision of PS VR for console VR to really take off and conquer the mass market. I would be surprised if this gen 1 headset achieved a signifcantly higher than 5% attach rate with PlayStation 4 and I estimate that the headset will not top the 10 million sales milestone in this generation.