1.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
!
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Releasedate:June2014
Version: 1.3
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Page
1A
KZero
Worldswide
Report
Thewaywewillinteractwithdigitalcontentisaboutto
rapidlychange,duetotheemergenceofConsumerVirtual
Reality.
!
ThisKZeroWorldswidereportexplainsthestateofthe
ConsumerVirtualRealitymarket,thedevicesbeingcreated,
thecompaniesoperatinginit,marketsizeforecastsand
commercialapplicationexamplesforkeyVirtualReality
markets.
Consumer
Virtual
Reality
State
of
the
Market
Report

2.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
Executive
Summary
Intended
for
marketers,
brand-­‐owners,
entrepreneurs
and
investors,
this
KZero
State
of
the
Market
report
examines
the
emerging
market
of
Consumer
Virtual
Reality
(VR).
We
have
assessed
the
hardware
market
of
Consumer
Virtual
Reality
Devices
(CVRDs)
and
the
software
market
of
games
and
apps
for
VR.
!Virtual
Reality
refers
to
a
digital
3D
environment
that
can
be
accessed
and
interacted
with
using
a
VR
headset.
Users
wear
the
headset
and
then
place
themselves
within
a
100%
immersive
world.
User
head
and
body
movements
are
tracked
by
the
VR
application
and
the
environment
(what
the
user
sees)
reacts
accordingly.
!The
CVRD
market
is
currently
being
pioneered
by
a
company
called
Oculus
VR
(acquired
by
Facebook
in
March
in
a
$2bn
deal)
with
other
companies
such
as
Samsung,
Microsoft
and
Sony
in
close
pursuit.
In
addition,
a
range
of
start-­‐ups
are
also
developing
their
own
headsets.
In
conjunction
with
the
development
of
the
devices
(typically
headsets),
an
emerging
market
of
VR
game
developers
will
create
3D
environments
to
be
explored
by
the
device
owners
and
their
friends.
!We
have
identified
12
key
sectors
that
will
adopt
consumer
VR,
which
include
the
porting
over
of
existing
Massive
Multiplayer
Games,
the
creation
of
brand-­‐new
MMOs,
VR
environments
allowing
User
Generated
Content
and
Mirror
Worlds,
re-­‐creating
places
in
the
real
world.
!In
terms
of
numbers,
our
market
sizing
assessment
forecasts
almost
57m
devices
being
purchased
from
2014
-­‐
2018
and
total
active
users
of
47.6m
in
2018.
Revenue-­‐wise,
we
estimate
device
(hardware)
sales
to
exceed
$8.4bn
over
the
five
year
period
and
game/app
(software)
sales
of
$7.7bn.
This
equates
to
an
overall
market
size
(cumulative
from
2014
-­‐
2018)
of
$16.2bn
and
represents
a
CAGR
of
125%.
Page
2A
KZero
Worldswide
Report
Contents
!
The
Basics
Moving
to
a
Mixed
Reality
Metaverse
Roadmap
Technology:
Hardware
What
Can
You
Do
With
It?
Virtual
Worlds
Mirror
Worlds
LifeLogging
Market
Sizing:
Hardware
1.
The
Basics
A
Consumer
Virtual
Reality
Device
(CVRD)
is
a
piece
of
hardware
resembling
goggles.
A
user
places
this
unit
on
their
head
and
sees
a
digital
image
on
a
display
as
opposed
to
seeing
the
real-­‐world
around
them.
!This
image
is
a
a
3D
stereoscopic
computer-­‐generated
digital
environment
or
virtual
world.
When
a
user
moves
their
head
to
the
left,
their
digital
field
of
view
moves
accordingly,
allowing
the
user
to
effectively
engage
and
interact
inside
the
virtual
world.
This
creates
a
Virtual
Reality
to
the
user.
!In
order
to
operate,
in
essence
a
Virtual
Reality
Device
needs
three
things:
• Supporting
graphic
capabilities
(via
a
headset)
in
order
to
display
the
digital
environment
to
the
user.
This
display
is
delivered
either
via
a
screen
or
by
projecting
directly
onto
the
retina.
•3D
content
to
provide
‘the
view’
for
the
user.
•The
ability
to
allow
the
user
to
interact
directly
with
the
environment.
!This
technology
has
been
available
primarily
to
the
military
for
several
years.
Recent
gains
in
technology
and
processing
speeds,
coupled
with
a
growing
appetite
for
3D
gaming
content
has
stimulated
consumer
interest.
A
number
of
companies
are
actively
developing
or
about
to
develop
Consumer
Virtual
Reality
devices
(the
hardware).
Many
more
will
develop
virtual
worlds,
games
and
apps
for
the
device
owners
to
explore
(the
software).
!We
expect
this
technology
and
supporting
ecosystem
of
sectors
to
expand
rapidly
in
the
next
five
years,
in
addition
to
new
vertical
markets
opening
up
aside
from
the
core
gaming
propositions.

3.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
2.
Moving
to
a
Mixed
Reality
We
are
moving
towards
a
Mixed
Reality
as
our
real
and
digital
worlds
continue
to
merge
together.
Our
digital
lives
increasingly
include
pictures
and
video
of
our
surroundings
and
content
from
everywhere
and
anywhere
can
reach
us
instantly.
!The
way
that
we
will
interact
with
digital
content
is
about
to
rapidly
change
and
is
explained
in
the
spectrum
shown
below.
3.The
Metaverse
Roadmap
From
Wikipedia:
‘The
Metaverse
is
a
collective
virtual
shared
space,
created
by
the
convergence
of
virtually
enhanced
physical
reality
and
physically
persistent
virtual
space,
including
the
sum
of
all
virtual
worlds,
augmented
reality,
and
the
internet.
The
word
metaverse
is
a
portmanteau
of
the
prefix
"meta"
(meaning
"beyond")
and
"universe"
and
is
typically
used
to
describe
the
concept
of
a
future
iteration
of
the
internet,
made
up
of
persistent,
shared,
3D
virtual
spaces
linked
into
a
perceived
virtual
universe.’
Now,
that
sounds
a
bit
Page
3A
KZero
Worldswide
Report
Augmented
Virtuality
Augmented
Virtuality
(AV)
is
the
combination
of
real
and
virtual
environments.
In
this
instance,
the
digital
content
is
not
merely
used
to
complement
the
real
view
but
instead
is
used
to
enhance
it.
!Examples
of
AV
concepts
include
news
studios
with
digital
(visual)
backdrops
(or
the
weatherman),
the
dynamic
yards
line
in
a
TV
football
match.
Whereas
AR
would
typically
have
no
more
than
20%
of
the
field
of
view
allocated
to
digital,
with
AV
this
ratio
could
be
inverted,
meaning
digital
content
would
account
for
circa
80%
of
the
total
view.
!
Virtual
Reality
When
a
user
is
placed
within
a
100%
digital
environment
that
they
can
engage
and
interact
with,
through
sight,
sound
and
movement,
they
are
in
a
Virtual
Reality.
This
concept,
although
only
now
becoming
commercially
available,
is
considered
‘Star
Trek
Tech’,
meaning
it
has
existed
in
sci-­‐fi
and
to
a
degree
general
knowledge
for
many
years.
The
best
example
of
this
is
the
‘Holodeck’.
Real
Environment
The
Real
Environment
is
the
‘good
old
way’
that
we
interact
with
our
surroundings.
What
we
see
with
our
eyes
is
what
we
get.
In
this
scenario,
there
is
no
digital
content
added.
Augmented
Reality
Augmented
Reality
(AR)
is
the
real-­‐time
supply
of
complementary
digital
information
into
our
current
field
of
real
view.
AR
applications
include
providing
map-­‐type
guidance
information
as
a
person
is
on
the
move,
or
house
pricing
when
a
property
is
looked
at.
These
types
of
AR
concepts
rely
on
technology
such
as
image
recognition,
GPS
and
Internet
connectivity
-­‐
basically
supplying
additional
information
based
on
the
usage
context.
AR
is
currently
available
using
smartphones
and
laptops,
as
well
as
newer
developments
utilising
glasses
(as
opposed
to
headsets),
with
Google
Glass
being
the
best
example.
The
most
important
thing
to
remember
with
AR
is
that
the
digital
content
is
always
in-­‐support
of
what
the
user
is
actually
seeing
and
doing
in
the
real
world.
Image
courtesy
of
Google

4.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
fancy,
but
the
Metaverse
Roadmap
is
a
useful
tool
to
scope
out
the
way
the
Internet
is
developing.
The
graphic
below
is
the
Metaverse
Roadmap.
!!!!!!!!!!!!!!The
various
elements
of
the
Metaverse
Roadmap,
taken
from
MetaverseRoadmap.org,
are
explained
as
follows.
!Combining
these
different
elements
to
varying
degrees
in
turn
identifies
key
markets
for
Consumer
Virtual
Reality
Devices
.
They
are
as
follows:
!Virtual
Worlds
(VWs)
and
Massive
Multiplayer
Online
Game
(MMOs)
This
market
segment
is
the
low
hanging
fruit
of
the
overall
sector.
The
initial
commercial
uses
of
Virtual
Reality
devices
will
be
in
gaming
and
more
specifically,
Virtual
Worlds
and
MMOs.
Already
massively
popular
across
all
age
ranges,
whereas
the
current
‘experience’
for
virtual
worlds
is
simply
through
a
monitor
or
screen,
Virtual
Reality
will
place
players
‘inside’
the
game,
being
able
to
directly
interact
with
the
digital
environment.
Note
that
there
are
already
thousands
of
VW’s
already
created
(i.e.
the
3D
environments
already
exist)
and
used
by
millions
of
players.
These
VW’s
have
been
commercially
created,
to
support
the
game
they
exist
to
serve
(for
example
a
map
in
Modern
Warfare
or
Los
Santos
in
GT5)
as
well
as
from
User
Generated
Content
(of
all
ages)
in
worlds
such
as
Roblox
and
Second
Life.
!Mirror
Worlds
Similar
to
VW’s,
Mirror
worlds
are
100%
digital
environments.
However,
rather
than
being
fictionally
invented
places
(created
to
support
the
game),
Mirror
Worlds
are
virtual
versions
of
the
real
world
-­‐
they
are
based
on
real
places.
For
example,
think
Times
Square
in
New
York
re-­‐created
virtually
allowing
users
to
put
on
a
headset
and
walk
around
like
a
tourist.
!Existing
VW’s
such
as
Second
Life
and
others
already
contain
hundreds
of
Mirror
Worlds,
ranging
from
the
central
London,
Berlin
(created
by
Germany
based
Twinity)
the
Eiffel
Tower,
Yankee
Stadium
and
even
the
whole
of
the
UK.
Mirror
worlds
are
also
being
used
to
re-­‐create
places
(and
then
events)
in
history.
Think
of
this
as
virtual
time
travel.
Page
4A
KZero
Worldswide
Report
Augmentation
Augmentation
refers
to
technologies
that
add
new
capabilities
to
existing
real
systems;
in
the
Metaverse
context,
this
means
technologies
that
layer
new
control
systems
and
information
onto
our
perception
of
the
physical
environment.
!Simulation
Refers
to
technologies
that
model
reality
(or
parallel
realities),
offering
wholly
new
environments;
in
the
Metaverse
context,
this
means
technologies
that
provide
simulated
worlds
as
the
focus
for
interaction.
Intimate
Technologies
that
are
focused
inwardly,
on
the
identity
and
actions
of
the
individual
or
object;
in
the
Metaverse
context,
this
means
technologies
where
the
user
has
agency
in
the
environment,
either
through
the
use
of
an
avatar
or
through
direct
appearance
as
an
actor
in
the
system.
!External
Technologies
focused
outwardly,
towards
the
world
at
large;
in
the
Metaverse
context,
this
means
technologies
that
provide
information
about
and
control
of
the
world
around
the
user.
Image
source:
Second
Life

5.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
Lifelogging
Lifelogging
is
essentially
using
technology
to
capture,
record
and
store
our
lives,
as
we
live
them.
These
means
the
people
we
meet
(what
we
see),
the
things
we
say
and
listen
to
(what
we
hear)
and
the
places
we
visit
(where
we
go).
Think
of
Lifelogging
as
a
digital
personal
diary,
without
having
to
write
it.
!
Pulling
Lifelogging
back
to
existing
technologies
and
applications,
in
a
straight-­‐forward
sense
it’s
simply
the
next
evolution
of
‘personal
information’.
First
we
had
blogging,
then
micro-­‐blogging
(a
la
Twitter)
and
next
up
Lifelogging.
The
Google
Glass
project
is
a
great
example
of
Lifelogging,
using
a
camera
(for
pictures
and
video),
GPS,
a
heads-­‐up
display
(projected
to
one
eye)
and
Internet
connectivity,
users
of
Glass
and
receive
location-­‐specific
information,
get
digital
content
on
demand
and
digitally
record
what
they
do.
Although
some
people
think
the
primary
use
of
Google
Glass
(and
other
wearable
devices)
is
for
Augmented
Reality
(receiving
information),
we
believe
that
Lifelogging
(recording
information)
will
be
the
application
that
boosts
mass
adoption.
!
These
three
segments
will
be
further
drilled
into
and
expanded
later
in
this
report.
!!!
4.
Technology
-­‐
What
makes
a
Virtual
Reality
Device?
!This
report
is
not
intended
to
focus
too
closely
on
the
underlying
technology
required
for
consumer
Virtual
Reality.
However,
assessing
the
supply
chain
and
supply
composites
does
throw
an
interesting
light
on
the
directions
this
market
is
moving
into.
!The
following
sections
lay
out
the
high-­‐level
technology
require
to
create
these
devices/platforms
as
well
as
actual
and
potential
manufacturers.
!
Page
5A
KZero
Worldswide
Report
Image
source:
Google
Image
source:
Google

6.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
The
four
elements
above
are
the
core
aspects
from
hardware
and
technology
perspectives.
But
whose
making
CVRDs?
We
have
identified
three
different
types
of
companies
interested
in
manufacturing,
as
follows:
Specialist
Gaming
creams-­‐off
the
Innovators
A
growing
number
of
early
stage
companies
founded
specifically
to
manufacture
CVRD’s
are
emerging.
These
companies,
at
the
cutting
edge
of
a
major
new
technology,
are
developing
their
systems
initially
for
the
gaming
market
with
some
utilising
third-­‐party
mobile
(Android)
devices.
!Oculus
VR,
Inc.
is
the
most
well
known
start-­‐up
in
this
space
and
even
more
so
following
the
recent
$2bn
acquisition
by
Facebook.
Other
companies
of
note
include
VRelia,
Avegant,
Sulon,
ANTVR
(shown
right),
GameFace
Labs
and
True
Player
Gear.
There
is
also
a
number
of
stealth
start-­‐ups
on
the
verge
of
entering
this
marketplace.
!
Generalist
Technology
takes
the
Early
Adopters
Existing
technology
companies
with
product
presence
in
segments
such
as
console
gaming,
telephony,
general
computing
and
general
technology
are
already
in
NPD
mode
for
CVRD.
These
include
Apple,
Sony,
Microsoft,
Samsung
and
Google.
!
These
companies
will
strive
to
create
semi-­‐closed
technology
gardens,
offering
both
the
hardware
(the
devices)
and
a
way
of
obtaining
the
virtual
reality
environments,
games
and
other
applications
-­‐
think
App
stores.
!The
Sony
headset,
coded-­‐named
Project
Morpheus
is
shown
in
the
image
left.
Section
7
shows
a
full-­‐
list
of
companies
developing
VR
headsets.
!
Brands
and
IP’s
garden-­‐wall
the
Early
Majority
Just
as
we
see
some
toy
companies
create
custom
dedicated
tablets
for
certain
markets,
we
expect
this
to
happen
also
in
the
CVRD
sector.
We
expect
companies
such
as
Mattel
and
Hasbro
(as
well
as
other
large
consumer
IP
owners)
to
acquire
third-­‐party
technology
and/or
re-­‐package
existing
technology
and
supply
closed-­‐platform
virtual
reality
experiences
based
around
their
portfolio
of
brands
and
IPs.
!
And
last
but
not
least….the
virtual
world
Or
more
specifically,
the
final
piece
of
the
puzzle
is
the
creation
of
the
3D
environment
itself,
be
it
a
virtual
world,
mirror
world
or
lifelogging
experience.
By
development,
we
mean
the
3D
modelling
of
virtual
items,
the
terrain,
buildings,
avatars/non-­‐playing-­‐characters
(NPCs)
and
other
elements
required
to
place
a
user
into
a
digital
environment,
as
well
as
the
created
mechanics,
objectives
and
interactions
needed
to
give
the
user
a
reason
to
enter.
!
Page
6A
KZero
Worldswide
Report
Hardware
The
physical
headset
and
accompanying
functionality.
This
includes
processors,
wifi,
GPS
and
other
technology
needed
for
wearable
computing.
!Display
The
screen
displayed
to
the
user
inside
the
headset.
When
a
user
puts
on
the
device,
they
look
into
the
display
and
‘enter’
the
virtual
reality
environment.
Sensors
Sensors
detect
where
the
person
is
looking,
how
and
where
they
are
moving
and
generally
translate
real-­‐world
movement
into
a
virtual
equivalent.
!Render
The
combined
technology
(from
the
display
and
sensors)
that
‘creates’
the
3D
environment
and
how
it
is
presented
to
players

7.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
These
types
of
development
companies
are
effectively
‘World
Builders’.
We
expect
World
Builders
to
fall
into
one
of
the
following
four
categories:
!
• KT&T
virtual
world
developers:
Companies
already
making
browser
and
tablet
based
3D
virtual
worlds
and
MMOs
for
the
Kids,
Tween
and
Teen
(KT&T)
sector
are
highly
likely
to
evolve
into
creators
of
VR
environments.
We
expect
these
types
of
environments
to
be
based
on
existing
IP’s
that
already
have
a
presence
in
the
virtual
world/MMO,
app
or
kids
gaming
markets.
!
We
asked
Matthew
Warneford,
CTO
of
leading
kids/tween
virtual
world
developer
Dubit
to
offer
his
thoughts
on
the
emerging
market
of
virtual
reality
‘playgrounds’
for
younger
players:
!
"As
a
developer
of
multiple
virtual
worlds
and
online
games
for
brands
and
companies
across
the
world,
we've
been
monitoring
the
progress
of
the
virtual
reality
sector
for
quite
a
while.
Although
the
majority
of
these
kids
virtual
worlds
and
MMOs
have
been
browser-­‐based
and
more
recently
on
tablets,
we
expect,
and
look
forward
to
be
working
with
companies
in
the
kids
space
to
develop
VR
specific
applications.
We
see
it
as
a
natural
evolution
of
the
sector.
!
For
brands
and
particularly
kids/tween
IPs
with
presence
online,
the
movies,
on
TV
or
toy-­‐based,
virtual
reality
will
allow
these
IPs
to
fully
immerse
kids
into
their
branded
worlds
and
experiences.
We've
already
seen
how
quickly
kids
embrace
new
technologies
and
we
expect
VR
to
be
no
different."
!
• Console
game
developers:
With
the
older
gaming
market
being
the
low-­‐hanging
fruit
of
this
marketplace,
we
expect
many
game
developers,
primarily
with
console
expertise
to
develop
VR
environments.
Think
Battlefield
4
or
Call
of
Duty
(developed
by
Dice/EA
and
Treyarch/Infinity
Ward/Activation
respectively).
We
expect
these
environments
to
be
based
primarily
on
existing
games/IPs
in
the
short-­‐term.
The
medium
term
will
see
them
create
brand-­‐new
IPs
and
games
specifically
for
the
CVRD
market.
!
• Dedicated
specialists:
i.e.
companies
created
specifically
to
develop
VR
environments
and
platforms.
These
will
be
companies
typically
creating
new
IP
platforms
specifically
for
CVRD.
We
expect
there
to
be
moderate
VC
interest
and
investment
into
this
category,
just
as
over
$800m
was
invested
in
the
KT&T
VW
sector
off
the
back
of
the
Club
Penguin
acquisition
by
Disney.
Interestingly,
we
expect
the
target
market
for
these
types
of
companies
to
be
adults,
with
potential
NPD
into
areas
such
as
sex
(of
course),
gambling
and
other
vertical
markets.
!
• User
Generated
Content
(UGC)
:
Sandbox
environments
and
other
world-­‐based
platforms
currently
allowing
users
to
create
their
own
content,
such
as
Minecraft
and
Second
Life
demonstrate
the
popularity
of
this
activity.
We
therefore
expect
great
interest
and
activity
in
the
market
for
users
to
create
their
own
worlds,
either
on
their
own
or
with
others.
This
is
simply
an
evolution
from
the
browser
to
the
headset.
!
As
part
of
this
evolution
we
expect
some
UGC
platforms
currently
in
the
browser
(or
desktop
client)
to
initially
allow
users
to
‘port’
or
re-­‐create
their
browser
worlds
easily
into
a
virtual
reality
environment.
This
trend
has
already
started
with
‘Minecrift’,
a
total
VR
conversion
for
Minecraft
with
Oculus
Rift
support
(see
image
left).
!
5.
Enough
of
the
tech.
What
can
you
do
with
these
things?
This
section
of
the
document
provides
examples
of
use-­‐cases
for
consumer
virtual
reality,
in
other
words,
what
you
can
do
with
it.
As
we
expect
the
first
phase
of
market
development
will
come
from
the
gaming
sector,
we
have
focussed
on
this
segment,
although
we
provide
some
example
use-­‐cases
for
other
sectors.
Some
of
the
concepts
we
will
explain
are
already
in
development
or
conceptually
defined,
whilst
others
are
our
own
examples.
Page
7A
KZero
Worldswide
Report
Image
source:
Oculus
VR

8.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
Virtual
World
Concepts
We
expect
existing
virtual
worlds
and
MMOs
to
be
converted
into
virtual
reality
equivalents
(initially
with
console-­‐type
controllers,
moving
to
full
body
input
systems).
This
will
be
the
first
consumer
use
of
consumer
VR
technology.
Listed
below
are
three
key
areas.
!
Evolving
on
from
taking
existing
browser/screen
based
virtual
worlds
and
MMOs
(massive
multiplayer
online
games),
we
expect
a
high
number
of
‘new
worlds’
created
and
therefore
an
emerging
ecosystem
of
new
start-­‐
ups
and
IP’s
offering
game-­‐based
VR
environments.
Examples
include:
Page
8A
KZero
Worldswide
Report
Teen
&
Young
Adult
Market
Genres
such
as
dating,
fashion
and
socialising
are
ideally
suited
to
a
more
immersive
experience.
Again,
we
expect
existing
properties
such
as
IMVU
and
Stardoll
to
look
closely
at
creating
3D
environments
for
their
platforms.
!Whereas
with
the
adult
gaming
market
the
environment
is
the
‘draw’,
with
dating,
socialising
etc,
the
role
of
the
avatar
will
be
more
important.
This
is
a
market
segment
we
expect
to
materialize
early
2015.
We
believe
that
‘Social
Worlds’
is
the
prime
reason
Facebook
acquired
Oculus
VR.
Adult
Gaming
Market
Skyrim,
Mirror’s
Edge
and
Team
Fortress
2
are
three
popular
existing
games
that
have
been
adapted/ported
to
operate
via
CVRD
and
specifically
with
the
Oculus
Rift.
Many
more
existing
MMO
and
3D
multiplayer
games
will
be
ported
from
the
monitor
to
the
headset.
!First
person
shooters
(FPS)
are
likely
to
be
the
initial
popular
game
genres,
along
with
other
RPG
games
(role-­‐playing).
We
anticipate
this
segment
to
gather
momentum
mid
2014.
Kids/Tween
Market
The
most
popular
(on
a
registered
account
basis)
segment
of
the
existing
virtual
worlds
marketplace
is
kids
and
tweens.
Creating
VR
versions
of
IPs
such
as
Moshi
Monsters,
Club
Penguin
and
Wizard
101
are
logical
extensions.
!User
generated
content
based
applications
for
the
kids/tween
segment
are
also
expected
to
be
very
popular
and
allow
this
younger
market
to
create
fantastical
worlds
to
explore,
play
and
socialise
in.
Initial
games
and
apps
in
this
space
are
expected
throughout
2014.
Bespoke
MMOs
Brand-­‐new
MMO
games
and
virtual
worlds
will
be
created
specifically
to
leverage
and
fully
utilize
the
opportunities
and
capabilities
of
VR.
Specifically
integrating
greater
use
of
player
/
environment
interaction.
These
games
will
in-­‐
turn
become
more
immersive
as
a
result
of
the
ability
for
players/users
to
direct
engage
with
the
digital
content
around
them.
Several
MMOs
of
this
type
are
already
being
developed
by
existing
game
developers.
!Late
2014
/
early
2015
is
when
we
expect
to
see
the
first
of
these
types
of
games
launched.
Evolving
from
here,
probably
from
mid
2015
will
be
the
introduction
of
devices
that
allow
players
to
physically
move
their
legs
and
move
inside
the
virtual
world
without
needing
a
controller.
!
The
best
example
of
VR
player
movement
is
the
Omni,
an
omnidirectional
treadmill
from
a
company
called
Virtuix.
Users
stand
in
the
middle
of
a
tracking
unit
that
allows
them
to
walk
in
any
direction.
The
company
says:
‘Gaming
on
a
keyboard,
mouse
or
gamepad
while
seated
pales
in
comparison
to
the
intense
experience
and
fun
that
comes
from
actually
walking,
running,
and
jumping
in
games’.
Another
product
to
watch
is
Sixense
Stem
motion
sensor.
Gambling
It
is
not
unrealistic
to
expect
VR
casinos
and
3D
gambling
to
be
both
popular
and
profitable.
Put
simply,
wearing
a
CVRD
would
place
you
at
a
3D
digital
blackjack
(for
example)
table.
Avatars
would
represent
the
other
players
and
players’
hands
would
hold
virtual
cards,
chips
etc.
We
anticipate
this
vertical
market
to
emerge
very
soon
after
the
commercial
launch
of
CVRD
-­‐
late
2014
/
early
2015.
This
push
will
come
from
existing
online
gambling
companies
as
well
as
start-­‐ups.
!Shown
below
is
a
screenshot
from
World
Series
of
Poker:
Full
House
Pro.
A
recently
launched
game
developed
by
Pipeworks
Software,
published
by
Microsoft
Games
Studios
for
Xbox
360
as
an
Xbox
Live
Arcade
title
and
Windows
8.
Image
source:
Microsoft

9.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
UGC
Worlds
Having
experienced
the
massive
success
of
User
Generated
Content
virtual
worlds
such
as
Second
Life,
Minecraft
and
Roblox
(appealing
to
all
ages)
we
strongly
believe
this
segment
is
ripe
for
massive
expansion.
In
these
virtual
reality
worlds,
users
will
be
able
to
create
their
own
environments
and
from
here,
then
create
endless
applications
and
activities.
In
essence,
users
would
be
able
to
create
their
own
worlds
and
then
enter
them,
putting
them
in
complete
control
-­‐
it’s
an
amazing
thought.
!Evolving
this
concept
further,
we’ll
also
see
users
create
worlds
and
invite
others
to
enter
them
as
well
as
co-­‐operative
content
creation.
We’re
already
seeing
some
early
work
in
the
field
of
UGC
virtual
reality
with
the
creation
of
Minecrift,
a
dedicated
tool
(mod)
that
allows
users
to
interact
with
Minecraft
via
the
Oculus
Rift
and
the
Metacraft
project.
!
Brand-­‐new
Sporting
Categories
When
the
Wii
gaming
system
was
introduced,
it
ushered
in
a
new
style
of
consumer
gaming,
with
gamers
given
the
tools
to
interact
with
games
on
a
more
active
basis.
Now,
with
the
pending
introduction
of
VR
gaming,
we
strongly
believe
that
brand-­‐new
sports
and
‘movement-­‐based’
activities
will
be
created.
!
These
new
sports
will
be
built
from
the
ground-­‐up,
starting
with
the
unique
attributes
offered
by
VR,
including
body
movement
interaction
and
the
ability
to
place
players
into
newly
constructed
3D
environments
tailored
to
leverage
VR
and
provide
the
player
with
a
dedicated
immersive
experience.
Think
Quidditch.
!
Page
9A
KZero
Worldswide
Report
Active
Sports
Active
users
require
users
to
move
their
entire
body
in
order
to
participate.
From
a
timing
perspective,
this
is
a
market
we
expect
to
grow
from
mid/late
2015.
!Coupled
to
the
concept
of
using
CVRDs
to
put
the
user
within
a
dedicated
sporting
environment,
an
additional
functionality
required
to
permit
fully
active
sports
to
‘work
properly’
is
body
movement
tracking.
And,
this
is
a
segment
expected
to
piggy-­‐back
on
the
growth
of
VR.
There
are
two
primary
ways
to
track
body
movement:
!• Camera
tracking.
Devices
such
as
the
Microsoft
Kinect
are
being
used
to
track
body
movements
of
game
players.
• Treadmills.
Certainly
positioned
more
to
the
hard-­‐
core
gaming
market
in
the
first
instance,
early
stage
companies
are
developing
omni-­‐directional
treadmills
that
allow
players
to
interact
with
games
via
body
movement.
A
company
called
Virtuix
has
developed
a
product
called
Omni
and
from
their
website:
‘Applications
of
natural
movement
in
virtual
reality
stretch
far
beyond
gaming:
training
and
simulation,
fitness,
virtual
tourism,
virtual
trade-­‐
shows
and
events,
meet-­‐ups
and
multi-­‐person
adventures’.
• Key
sports
made
possible
via
body
tracking
include
fitness,
tennis
and
swimming.
But
don’t
expect
a
fully
virtual
Fifa14
until
at
least
2018!
Passive
Sports
Classified
as
‘Simulation
Games’,
we’ve
categorised
sports
into
either
passive
or
active.
Passive
sports/games
can
be
enjoyed
in
the
real
world
when
you’re
sitting
down
or
requiring
limited
body
movement.
Active
sports
(explained
right)
require
more
body
movement.
!Passive
sports
presented
as
simulated
environments
will
be
popular
both
as
solo
experiences
as
well
as
on
a
multi-­‐player
basis.
Examples
of
passive
sports
include:
!• Car
racing
(and
a
company
called
iRacing
is
a
key
company
to
watch
here).
• Flying
games
based
on
aeroplane
simulations.
• Fishing.
• Darts.
• Shooting
/
archery.
• Cycling.
!A
key
point
to
stress
with
the
passive
sports
identified
above
is
that
these
are
tight
vertical
markets
with
passionate
players
and
fans.
This
means
relevance
-­‐
users
with
strong
interests
in
vertical
markets
are
highly
likely
to
be
monetised
if
they’re
in
an
environment
built
specifically
to
cater
to
their
interest.
!We
expect
this
market
to
gather
pace
early
2015.
Image
source:
metacraft.ch

10.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
Mirror
Worlds
Concepts
Whereas
the
virtual
world
concept
examples
in
the
previous
section
have
3D
environments
that
have
been
‘invented’
to
serve
the
underlying
concept
of
the
game/activity,
mirror
worlds
differ
because
they’re
based
on
actual
places
in
the
real
world.
!
The
Mirror
World
idea
of
re-­‐creating
places
from
the
real
world
and
then
allowing
avatars
to
explore
them
has
garnered
some
popularity
via
screen/browser
based
applications
such
as
Twinity
(German-­‐based
company
that
created
a
virtual
Berlin),
Second
Life
(users
specifically
building
mirror
world
destinations
inside
Second
Life)
and
even
Minecraft.
However,
the
lack
of
‘being
in
the
space’
a
la
VR
has
largely
constrained
this
category
from
mass
adoption
-­‐
‘the
experience
just
didn’t
feel
right’.
However,
with
the
advent
of
consumer
virtual
reality
we
anticipate
a
renaissance,
so
to
speak.
!
Tourism
Virtual
tourism
is
probably
the
lowest
hanging
fruit
in
this
market,
so
expect
many
real-­‐world
places
to
be
made
available
in
a
VR
environment.
In
practise,
this
idea
will
allow
people
to
explore
places
they’ve
never
visited.
Shown
below
is
a
working
demo
available
from
Oculus
VR
allowing
users
to
visit
virtual
Tuscany.
!And
of
course,
with
a
primary
benefit
of
VR
being
‘anything
is
possible’,
there’s
nothing
at
all
to
stop
the
creation
of
mirror
world
initiatives
allowing
people
to
swim
on
the
sea-­‐bed
of
the
Atlantic
ocean,
hang-­‐out
at
the
top
of
Mount
Everest
or
even
walk
on
the
moon.
Before
we
move
onto
the
next
concept,
think
of
this
idea
of
tourism
as
being
‘modern-­‐day’,
i.e.
allowing
users
to
visit
places
that
could
actually
be
visited
today.
!
Page
10A
KZero
Worldswide
Report
Google
Maps,
Street
View
and
Indoor
Maps
Our
modern-­‐day
world
is
ripe
for
VR
integration
with
existing
platforms
such
as
Google
Maps
and
Street
View
already
allowing
us
to
‘see’
into
remote
places.
Tack
onto
this
newer
products
like
Indoor
Maps
and
then
we’re
sucking
diesel.
!
Virtual
Reality
in
this
context
can
allow
us
to
take
2D
image
overlays
of
the
real-­‐world
and
enter
constructed
3D
conversions.
Early
demos
of
this
concept
already
exist,
with
the
OculusStreetView.eu.pn
project
being
a
good
example.
VR
Time
Travel
Virtual
Reality
can
be
used
to
create
mirror
worlds
based
on
places
(and
events)
from
history.
So,
users
of
these
types
of
environments
will
include
students/teachers,
researchers
and
anyone
who
effectively
wants
to
travel
back
in
time
to
explore
and
experience
historic
events.
Of
course,
the
applications
here
are
endless,
but
here’s
some
examples:
!• You
don’t
read
about
the
1st
World
War
or
study
black
and
white
photos
of
key
battles.
Instead,
you’re
standing
in
the
middle
of
river
Somme,
with
bullets
flying
past
your
head.
• Being
in
the
crowd
at
the
signing
of
the
Magna
Carta.
• Jurassic
Park.
Enough
said.
• The
Titanic.
As
above.
• And
on
a
sporting
theme,
how
about
sitting
in
the
referees
chair
during
the
McEnroe
&
Borg
1980
Wimbledon
tennis
final.
Images
source:
Oculus
VR
Image
source:
OculusStreetView.eu.pn

11.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
LifeLogging
Concepts
Ok,
so
here’s
where
it
gets
interesting.
Combining
VR
with
LifeLogging
brings
in
elements
of
both
virtual
and
mirror
worlds.
In
essence,
VR
Lifelogging
will
allow
us
to
see
through
other
peoples
eyes.
!
And
interestingly,
this
is
made
possible
by
the
collaboration
between
augmented
reality
and
virtual
reality,
as
illustrated
in
the
graphic
left.
!
AR
devices
such
as
Google
Glass
and
others
coming
to
market
such
as
the
Space
Glasses
from
Meta
will
continually
improve
their
video
and
audio
capture
capabilities,
allowing
them
to
basically
be
input
channels,
recording
what
the
wearer
is
saying,
seeing,
hearing
and
doing.
The
output
of
this
content
is
VR.
Users
can
use
VR
to
see
through
the
eyes
of
other
people,
either
in
real-­‐time
or
using
pre-­‐recorded
content.
This
application
could
even
be
used
by
the
recorder
of
the
content,
in
a
diary
or
memory
fashion,
allowing
them
to
re-­‐live
moments
from
their
lives.
Here’s
some
more
examples:
!
These
memory-­‐sharing
and
life-­‐insight
type
concepts
open
up
brand-­‐new
revenue
streams
for
the
content
owners.
For
example,
consumers
will
pay
to
watch
a
football
match
through
the
eyes
of
their
favourite
quarterback,
attend
a
concert
through
the
eyes
of
the
lead
singer
or
simply
remotely
hang-­‐out
with
their
favourite
celebrity
living
their
daily
lives.
This
is
slightly
more
interesting
than
following
them
on
Twitter.
Visualising
concepts
using
the
Radar
Chart
We
have
identified
12
key
sectors
set
for
growth
within
the
consumer
VR
marketplace.
These
12
sectors,
along
with
predicted
launch
timings
are
visualised
in
the
KZero
VR
Radar
chart.
!A
segment
of
the
Radar
chart
(available
for
free
via
our
website,
kzero.co.uk)
is
shown
right.
For
example,
specifically
for
the
category
of
new
concept
MMOs
and
virtual
worlds,
we
expect
2014
growth
coming
from
older
adult
markets,
with
new
IP
tween
and
teen
concepts
hitting
in
2015.
Page
11A
KZero
Worldswide
Report
Celebrities
Some
celebrities
and
famous
people
have
millions
of
Twitter
followers
and
Facebook
fans.
These
are
people
interested
in
what
their
idols
are
doing.
LifeLogging
VR
will
allow
them
to
experience
the
lifestyle
and
experiences
of
these
people.
Sports
Sports
fans
will
be
able
to
watch
matches
and
games
through
the
eyes
of
the
players
or
the
officials
-­‐
or
even
sit
on
the
front
row
of
the
basketball
arena,
next
to
Jay
Z
of
course.
(because
Beyonce
will
be
wearing
the
diamond-­‐encrusted
AR
headset!)
Sharing
Life
Stories
Forget
posting
photos
on
Instagram.
How
about
allowing
y o u r
f r i e n d s
t o
s e e
V R
representations
of
key
events
in
your
life
-­‐
birthdays,
holidays,
marriages
etc.
Think
of
this
life
a
VR
diary
available
on-­‐demand.
Help!
I’m
Lost
Allowing
real-­‐time
sharing
of
life
content
to
other
people
via
VR
will
allow
us
to
share
what
we’re
doing,
where
we’re
doing
it
and
who
we’re
doing
it
with.
Obvious
this
concept
has
multiple
applications,
including
remote
assistance
when
we’re
lost.
Phobias
and
Fears
Got
a
fear
of
heights?
VR
will
be
used
to
treat
people
with
fears
and
phobias
by
allowing
them
to
‘virtually’
confront
their
fears.
In
this
content,
users
can
place
themselves
into
previous
or
real-­‐
time
events
with
their
friends
and
overcome
their
phobias.
User
Generated
Sweat
How
about
cycling
the
Tour
de
France
from
the
relative
comfort
of
your
garage?
Or
taking
part
in
a
10,000
person
bootcamp?
We
expect
VR
to
transform
the
h e a l t h c a r e
a n d
f i t n e s s
marketplaces
along
with
the
concept
of
virtual
trainers.

12.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
6.
Products,
pricing
and
demand:
Market
Sizing
Of
course
everyone
wants
to
know
how
large
the
Consumer
Virtual
Reality
marketplace
will
be.
So,
this
section
contains
our
market
sizing
assessment.
We’ve
compiled
a
five-­‐year
forecast
from
2014
through
to
2018
looking
at
the
two
primary
sources
of
consumer
demand,
namely
devices
(hardware)
and
games/applications
(software).
Excluded
from
our
market
sizing
forecasts
are
Augmented
Reality
related
markets,
non-­‐consumer
VR
applications
and
VR
development
costs.
!
Unit
Sales
of
VR
Devices
Firstly,
our
device
unit
sales
analysis,
as
shown
in
the
chart
below.
Unit
sales
of
CVRDs
have
been
split
into
three
segments:
!• Hardcore
gamers:
This
market
is
comprised
mainly
by
older
gamers
aged
30+.
Importantly,
they’re
primarily
within
the
Innovator
technology
adoption
group.
We
have
forecasted
that
1%
of
this
segment
will
purchase
devices
in
2014,
rising
to
20%
in
2018.
!• Light
gamers:
Typically
Early
Innovator
types,
these
consumers
and
teenage+
age-­‐wise,
owning
gaming
consoles
and
playing
tablet/smartphone
games.
We
predict
that
2%
of
this
market
will
purchase
a
device
in
2015
(no
2014
sales),
rising
to
10%
in
2018.
!• KT&T
(Kids,
Tweens
and
Teens):
The
youth
marketplace
will
quickly
emerge
as
the
dominant
segment
in
the
marketplace,
driven
by
a
wide
variety
of
gaming
applications,
branded
devices
created
specifically
for
this
demographic
and
‘owned
worlds’
produced
from
UGC
activities.
This
segment
also
includes
the
older
Early
Majority.
We
expect
2.5%
of
this
market
to
purchase
a
device
in
2015
(no
2014
sales),
rising
to
8%
in
2018.
!Over
the
five
year
period
from
2014
to
2018,
we
forecast
total
unit
device
sales
of
56.8m,
derived
from
10.9m
hardcore
gamers,
18.1m
light
gamers
and
27.7m
from
KT&T
and
early
majority
users.
This
represents
a
CAGR
of
160%.
Contact
us
directly
for
the
underlying
dataset
for
our
forecast.
!
Hardware
Pricing
and
Revenues
Quite
simply,
in
order
to
derive
revenues
from
device
sales,
we
have
multiplied
an
average
unit
price
by
the
forecasted
number
of
units
sold.
On
a
unit
basis
we
have
forecasted
a
$300
selling
point
for
2014
devices,
falling
to
$250
in
2015
and
a
continued
price
fall
through
to
$100
in
2018.
On
this
basis,
2014
total
device
revenue
is
$60m,
rising
to
$1.4bn
in
2015
as
more
devices
are
launched
into
the
sector
and
the
light
gaming/KT&T
segments
activate.
In
terms
of
available
devices,
we
anticipate
two
to
three
available
for
consumers
in
2014,
rising
to
five
in
2015.
By
2018
we
expect
there
to
be
10
-­‐
12
major
suppliers
of
CVRDs,
ranging
from
Apple
and
Microsoft,
through
to
Samsung,
Sony
and
of
course
the
initial
consumer-­‐
focussed
pioneers
such
Oculus
VR.
!The
chart
left
shows
annual
revenues
from
the
three
primary
market
segments.
Hardcore
gamers
and
innovators
account
for
$1.6bn
of
cumulative
sector
revenues,
light
gamers
$2.5bn
and
KT&T/early
majority
totalling
$4.2bn
!
Full
year
2018
revenues
from
device
sales
is
forecasted
at
$2.3bn
(from
23m
units
sold),
which
yields
total
cumulative
revenue
of
$8.4bn
over
the
5
year
period.
This
represents
a
CAGR
of
108%.
Putting
this
into
context,
IBISWorld
Media
forecasts
total
2018
home
gaming
console
revenues
to
reach
$46bn.
!
Page
12A
KZero
Worldswide
Report

13.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
Software
(Game
and
Apps)
Revenues
In
addition
to
market
sizing
the
device-­‐side
hardware
element
of
the
consumer
virtual
reality
sector,
we
have
also
forecasted
revenues
from
the
games
and
apps
purchased
by
the
owners
of
the
devices/headsets.
This
is
the
software
side.
!
An
important
element
we
have
factored
into
our
assumptions
relates
to
active
users
vs
device
owners.
We
believe
that
the
consumer
VR
experience
will
have
a
major
viral
element,
meaning
owners
will
actively
encourage
their
friends
and
family
to
use
their
devices
-­‐
‘You
gotta
see
this’.
On
this
basis
we
have
applied
a
multiplier
to
the
annual
device
sales
to
represent
more
active
users
than
actual
owners.
For
example,
in
2014
we
have
modelled
three
active
users
(purchasing
games
and
apps)
per
owned
device.
This
falls
over
time
down
to
two
in
2018.
!
From
a
business
model
and
user
monetisation
perspective,
we
expect
the
game/app
developers
to
deploy
premium
pay-­‐to-­‐play
pricing
until
mid
2015
(i.e.
100%
paying
user
conversion),
then
experience
a
similar
path
to
tablet/mobile
game
pricing
with
the
introduction
of
freemium
VR
applications.
In
2018
we
forecast
a
40%
paying
user
conversion.
ARPPU-­‐wise,
we
assume
$50
annual
average
revenue
per
paying
user
in
2014,
rising
to
$150
in
2018.
We
acknowledge
that
this
might
be
understating
the
ARPPU,
particularly
in
the
latter
years.
!
So,
on
an
overall
basis
we
forecast
software
revenues
of
$30m
in
2014,
rising
to
$947m
in
2015,
through
to
$2.8bn
in
2018.
Overall
total
cumulative
software
revenues
over
the
5
year
period
total
are
estimated
at
$7.7bn.
This
represents
a
CAGR
of
148%.
As
a
comparison
to
other
forecasts,
DFC
Intelligence
and
Live
Gamer
recently
forecasted
global
console
software
revenues
to
jump
from
$18.5
billion
this
year
to
$24
billion
in
2017.
Our
equivalent
2017
figure
is
$2.2bn
from
consumer
VR
software
sales.
!
Marketing
Sizing
Summary
From
a
relatively
humble
start
in
2014
with
total
sector
revenues
of
$90m
(from
600k
active
users),
we
forecast
growth
to
$2.3bn
in
2015
(from
15.7m
active
users)
,
$3.8bn
in
2016
(from
27.3m
active
users),
$4.6bn
in
2017
(from
36.4m
active
users)
and
$5.2bn
in
2018
(from
47.6m
active
users).
!
This
yields
total
cumulative
revenues
of
$16.2bn
across
the
five
year
period
and
represents
a
CAGR
of
125%.
This
forecast
is
shown
in
the
chart
below.
Page
13A
KZero
Worldswide
Report

14.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
7.
The
Face
Race:
Companies
Developing
VR
Headsets
8.
Further
Information
Virtual
Reality
News
Weekly:
Sign-­‐up
for
our
weekly
email
covering
the
Consumer
Virtual
Reality
marketplace.
Sign-­‐up
at
kzero.co.uk/virtual-­‐reality/.
!
KZero
Slideshare
Presentations:
Search
Slideshare
for
‘KZero’
and
you’ll
find
a
range
of
presentations
covering
the
virtual
reality
and
virtual
world
sectors.
We
have
three
dedicated
presentations
to
accompany
this
report,
including
our
Market
Sizing
analysis.
!
KZero
Virtual
Reality
Radar
Chart:
Order
our
market
segmentation
presentation
from
kzero.co.uk/virtual-­‐reality/.
!
Twitter:
@kzeroworldswide
!
Facebook:
facebook.com/KZeroWorldswide
!
Page
14A
KZero
Worldswide
Report

15.
Consumer
Virtual
Reality
-­‐
State
of
the
Market
!
!
!
Page
15A
KZero
Worldswide
Report