VR: Bigger than reality, eventually (part 1)

The day their son took his first steps, Mark Zuckerberg’s parents did what most anyone would do in 1985: they wrote it down. Fast forward to when Zuckerberg’s sister documented the first steps of her sons: she used a mobile phone. And later this year when Zuckerberg’s daughter takes her first steps, Facebook’s founder says he will be ready with a 360-degree, virtual reality-capable camera.

Baby steps and virtual reality – it’s the best way to describe the market today. Despite the hype – nearly two million news articles and counting – we’re in the early days. The writer and investor Yuri Papadin put it well in a recent blog post: “We are in the Introduction stage of the technology life cycle, where the primary customers are innovators.”

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See Part 2 here.

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But make no mistake: the customers will eventually show up in droves. To understand why, let me focus on two things that don’t get nearly enough attention: historic internet data patterns, and the increasingly intimate nature of online communications. Together, they point to how big the VR market will eventually become – and to the near-term investment opportunities that will pay big dividends in the long run.

Some telling numbers

Using history to predict the future is an imperfect process at best. Financial planners say it all the time: past results are not necessarily an indication of future performance.

There are, however, certain trend lines that bear examination. In the first 25 years of the Web, for example, internet use in the United States grew from 14% to 87% of the adult population, according to the Pew Research Center. The numbers are gaudy, but it’s the social impact of internet adoption noted by the researchers that should draw our attention.

The internet, the report’s authors noted, touched “…everything from: the way people get, share, and create news; the way they take care of their health; the way they perform their jobs; the way they learn; the nature of their political activity; their interactions with government; the style and scope of their communications with friends and family; and the way they organize in communities.”

In other words, the internet became the full embodiment of one of this industry’s most over-used words: a platform.

The first things constructed on this platform were Web sites. We went from one in 1991 to more than one billion Web sites today – an insane compound annual growth rate of 67 percent over a 25-year run.

For a time, the internet and the Web became synonymous. But a true platform supports all sorts of new things. Cue the entrance of apps. In 2008, Apple had less than 1,000 available – five years later it had 1 million. Today, there are 2.2 million apps available – a 39% compound growth rate in six years.

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Equally impressive are new types of communication tools launching from the Internet platform, all with astonishing growth rates. Messaging apps have surpassed social media in terms of monthly active users. Chatbots – which are brand- and task-specific digital assistants driven by artificial intelligence – have jumped from about 100 just last year to more than 11,000 today.

Then there’s augmented reality. This semi-immersive experience is also a leading indicator of the potential for the fully immersive world of VR. What’s it indicating? Consider Pokémon GO, the first AR game: it went from zero to 9.5 million daily average users in less than 10 days.

Yet beyond the numbers, the real impact is what’s going on behind the scenes.

If you look at the progression of communications technology in the last three decades, two things jump out. The first is that the available audience continues to widen. Once you wrote a letter to a friend, then you sent email messages to 50 friends, then you were on Facebook with hundreds of friends, and today have thousands of followers via Twitter.

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The second is that the nature of communications is increasingly more immediate and intimate. Sending photos in the mail has given way to posting them on Instagram. Phone conversations have become FaceTime sessions. Clicking through a Web site to find the right shoes, dress, or dinnerware will be replaced by a chat bot that can do the heavy lifting and zero in on only what you want to view.

Why this drive toward intimacy and immediacy? Zuckerberg put it nicely at the 2016 Facebook F8 development conference: “We’re always trying to get closest to this purest form of capturing an idea or experience.”

Intel Capital investment director Sanjit Dang focuses on client and mobile computing and has also driven investments in big data, IoT and the cloud.