a16z Podcast - a16z Podcast: Truce for Mobile, Battle for VR

Episode Date: October 10, 2016

The most recent Oculus Connect event (the third and largest yet) has been lauded as bringing us closer than ever to the future promised for virtual reality or VR. There have been many hardware moves by many players, both recently and over the past year. Who's in it to win it? How far are we from the "holy grail" of headsets that will truly mainstream VR? Will the killer app -- or layer -- for VR be social? And is there enough enthusiasm and activity to get us past the "trough of disillusionment" that inevitably follows the "peak of inflated expectations" in the hype cycle for new technologies like VR? In this episode of the a16z Podcast, partners Chris Dixon, Benedict Evans, and Kyle Russell deep dive on all the gear and players in the VR ecosystem; the evolution of content beyond gaming (with a teeny hint at what a VR horror genre might look like); and how the high-end will push the medium forward for all. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone, welcome to the A6 and Z podcast. This episode featuring Chris Dixon, Kyle Russell, and Benedict Evans is one of our hallway conversations about all things VR, given recent announcement, and events. The first 10 minutes is a deep dive into the players in the ecosystem. The second third focuses on content and applications beyond gaming. And finally, thoughts on where history, the hype cycle for new tech, and Moore's Law, tell us what may come next. Who's in it to win it?

Hi, it's Chris Dixon. I'm here with my colleagues, Kyle Russell, and Ben McEvins. And we're going to talk about virtual reality because last week was a big week for VR. There was the PlayStation VR announcements, Google Daydream, and Oculus Connect, which was packed with announcements. So a lot of good stuff. And let's get going. Kyle, what were your high-level takeaways from last week?

So with the Google announcement, they were showing off a lot of hardware that Google is trying to spin as they're doing it in-house, taking more control over the ecosystem, becoming more Apple-like when it comes to hardware. But one aspect of that was Daydream, which they announced earlier this year at their Google I.O. event. The idea being they are taking kind of the mobile approach. to VR that Oculus and Samsung had and are kind of bringing it to the rest of the Android ecosystem.

So this is, just to clarify, like, so Oculus has two products, right? The Oculus Rift, which is their high end headset and the gear VR, which is a partnership with Samsung, which is the low end. And so far Google has built a very similar product to the low end, but has hopefully has high end aspirations,

but we haven't seen it yet. The rumor cycle says, like, oh, they've got the standalone headset, oh, they're going to announce it I.O., they canceled it. Ah, actually, next year they might announce it. We'll see where that goes. Yeah, so everyone wants to do something that's somewhere in between those two points. So it's not the high-end headset with the umbilical cord

to the Godbox PC, but neither it is, is it just your phone clipped into a cradle? Well, it's the Santa Cruz prototype, which Oculus showed, at least for me, that was the big news last week. Yeah. But what Google announced was a gear VR. Yeah, so basically they've taken the optimizations that Oculus gave Samsung.

So taking your IMU data into account, so the motion sensors in the phone and making the what's called motion to photon latency, your head moving to what you see inside the headset adapting and doing that quick enough so that you don't have nausea. They've made all the optimizations to make that function and built into Android for everyone. And so if you buy like a 400-ish or higher Android phone

that is with a certain tier of Qualcomm chip, an OLED screen that refresh is fast enough. If you have all those things in the phone, the software lets you take that phone and drop it into a day-duty headset, whether it's the one that Google announced or in the future, one's based on their reference design. And basically now the entire Android ecosystem has that. But to be clear, the point is it's kind of a kite mark.

It's exactly what Microsoft was doing sort of 10 and 15 years ago with PCs. It's you don't have to know what processor and what screen and everything it's got. It's just like this is a daydream-compliant phone and it's a daydream-compliant headset so you can just buy the phone and you know that it'll work. But it's just, I mean, like it's missing such critical features

like positional tracking. Yeah. The big question is Google. I mean, supposedly they have, I don't know, we've heard many hundreds, 800,000 people working on VR, they've got to be working on more than just a gear VR copy, right? I mean, they've got to,

presumably there's an effort there to build a standalone positional. Whenever you throw out, like, oh, Daydream is interesting because it could expose millions of people who buy Android high-end phones to VR. You know, what people who are super VR enthusiasts push back with is, oh, but it doesn't have positional tracking, and then other nerds show up and say,

oh, but there's this Project Tango thing from Google. It's not even, like, super nerds. I mean, Google's own best VR product is Tilt Brush, which doesn't work in... Sure, and if you look at Google I.O., all of the things that showed up were actually running on the HTC vibe. Yeah, everything they demo doesn't work

on their own hardware. So, like, there's an internal conflict there. It's not just like a high-end thing, I mean. There's a tension in here within Google overall. Maybe we should sort of broaden it and talk about the Google event because Google announced basically a generic high-end Android phone that they will have their logo on it. This is the first one that were there actually manufacturing it.

Yeah, so they've rebranded the Nexus project Pixel. It's now got their own brand on it. They're still getting someone in China to make it. I mean, I think it's HGC, but now it's their brand, and they're saying they're doing more of the design. Wasn't Nexus their brand? Yeah, but it had HG as well. Oh, so, okay, so they've gotten rid of the HTC port, even though.

Or LG or whoever it was. So it's like the idea is it's like, we've designed some of this ourselves and now it's our brand. But the sort of just the reason I think it's kind of interesting here is that basically for as long as Android has existed, there's been this fragmentation issue. And the fragmentation issue has been both, A, you've got three different, you've got, you know, handsets get operating system updates. so you've got like three different operating systems out there in the wild.

And B, you've got 10,000 phones and then therefore you've got 10,000 possible configurations. And Google has always been kind of trying to get the handset makers to do operating system updates and it's never worked. But they sort of got around that part of the fragmentation problem for their own services by putting Google Play services on top of everything. And so basically every Google Android phone out there has got Google Play services on it and that's updated every week or two. So any new Google stuff like Google Messenger or Google Assistant or anything else, just appears on the phone automatically. But you've still got 10,000 phones with 10,000 different GPU and CPU and sensor configurations, and you've got low-in phones that's claimed they have a gyroscope but don't even have a gyroscope.

They just report random readings. All kinds of stuff is going on. And so that was kind of the state of things in Android phones. And so Google keeps kind of pushing trying to make like a high-end flagship to try and bully the other manufacturers into making and they're doing their own phones nicer and it's never worked. And so that was the next story. But creating their own phone is not. Yeah.

The thought is not it's going to end fragmentation. By selling, by becoming 100% of the market, the thought is just going to... It's like moral pressure or something that they... And previously the Nexus had no distribution. So they're going to create this thing where everyone else is going to say, okay, we've got to remove all the crap where we've got to remove all the little stuff because we now see the light, the beacon of...

Well, yeah. So the theory, the big change in the pixel is actually nothing to do with the phone. It's that they're actually going to go out and sell it. So they have some distribution rather than it just being on the website. But it's not very much distribution. It's like one operator in America, one operator in the UK, one in Germany. and so on. So it's like, if they're going to put billions of dollars behind this and they're going to make a $200 phone, a $400 phone, a $600 phone, then this gets interesting.

If they just made another generic high-end phone and it's like it's on the website and you can have it if you want, then it makes no difference. But that's all kind of setting the scene. My point is, when you then go to VR, the fact that you've got thousands of different configurations and GPUs and who the hell knows what. Which was a limitation of cardboard. It was basically you can't provide a consistent experience. It means as a developer, you actually have no idea what's going to be on the device. The fragmentation becomes even more extreme when it's form and sensitive appellate. And so like option plan, the part of the plan of Daydream is to try and get rid of that there's 500 phones we have to test against and get you to the point now actually we just need to test against Daydream and Google will somehow try and abstract that.

And so like I think one of the, you can kind of see two scenarios going forward. So scenario one is there is the Apple device, there is the Oculus device, which feels like that's going to be sort of a forked Android standalone device. in some way. And then there is the Samsung thing. And option two is there is the Apple device, the Facebook device, the Facebook Oculus device, and then there is 100 Daydream devices. And so if there's 100 Daydream devices, then the Facebook product, you could argue, ends up looking a bit like Kindle Fire. It's sort of subscale squeezed out fork and no one bothers developing for it. If on the other hand, Daydream doesn't work because there's still 100 different things and nothing works right and it's kind of completely fragmented, then it's

actually the Apple device, the Facebook device, and the Samsung device, the Sony device, the Google pixel device. And it's actually much more kind of fragmented. I mean, so presumably they're just laying the kind of foundational framework to sort of set the stage. And then they're going to start rolling out better like high-end features like positional tracking or they're going to start whatever. They have a reference design for that. So they have a reference design for the headset that they're distributing to other Android makers. There's also the project tango within Google, which is working on a core technology you'd need for inside out positional tracking. So from the phone being able to say, I can see where I am in the world, and I use that as kind of a reference point to, you know, when I'm walking around in a virtual space, it looks at how close I am to the wall in the real world and uses that to update closer to other objects. Until last week, the examples of positional tracking that I had seen working were the HoloLens does a very good positional tracking, like shockingly good. Google Tango allegedly. I've never actually, yes. And from a 6.4 inch phone. I'd never actually seen it. And then the Santa Cruz Oculus.

thing last week was the first besides the HoloLens I've ever seen that does true positional tracking. Yeah, you've brought up Santa Cruz a couple of times. So let's just talk about that because it was very exciting as an announcement. So Santa Cruz, yeah, was this prototype they showed, which is a totally self-contained, no tethered, no connection to a PC, full high-end headset, really the Holy Grail. I mean, it needs to get cheaper and lighter and all these other things, but it's very close to the Holy Grail. The headset itself was clearly a modified Oculus Rift, but that says something about what the Santa Cruz will be when it's an actual product, maybe sometime next year, which is quality, industrial design, feel of materials-wise, quality

of the $600 Oculus Rift, but with ease of use of, or actually probably easier to use than the gear VR in that it's not something you have to like, pick out the app on my phone, stick it into the phone correctly. Oh, darn it, my battery was too low. I can't run it. Put it on. Right, you put it on and it's something that almost like an iPad you leave on like your coffee table. You can just hop into it. Just to clarify, the Oculus Rift is not $600. It's $600 plus your $2,000 PC. No, no, now a $500 PC with asynchronous Space Warp. Yeah. They just released the technology last week.

That would be a great band name, asynchronous spacewalk. Technology they released last week dramatically cuts down the minimum GPUs fast. So there's a couple things also. Which means also it probably worth a Mac soon if Apple ever gets their drivers updated. So a couple of things that John Carmack also talked about during his keynote that I connected to the Santa Cruz prototype that I don't think he was necessarily doing it outright. But one can assume that the standalone. looks like a Rift, but is mobile with inside-out position tracking headset, we'll still be running Android plus mobile hardware.

So hardware that, frankly, looks like what's in the galaxy phones that power the gear VR. And so John Carmich talked about a couple of other things besides asynchronous space warp, which is a fancy term for it can see how much rendering it's going to have to do a little bit ahead of time. And basically, if it thinks it can't keep up, it duplicates and slightly alters frames at 145th of a second. And so you can't really tell that it's actually generating new. The key thing is it dramatically lowers the minimum GPU spec. So you get like a 2X improvement, performance improvement, which just unlocks all sorts of possibilities. By the way, like, let's just say like the combination of Carmack and ABRish keynotes.

Like it was funny because like the Oculus Reddit was like kind of, you know, they were kind of bummed out for last four months because Vive got the controllers and they didn't. It's like the, you know, it's the most so fired up now like after those two. Wow, like the ABRish talk and the Carmack talk. It's like nerd mecca. Yeah. No, I mean. What exactly the analogy would be. But then the Santa Cruz and then the touch announcements and all the end of the lineup announcement.

That was a good conference. That was one of the best conference that's a long time. So really quickly, though, John Carmack, two other things he touched on performance-wise were multi-view rendering, which basically means in VR, you're rendering one image to each eye. And that takes time because you're basically rendering two 3D scenes. But multi-view rendering lets you do kind of both views in one pass. and he said that that would give us a 50% boost to performance on the GearVR, but Samsung and Qualcomm, there's things that are broken that they haven't fixed and slash can't fix because of the control that carriers have on updates being pushed out to the phones.

And basically it was like, if we could get that up, 50% boost in performance. And when we moved to Vulcan, which is kind of the next generation rendering framework after it's replacing OpenGL essentially, he thinks that they'll get another 50% boost. So between asynchronous space warp, multi-view rendering, that they would have control, over for their own device. Isn't it phoviated running coming soon, too? That's probably further out when they have higher reasons. And then just Moore's Law, you know, et cetera, like the standard kind of.

But basically, they'll be able to get two to four X the performance of the gear VR-based headsets with the same hardware because they'll own the full stack once they have the stands on a set. Who else in the market owns the full stack? Apple. And we know Apple's working on something around this. I mean, we know just from the companies they've bought and the people they've hired, but of course, it's all.

mysterious as to what they're actually doing. Well, they're building a spaceship. Yeah. Yeah, I think the reason that, you know, we say everyone, all of the major tech players want to have the standalone headset. It's one Facebook, and therefore Oculus doesn't want to be dependent on Samsung, one hardware partner to, you know, if they think that a mobile-ish headset not connected to a high-end gaming PC is how this will take off.

You don't want to have your fate tied to one player. I mean, especially just looking at the Note 7 kind of fiasco happening with phones exploded. And also on the flip side. That was the gear VR phone this fall. The hardware guys, look at HTC, they were the first ones to do a deal with Android, whatever it was 10 years ago. And how's that worked out? Like, they're almost bankrupt, right? Like, so these hardware guys are all saying, okay, we don't want to do the place.

We've seen this movie before outsourcing the software to Google and Apple or Google specifically or Facebook or whatever. Pick your Silicon Valley company. There lies zero margins. Yes, there lie zero margins and explosions and all these other kinds of bad things. And so therefore, you know, let's not do that again, which is why HTC announced their $10 billion VR software thing, right? The truth that existed during the Android era is not going to exist during the VR era, I don't think. I mean, right? I mean, they're both going to go out each other and just everyone's going to want to own the whole thing.

But it's hard not to see this playing out something like the way that Android slash PCs played out, which is that there is the people who have, there is a company that has the full stack from top to bottom and the scale to design and build that. And it feels like that's Apple and can right down to the software tools and the developer tools and everything else. And then there is the broad mass ecosystem. in that leverages the whole of Shenzhen, which was first Wintel, and now is what Android has done. And the leveraging the whole of Shenzhen, you get a trade-off if you get fragmentation and you get a slightly worse experience, but you get a billion devices. And clearly what Google is trying to do with

Daydream is say, well, that's what, you know, maybe Apple will make something or maybe Oculus, maybe, well, the Apple or Oculus that have the high-end thing. But there's going to be this. Every $400 phone, you can buy the $50 cradle and you can have a great VR experience. If that's not the way it works, well, then you can buy a $400. You can, but there will be $50. $500, $400, $400 VR headsets out there from different companies, or not 50, but maybe not 10. So they want to get that whole scale ecosystem going, and that, of course, gets you the economy as a scale and drives the cost down and gets, you know, penetration and everything else.

Yeah, we'll see. I mean, the big question with Apple, right, obviously, is post Steve Jobs Apple, well, or is that pre-juice to Steve, or back, you know, is that Steve Jobs Apple? And thus far, if they haven't released really much of anything that's worked since the iPhone, And so I guess we'll see how they do in VR. We haven't talked about Sony. You know, back when we were involved with Oculus in 2013, really only it was Sony and Oculus building headsets.

Since it's the Sony's credit, they've been in this since the very beginning, pre-valve, pre-Google, pre-presumably Apple, and have produced a really good product. Yeah, I know. I actually went to the PlayStation office in San Mateo back when I was still a reporter at TechCrunch. And it's amazing to see they actually started working on VR prototypes when they were working on PlayStation Move, which was their answer to the Nintendo Wii.

It was they were going to have these controllers that were tracked and you'd be able to have these kind of gimmicky experiences, but then they're like, what if we put this on someone's head? And so they've actually been working on this for much longer. I feel like here in the valley, we always, you know, we under credit Sony on this one. Yeah, and so the reviews finally came out of embargo

last week for the PlayStation VR. And so this will be $500 without the hand track controller, 600 with kind of the whole kit and caboodle, plus PlayStation 4 at 349. 399, depending on which tier you want. There's a PlayStation 4 plus, which is not great. Or pro. Sorry, pro.

And it's not required. It's not required, but it does make it render better. And all the reviews were using the non-pro? Right. Okay, so maybe they would be better than reviews when you have the pro. Yeah, and so this is something where you can probably expect slightly better frame rates. But there's somewhere between 40 and 50 million PlayStation 4 is already out there, which, you know, maybe they won't have the very best experience, but it's a much larger install base than what we're talking about when we look.

at the number of gaming PCs out there that the Oculus Rift or HDC Vive might end up being attached to today. You know, a couple of years from now as Oculus continues to push the requirements down and Moore's Law makes the PCs just better automatically.

Just if you look at the entire ecosystem, what's the number of, I don't know. So there was a number in one of the keynotes of a million people using VR every day or using VR. That's the gear VR. Okay, so it's just a gear VR. But now with the news minimum specs...

I would say that it's probably somewhere now between like... I would not underestimate the world of Steam. I would put it between 10 and 30 as opposed to 40 to 60 for PlayStation. People systematically underestimate the PC gaming market, like how big and gigantic it is. And League of Legends, you know, 1.6 billion in revenue last year. And, you know, most people in Silicon Valley haven't even heard of Steam. It's shocking to me.

Well, I think the numbers there are also. It's the 100 million monthly actives that all are active. More people watch the championship to the NBA championship, right? I mean, with that said, okay. So relatively cheap solution, especially if you already are one of these games, who bought a console for highly immersive games, PlayStation VR. Unlike PC, it's almost like self-selecting for people, or even more so compared to the mobile market,

people who buy PlayStation's are like self-selected for, I'm into games that are highly immersive and, you know, crank the details up. Maybe I'm not willing to justify a thousand-dollar PC, but... Yeah, and you're spending whatever it is, $50, $70 on a game. Right. And so when it comes to buying indie-made VR content, which is kind of the state of the ecosystem today, you're actually willing to spend $20, $40, $60 on something for VR rather than on mobile. If you talk to developers who make things for the gear VR, they're saying pricing is anchored in the same way that it is for mobile apps.

You kind of have to hit $5 in order for you to really get takeoff as a premium title, which isn't really where you want to be when you're just starting up building an ecosystem. And you can't necessarily, you're not operating at the scale of something like mobile. And so you can't do like advertising-based business models. That's because all the things so far, at least on Steam, have not been AAA games. I mean, they've been kind of mobile quality. I would put it kind of halfway between what people expect from mobile and where they expect from, like, AAA game developers. You know, maybe you expect higher resolution assets, but you're okay if it's only a couple hours long as opposed to 20 hours long. And that, because of how games are made, you know, you can have the same look, but if it's less raw, like, hours of content that you expect, you can almost like get a rough estimate of the budget by multiple.

applying out number of artists times number of hours, they have to spend making 3D models. So let's go back to the PlayStation VR. So it's pretty good, though. Like, it's, it's way better. It's definitely on the high end side. Yeah. It's not as good as Viven Oculus, but far better than Daydream and Gear VR. Yeah, it's got positional tracking.

It's got hand-track controllers if you're willing to opt for them. It's somewhere between what Oculus had in 2014 with the Deke developer kit 2 and what they released to consumers this year. And I think that for most people, like, I don't know about you guys, but I was blown a way when we saw a DK2 a couple years ago and it had positional tracking. I could move around in the VR experience. This will be the first experience, mainstream experience for most people, and they'll get the full positional tracking and they'll be like, you know,

the ones who tried cardboard and were like, why is this cool? Because it's not that cool. Like this now, they'll be like, this is cool and they'll get it. And there are a couple of things that first reviews highlighted as kind of weaknesses. These mostly had to do with the tracking. The smart review was like tested in Ars Technica were pretty excited

about it, I think it was pretty positive from the smart people. Yeah, I think there was something to you are, in the same way that with the Rift and Vive, you do kind of have to maintain a certain environment for your setup where you're going to be playing it. With the Vive, for instance, you can't really put it in your glass because the lasers are interfered with by reflective surfaces. For this, it's that your tracking is provided by cameras looking at lights on your head and on the controllers.

And so if you're in certain lighting conditions, the camera has trouble picking up that light versus the other light in the room. And so you have to be careful around that. And I mean, you look at a typical gamer, I think they're like playing. in front of the TV at night after work. And so those problems probably won't be as much of an issue in the real world. What about marquee games? So that's what's exciting.

And what I think Sony also isn't getting enough credit for is, like Oculus, they are funding the development of games that are kind of of the sufficient quality and depth as what gamers expect from non-vr games. You know, people don't want to necessarily buy, as it goes mainstream, don't want to buy a platform and knowing that it's all like early adopter-focused demos. They want, I want to buy this thing and play games. Otherwise, I would just play games on my PS4 on my TV. And so there's multiplayer shooters like rigs where kind of working within the constraints of VR to prevent nausea,

but still making kind of that experience that people expect from, you know, Call of Duty on a console. They're working on things that take advantage of the environment in a way that traditional games don't necessarily when you're limited to a TV of telling story or doing puzzles through the environment in a way that you'd pick up on things if you were literally standing in that room. but in a video game you wouldn't otherwise really taking advantage of, you know, what we call presence. Some of the games coming out for PlayStation VR, it sounds like Sony wasn't as stringent about some of those things that make for kind of, you know, the best practices. I've heard out of E3, the big gaming expo back earlier this summer that, for instance, some of the big brand name games like Resident Evil or Final Fantasy, they have like a VR mode, but it wasn't necessarily well thought through or didn't have a lot of time committed, so people felt nauseous coming out of it. You can't, we've learned that you can't just simply port 2D games over and have them work. They create all sorts of issues. You need to create native.

Little things like moving your character with an analog stick works on the TV, but when you're in a headset, it feels weirdly disconnected from your own body's movement and causes nausea. So that's kind of the big fear I have for PlayStation VR is that people will not try the new original titles that Sony funded that do follow best practices. But, ooh, you know, Final Fantasy, your Resident Evil has a VR mode. I'm going to go for that first and get kind of a poisoned well. when they go to those first experiences. That's kind of the worst case for PlayStation VR in terms of its impact on convincing gamers that VR is interesting or not.

But Sony's funded a big enough slate of titles over the next year that I think that most people will encounter mostly the good thing. What do you think your guess for sales for next year? First off, the Sony president was actually walking around the halls at Oculus Connect and talking up PSVR to random crowds, which was funny to see. But they're throwing out really high attach rates for consoles.

They're already sold out for a wave. Yeah, and so they've had multiple waves of pre-orders and both have sold out, first in E3 and then later again in the summer. I'm on some waiting this on Amazon, yeah. Yeah, and so at the very least, they will probably surpass Oculus Plus Rift combined before the holidays are even out. That, I would assume, is supply constrained. And then it's a matter of whether those first wave of your friends who all in PlayStation's, did they have a positive reaction over the holidays? And that then leads to are there strong announcements coming out of Sony around, E3 in May slash June next summer that'll kind of drive, you know, is it 2 million sales or is it 10

million sales in 2017? So there's a ton of, there's a timing question in all of this because there's a sort of, there's the Facebook standalone device prototype. There's the, how long does it take to get the daydream slash gear VR model to the point that it's almost as good as that? And there's when does the app, when do Apple decide that their product is good enough to ship? Because, like, Apple have had, like, a 3D printed gear VR in their lab for, like, 10 years. It's just they thought it was terrible. And so the question is, like, so there's a sort of, there's a point at some point in the future, like, two years. What do you like to say?

Somewhere there's a, there's a plan for America to invade Canada. It doesn't mean it's kind of. Yeah, exactly. But, like, two years, three years down the line, there will be, there's this sort of point at which we feel like this stuff is now at all the right price and the right experience. And it feels, there's an interesting thing for the PlayStation 4 is that you could almost argue that it's going to be, they're going to release this thing now. And like in 18 months to two years time, every high-end headset will be better than that. Right.

What do we think about, I mean, does the announcements on the change in specs for Oculus, for example, does that kind of change your thinking on how long it will take for this stuff to start shipping? I think what we're seeing that's interesting, though, is that, you know, Moore's law is not a law of physics. It's the law of economics. Yeah. And so what we're seeing now is as people are focused on VR, we're seeing, I think it's accelerating. It's accelerating to the sort of Holy Grail headset, which is, whatever, let's call it a $300 standalone device with additional tracking and hand tracking and 4K per I or something.

Like, let's call that the Holy Grail. Like, that was seven years away, and now it's four years away because of the investment going on, right? Because you're seeing all these kind of breakthroughs happen, asynchronous space warp. Kind of compounding effects. That's still a band name. I'm sorry. Asyncrenuous spacewalk. It could be a band name, the very nerdy band name.

It happens to be a, it was a sequel to asynchronous time warp, which was their prior iteration of this technology. That was the indie label. Yeah. Yeah. So I think what we're seeing now, right, is that the effects of the fact that Moore's Law is an economic principle, not a law of physics or something, right, that adds all this energy to get focused. And then the question is, will either the sales numbers or just the enthusiasm of people like Mark Zuckerberg and et cetera be enough to kind of power through the inevitable. trough of despond, which, you know, we're in the Gartner hype cycle, and we're at the peak, and there will be a trough of despond, and that'll be in two years. And, you know, there's this

whole set of people whose job it is to say that everything's failed, and they'll be out in mass with their torches. And so then at that point, do we have enough momentum through sales and excitement from people that control large pools of capital to power through and get to the Holy Grail? Yeah. Because the Holy Grail will be, I think it's anyone who follows the history of the computing industry, like this will be a major new computing platform. I don't think there's a serious question about that. But in people that have really dug deeply into it, the question is, like, how many troughs have will we have and will we be able to power through it? Or will it, like, and will it end up being three years away or eight years away because of that?

I think that's my theory. Yeah, and that's one of those things where when people question, you know, will this grow outside of gaming? It goes back to the Steam and PlayStation and Xbox monthly active users, which is, if that's several hundred million people, and it's only gaming for the next three years. Like, that could be incredibly large market before it's, quote, unquote, mainstream. It's almost like if there's a single print rule of technology, it's that people, the makers of the technology always get the initial use cases wrong. So for the PC, it was storing your recipes.

I was just reading a book about Texas Instruments, their first product was they had the first portable radio, right, where they came out right after the transistor. And they just, no one imagined to abuse for music. So they actually, the first ads were all around so that you could get notified in case Russia sent a nuclear, weapon against us. So that was the imagined use case of the first portable radio. Of course, it ended up being used for music. You know, Thomas Edison, frankly, you know, famously thought

it hit that the best use case for the phonograph was listening to the sermons of the recently deceased, right, as opposed to music, which is number 27 on a list. So this whole gaming VR thing, like, of course, it's a computing platform. And, like, you've got your screen in front of you and you can teleport and you can, and you can travel through time. Like, why would it be limited to gaming? Like, just, well, you have this low-hanging fruit. So you have this, you have this obvious, straightforward stuff. which is, well, you can do games on this. And you can do a whole bunch of indie video content.

And then you have people trying to work out, okay, well, we've done that. What else can you do? How much broader can you take it? And so, yeah, like the bare case for VR is it's just games, which is 100, 200 million people. And then the bull case is you can create content and an experience that's much broader than that. And then it's 500 million or a billion people or 2 billion people. And probably people will want to do what they've done with every other competing platform, which is interact with their people. Right.

I mean, like, that seems to be the killer app of all of all internet-connected devices, right? And I mean, this is what Mark Zuckerberg, why he was on stage, was to show off the social applications that Facebook is bill. And so, you know, what they envision is being able to take a Facebook messenger call and, you know, on one end, in VR, you see basically what looks like a phone in your hand and FaceTime. And, you know, Mark Zuckerberg just saw his wife, basically as if he were doing a FaceTime call from his office. And on her end, she saw the same thing, but he was a cartoon avatar. And so the idea of, I think initially, it's just make people in VR accessible to everyone else in the world. And then as you build a base of actual dedicated VR users, now it becomes its own social computing system in the same way that, like, Facebook is a social layer on top of the internet or Twitter or Snapchat. Like, they want to make a VR social layer.

Social is one of those things where network effects are at play. And so the network becomes exponentially more valuable as there's more people. But the flip side of that coin is that it's almost inherently like very unvalued. right at the beginning. One company we haven't talked about yet is Valve and Vive. They did a phenomenal job with the Vive and the room scale, the fact that you can walk around and the hand controllers, but it looks like touch with room scale will be sort of a big leap forward and the content will be a big leap forward.

Like, does Valve have any announcements coming up? So they actually have a Steam Dev days coming up, I think, this week. And that will primarily be kind of a come together and just talk about best practices, kind of event from what I can tell no one's expecting huge announcements but whether it's at this event or early next year if they kind of do what they did

with the original Vive and announce it the sequel at Mobile World Congress the big rumors that everyone's talking about with the Vive are that the next generation will have it'll be untethered. That is to say it'll still be primarily focused on your PC Valve lives on top the PC gaming ecosystem but you won't necessarily

have this cable coming at the back of your head connecting you to your desk, tangling around your feet. That's a tough technical problem from a latency point of view, right? Right. You're sending greater than 1080p. How do you get the motion to photon latency? You have to run it for your head moves. Then you have to connect back to the GPU wirelessly and then send a rendered image.

90 times per second. There's a couple of things you could do. You could imagine them putting a little bit of compute on the headset and kind of doing like, acing a time warp from the headset. Well, then you might as well just go all the way and do Santa Cruz, right? Maybe. Well, basically, it's not an impossible problem in terms of the raw data throughput. I think it's more of a, like, Valve already has what's called the Steam Link, which effectively does the same thing, but with a less difficult problem of streaming your gaming PC to your TV at 60 frames per seconds.

That's 1080P worth of pixels 60 times a second. VR is, well, let's say just for ease of math, like 2X the pixels at 90 frames per second. So it's a lot more data, but doable. And it's kind of a matter of. Valve is a good, is a, they're a smart company. Yeah, no, and they're almost like a billion dollar company who can hire the people. Everyone's saying that Gabe Newell, the founder of Valve, who used to be a Microsofty, funded the entire business himself, that he's kind of moved his desk to the VR area. And it has kind of said, like, I'm in it to win it now. You can famously move your desk around to whatever project wants.

Right, right. That's how you prioritize what team you're on is just put your desk near that team. And so apparently he's sitting near the VR folks now. And this is his main focus. And so he's in it to win it for at least the high-end PC market because he thinks that, you know, again, he's happy with this 150 million monthly active. He'd love it if, you know, a decent chunk of them owned vibes. Well, some of the work they've done, like, on the photogrammetry stuff is really impressive, right? I mean. Yeah, so Destinations is Valve's social VR play.

And what this is is you can bring in, they have kind of this big modding community, people who make modifications to games and distribute from little things to just changing the sort of the, the 3D model of the sword that people use all the way to entirely new worlds. They provide that same tools for a setup that lets you either import, you know, kind of made in 3D art tools worlds or what you do is what's called photogrammetry, where you take a couple hundred photos of like your apartment or a park, and you extract the 3D geometry from it, and now you have a virtual world that looks exactly like your apartment or, you know, wherever you were with that camera.

And so they basically let you upload these environments and share them to anyone, and meet up in public lobbies and go to different worlds. And so, you know, today people are creating this user-generated thing, you know, kind of database of all these places where you can just go to these, like, so the one you and I did where you go to that church in England or whatever. So there's real, it looks really good. It's real places. They apply, you know, video game rendering techniques that make it look photorealistic in some cases.

You and I see a lot of these demos. That was the best one I've ever seen. It's done. It's the stitching and everything is really good. Yeah. And so I don't think I've shown you the Mars one. One of the default ones baked into the destinations app is. I saw that one.

Okay. So they took footage. Well, then you can throw the stick to the dog around Mars or whatever. Yeah, so they took footage from a Mars rover and stitched it all together into one actual just like section of Mars that you can teleport around and walk around and read random facts, see a Mars rover next to you for scale. Turning that into a social experience, again, it's one of these things where the network is still small. And so not that interesting today, but if 10 million. But all those things like the fish bowl effect and the stitching that you usually see in these demos, like that was all fixed and like looked great. Yeah, well, the thing is that it's not a 360 render where it's not a camera that sees 360 degrees around it, and then you make the best video you can from that.

You actually go around taking many photos of the environment, and it looks at all the differences between them to figure out what the geometry is. It's not like the GoPro thing where it's like a ball looking out. You're actually going around. Right. For the church one built into the destinations app, someone went around with a DSLR and took like 375 photos of the outside of a church. But it looks photorealistic because it's, you know, 400 times. 13 megapixels worth of detail. And so you can imagine that kind of thing, especially, like, I have, if you look at my Twitter

profile, at Kyle B. Russell, my pin tweet is actually a photogrammetry I did of my apartment and just from my iPhone. And it looks photorealistic. I've, you know, walked around in the vibe on it. And it's, you know, there's a couple of parts that are missing. You've walked around a 3D model of your apartment in your apartment. Yes, correct. It's a little bizarre if you map it correctly.

You can sit down on the virtual couch and the actual couches. That's actually how, like, I think in the future, all the VR, like, horror things will start is you'll start off, like, looking around the room you're actually in, and it'll look normal, and then suddenly things will start to go wrong, right? No, and that's actually the natural entry way. The thing you're scared of after you come home from a movie like paranormal activity or insidious is like, oh, what if that was real? But now it's like, you sit down, I'm on my couch, and all of a sudden the shadow twitches over there.

And like, wait, am I in my headset or not? This is a joke that, you know, if your internet of things, if your connected home gets hacked, you've got poltergeasts, but if your VR goggles, your AR goggles get hacked and you've got hallucinations. Yeah. So, yeah, nothing in the near term expected from Valve. I'd love to be proven wrong, but, you know, next year it sounds like they are going to come out of the gate with something strong when it comes to the next generation vibe. So the high end is going to be interesting because it's going to be where the medium itself is pushed forward.

And then kind of the PlayStation VR tier, whatever the mobile slash standalone tier looks like, you're going to have trickle down of quality from the high end. but that's probably where actual numbers of users will, that's where we'll see the tens of millions over time. But the high end is exciting because you get to see the future a couple years early. All right. Thanks, guys.