a16z Podcast - a16z Podcast: When Is VR's iPhone Moment?

Episode Date: February 6, 2018

There was a lot of hype about VR ad then it seemed to go pretty quiet. So where are we right now? Bigscreen founder Darshan Shankar and a16z general partner Chris Dixon take the pulse on VR, AR, and mixed reality -- especially where it's going the next 24 months -- in this episode of the a16z Podcast. The conversation surveys some of the key platforms and devices -- from ARKit to the various headsets from various players -- to where we are in hardware, software, functionality, immersive experience, and perhaps most importantly, content. Are these destined to be just fun gadgets, or will they become new tools that demand continuous use and engagement? When will VR finally have its "iPhone moment"? 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 and welcome to the A16Z podcast. This conversation between A16Z general partner Chris Dixon and Dershan Schunker, founder and CEO of Big Screen VR, is all about where we are. now in VR and AR. We're somewhere before the iPhone moment, but are we in 2004 or 2007? Dixon and Shanker give a broad overview all about what's out there right now in terms of hardware and content

and how all the different gear compares. And then talk about the roadmap for what's coming next. What will the next big innovations be that will push us over the edge from expectations into reality? And will VR's moment come first or ARs? So what's the state of VR right now?

I guess it feels to me like We're somewhere between before the iPhone moment in VR and an AR. Are we in 2004 or 2007 or when is it coming and when's it really going to hit? We have this like AR kit and AR core on the phone, which is cool, but feels a little bit lightweight. And then you have the high-end AR of things like HoloLens and Magic Leap and, you know, this stuff is in various stages of development. On VR, similarly, you have, on the low end, you have like gear and Daydream. And on the high end, you have the, you know, the vibe and Oculus.

but you know they're sort of either on the high end they're expensive and you need a lot of equipment and the low end they don't have all the sort of full functionality and so and there's like a whole bunch of stuff is a ton of stuff being built a ton of investment there's the other piece which is also content what are people doing are people actually using this or or does it go back into the closet and that's where that goes to like is it just like this fun gadget like to play with on you know whatever Christmas day or do I keep it stay engaged is it the iPhone or the Newton where you I play with it for a little bit, but it doesn't have any daily continuous use. The content piece and retention and engagement is really important.

And that, I think, there's a few companies and a few piece of products in the VR space that may have significant usage. On the highest end, there's a bunch of games, VR games, that people are spending tens of hours every week playing with... What are some of the most popular ones? Rec Room, the new Fallout games. Some of the AAA titles in the PC gaming space have VR versions, so Doom, Fallout. These aren't even custom made for VR, and so they're not the ideal experience, but people are willing to... They're not the ideal experience, but they have the ideal kind of franchise storyline, the characters.

It's good enough on the VR side, and it's just, it increases the intensity, and then there's just like marquee content. It's a good bridge to get people into VR, something that they're already familiar with, something that they want to consume. And I think this is the first time in the history, the multi-decade history of VR, where the content is compelling enough that people are spending tens of hours a week using these heads. headsets. And it's certainly not for everybody because these headsets are expensive and it does require Windows PC. But the good news is there is good content out there today that is sufficiently compelling that people can spend 10 hours. And those people are doing that with the high-end headsets. They're doing it with a high-end headset. So even for some point... And just to be specific, the high-end headsets have positional tracking, which means six degrees of freedom.

You move your head around and you can really get a much more immersive experience like that. And then hand tracking, which also really changes the feeling of immersion. Without hand tracking, it feels like you're just in a space, but you don't feel like you're actually there. With the hand tracking and a six series of freedom, you really, at least my personal experience is there's sort of a switch gets flipped in your brain and you suddenly like think you're in that place. I think it's also the interactive elements. Without your hand controllers, it's extremely hard to interact with anything in the VR space. So you might feel like you're in a alien world, but you can't do anything in there. And that's the difference between

the engagement that you'd have playing video games where people can spend something like World of Warcraft dozens of hours every week for years as opposed to watching a movie for two hours. If you lose yourself and you go into flow state, and if you don't have hands in VR, you don't get that. Right. So the headsets are getting better every year and a half. The resolution's getting better. The price points dropping considerably

and it's becoming more and more accessible in terms of what kind of hardware do you need to run this on. A fully loaded Oculus, meaning you had to buy a PC and an Oculus. When it first started, it was about 2000. 2000. And now it's... Now it's under 800. 800 for the entire thing. Including the PC, yeah. The PC, the headset,

anything that you need. It's now more than half the price. That's a significant drop in a year, year and a half. Oculus is coming out with new headsets to Oculus Go, right? Yeah. And that's a pretty significant move. The Gear VR was Oculus and Samsung, building a very cheap $79-99 mobile VR headset that could use your existing Samsung smartphone. There's literally a piece of plastic where you slapped your phone. Then software, of course, on the phone that right of VR enabled. But that was a very cheap headset, but also it missed a lot of the key components. And the usability was extremely cumbersome when it comes to

things like your operating system updating in the background while you're trying to play a VR game or notifications from a different application just interrupting the VR game. You get a phone call or something. You get a phone call and it's like, well, I'm in VR. It's just interrupting everything. Go Go is a dedicated device. Go is a dedicated device. So it strips out all the pieces of Android and a phone that gets in the way of making a really

great VR experience. And it focuses in on battery life and not throttling the GPU when you're playing a VR application. And most importantly, though, the best part about Go is that the amount of time, and friction it takes for you to go from being in the real world, wanting to do something in VR, and being in VR. That's why I personally, so I have a Rift and I have a Vive, I'll say, okay, I want to go into do something in VR,

and then it's like Windows has to update, and I have to re-position the cameras. And, like, you know, that kind of right. Like, I don't watch cable anymore because it's like, God, where's that remote and it's going to reboot and it's going to do some other thing, and then I don't even know. You know what I mean?

And meanwhile, the phone is sitting right there. And it's instant, and it's instant, and you can grab it. And so, like, it's like Benedict Evans likes to say the problem of the phone not only disrupted every hardware device that came before, disrupted everyone that came after it. For every device, you're competing with the phone.

And so you've got to have just such seamless kind of interaction experience. So I think the best part of what goes, not the fact that it's mobile and that can be used anywhere. It's that instantaneous, how long does it take you to get into VR? You put it on your head, it's on. You're in VR right then and there. And the other part is the price point. It's only $200 for the entire thing.

All the hardware is included. It's generally considered a magical price point for consumer electronics. And it doesn't require you to buy any. additional hardware. Even the gear VR requires you to have a Samsung's phone, the Oculus Rift requires you'd have a Windows PC. There's none of that. The downside is there's no positional tracking and only three degrees of freedom on the hand controller. But they're building content around that experience. And it's only a matter of time before the second or third generation of that device does have positional tracking. So Oculus has demonstrated the Santa Cruz prototype, which is a

positionally tracked standalone device that doesn't require you to be tethered to a Windows PC. There's no wireless streaming or anything like that. It's, again, a standalone device. It does have positional tracking. It does have controllers that are positionally tracked. And it runs the games that you might have played on your Rift, which are fully positional. You're walking around. You're inspecting a space. The price point of that is much higher. There are going to be dev kits of that next year. And that shows that if you move the price point up and if you move the timeline of another six to 12 months or 18 months, you do get a fully standalone headset that does have the full capabilities of 6 degrees of freedom tracking.

However, that's just the Oculus ecosystem. Who else is doing exciting stuff? So, of course, the biggest ones in the space that most people talk about are the players that have consumer VR headsets already out in the market. So that's HDC, Oculus, Samsung, Sony with their PlayStation VR, and Microsoft with our new Windows Mix Reality Platform. So we just launched our application on that new platform. And that's Microsoft building the entire software stack

to ensure that Windows continues to be the operating system of choice for high-end VR usage. And this is the typical Microsoft model. They partner with hardware makers like Dell, right, to make the hardware. So they have six or seven OEMs making all the headsets, subtly different. And these are quite good. And they're very good.

So one of the best parts about the Windows Mix Reality headsets are that they are positioning tracked, but they don't require any extra sensors or cameras or anything. So no outside cameras. It's one cable. You plug in with just one cable. You have the entire tracking system, everything built in right into the headset. It just works instantly. There's a lot less extra stuff you have to learn.

It's kind of like the difference between setting up a home theater system and just plugging in headphones into an iPod. But it's also higher resolution. It's at an affordable price point. So they're launching at $350 rather than how Oculus launched a year and a half ago at $800. So it's lower price point, easier to use. It has tradeoffs in terms of developer ecosystem and content, but it's certainly a big move by Microsoft to get into this space. There are other players, especially in the mobile ecosystem like Qualcomm and Leap Motion and several other folks. that are building out various pieces of the ecosystem that need to exist before we can have ultra-affordable devices that have all of the functionality of the high-end headsets have today. What are the chipmakers doing, the Qualcomm?

So the chip makers in general are working on building chips that do a lot of the position tracking right on a dedicated chip. So it's kind of like how way back in the day, things like video encoding and playing high-quality videos, there just weren't dedicated chips for that, so computers struggled to do anything with video or streaming or networking. So positional tracking is particularly compute intensive because you're doing basically like machine learning vision kind of stuff.

And it's also battery intensive. They overheat. And so if you try to run on the CPU, that's why the go doesn't have additional tracking as an example, right? So once you get positional tracking A6 that are, you know, that hopefully follow the typical semiconductor price curve and they drop down and eventually they're 10 bucks or something, you can put it in a go. You get positional tracking and that unlocks like a whole new set of possibilities, right? And that's where the cost also can be accessible and sort of at the $600, $800, $800 price. point for position tracking. How does it get down to being accessible at the $99 price point or the $200 price point? It's those dedicated chips that do position tracking

on the chip and not on the GPU or CPU. That frees up the entire GP and CPU to be used for your actual applications. And so that will unlock a whole bunch of different interesting things and probably have secondary effects that we don't predict. It's what happened with a cell phone obviously is that people repurpose the parts for VR and drones and things like that. And Apple has made a few moves there as well, the iPhone X being a pretty good example of a glimpse into the future where that is happening where you do have really high quality just on the phone

a window into an augmented reality world allowing you to move your phone around in this virtual world and see these augmented objects like on a table and that's exactly the kind of slam technology that you'd need for an AR headset

but you'd need much higher precision much higher accuracy much lower latencies it's a similar problem set that they're all tackling that AR and VR and VR mobile and PC you get to benefit from. When we talked about the AR for a little bit, my understanding of the

landscape, but there's the phone base stuff, which is just coming out now, which is Apple has AR kit and Google has their AR core. Then there's Magic Leap and HoloLens and other kind of high-end things, which some of our market, some aren't. I felt like there's a lot of excitement five months ago on AR kit. And then it came out, iOS 11, and it just feels like the excitement sort of dropped a little bit. I think that's true. And in fact, I'd say that was true with VR as well in 2016, right when the VR headsets were coming out, I'd been working on Victory for a couple years at that point, quietly, and I was thinking, okay, right when these heads that's come out, there's going to be dozens of

startups that are announcing, here's our big VR product, and there's only a handful. And you're seeing the same thing with the AR Kit, where there's maybe a handful of startups. Hardly anyone got funded on Air Kit or ARCore. I think the biggest change was how AR Kit was considerably faster to market than any of the big companies predicted.

So you saw a sudden rush for companies to rush to release their own similar version. Most people have stopped talking about Facebook's version, the stuff that they added to their camera, where Facebook was trying to make their camera and application platform for AR, and that didn't really pick up. Because, well, it's got to be bundled in the OS, right? Right.

And Facebook doesn't control the OS on the phone. And Facebook's forcing apps into the camera, and it's yet to be seen whether that'll actually pick up. But not a lot of startups are working on air kit. It feels like, you remember when the iPhone first came at, when the store came out in 2008, and the first wave of apps were, like, you know, flashlights and little, like, fun games. And that's sort of what AR feels like now. So the first wave is just people kind of messing around. The second wave is people really starting to figure out this new capability.

I don't think you'll have that second wave until it's actually in a headset, until it's on a head-mounted class. So you don't think looking through the magic box on your phone, is it compelling enough experience? I think it's compelling enough for very specific use cases. So Snapchat filters, that's the best use case of being able to overlay information. I think, like, the IKEA furniture stuff is kind of useful. Like, see your chair, I would look there. But from our perspective, is there going to be a standalone,

multi-billion-dollar company built off of just a window into AR and not being a feature of a multi-billion-dollar company like Snapchat, but an entire company just dedicated to it, that's yet to be seen. So you think that won't happen until the headsets become ubiquitous and it really is truly a new platform? Yeah, I would say, though,

as opposed to a feature of an existing platform. The AR-Kit strategy sounds a lot to me like a UI kit and iOS development ecosystem. One of the reasons I think why it picked up so well in 2009, 2010 was because there were a lot of developers who were already accustomed to Apple's SDK, having developed apps for the Mac before, having understood that ecosystem, how do I make apps for this platform?

Because it was very similar in terms of the tool chain and the SDKs and even the code to get something running quickly. People are accustomed on how to do it. And 3D graphics and using Unity and billing VR or AR applications is sufficiently foreign to somebody that's not from the games industry. AR kit is lowering that barrier, getting people accustomed to it, is building up a base of developers who understand how to make VR and AR apps such that when that device, actually does come out, which does exist.

When that device comes out, people will know how to make apps for it. People would have already made some apps for it. It's a good point. I mean, the number of sort of Unreal and Unity developers in traditional tech companies is not nearly as high as the number of people that were familiar with kind of the Mac development as an example, right? Interesting. But I think AR is nowhere close to its iPhone moment in the sense that the price point is sufficiently far beyond what most people would be able to afford right away. We're talking about price points that are north of $1,000 for the foreseeable future for the next two to three years. Not to mention the consumer versions of these devices, whether Apple magically pollens, none of the major AR players are releasing anything really until 2019 in terms of a consumer usable headset.

That's far off into the future. I've been a lot of people who think that the first use cases will be more like enterprise slash commercial because of the price point. So, you know, I just did a drone survey and I want to visualize it on my desktop with a bunch of colleagues. And if you're in the construction business, you're willing to pay $2,000 for a bunch of headsets to do CAD stuff, you know, if that's an example, right? And there's a surprising number of use cases in companies already today building on the HoloLens. Even though it is mostly just developers, it's really quiet, not quite as loud as before. When Microsoft decided to postpone their HoloLens 2 or their consumer version for a few years, there's still quite a lot of use cases and things happening there. But it is on the enterprise, and that's perfectly fine for now while the price point is so hot.

So it's kind of fashionable right now to say AR not VR. But I still tend to think that VR's iPhone moment is coming sooner than ARRs. It's coming a lot sooner. There isn't a single AR device that we could say is under even $800 or $600. It's not going to be the kind of thing that's going to have 10 million users that have a device ready to go right now. One is just a harder technical problem, just sort of inherently, because you do everything VR does, which is like overlay things on your eyes. But then you also have to do machine vision interpretation of the world to make the two things interact.

And so it's fundamentally. harder technology. Now, that doesn't necessarily mean it comes later, but it is sort of VR plus extra stuff. It's VR plus a lot of stuff that it isn't ready yet. The tracking might be fine, but understanding the space in the world. Some people call it the AR Turing test, right? You want to like, is this object real or is it not? You can't tell whether it's real. At least in the demos I've seen, it feels like that. Projecting the image is one thing, which I think people are making good progress on. But then interpreting the world, it becomes really a semantic problem. That's as hard as, you know, in some ways it reduces the Turing test, right? Like to truly understand

what's in the world and make the virtual object interact with the real objects. Well, especially the displays themselves are fundamentally different. The whole VR movement got kick started off just mobile devices. The iPhone and the entire mobile ecosystem of hardware allowing cheap gyroscopes and cheap displays, cheap high-resolution displays, to be used to bootstrap the initial VR headsets. There's nothing quite like that to bootstrap what we need for AR, where when it comes to overlaying seamlessly objects in the real world with occlusion and putting a virtual mug behind a chair

so that you don't see it and partially obscuring it and self-shadowing and all sorts of complex pieces that you can't just use a smartphone display to just slap it on there and mimic that type of stuff. Custom displays need to be invented and new types of display technology needs to be there for an

AR headset. I would also argue the other reason I think the VR iPhone moment will happen for the AR iPhone moment is on the content and community side which is the games like at VR by nature is deeply immersive. AR is much more like kind of overlay and, you know, it's less, by definition, less immersive, right? If you just look at the data for Steam and League of Legends, there's,

you know, 100 million plus people who really want intense, you know, virtual experiences and have disposable income and a bunch of other things. And as you said, too, like the tool chain, like the games people already know how to build this kind of stuff and they're poised to do it. And once they decide there's enough headsets there, it's relatively easy to turn those, you know, boats around to those areas, right? Right. Right. But the AI world, people don't quite yet know what's the applications that we're going to use for tens of hours every day. And it almost seems like you want to get to the point where you're wearing an AR headset the entire day and you use it occasionally. But you wouldn't buy a $1,500 AR headset unless it had

immense value to you on a regular basis. And that's where I think you get into the computer replacement, screen replacement type stuff, where spatial computing and changing how we use our computers fundamentally, and sort of looking at a bunch of tabs inside of a browser, starting to really spatialize that and bring that out into the world. Just the way humans think is much more spatial. We have started thinking and using computers the way computers work with their limitations. Air allows us to break away from that. And those, I think, are some of the more interesting, non-giving use case of AR, but that's still far away. That leads to big screen. Our most popular use case of our platform is a virtual reality movie theater. So people are wearing a VR headset, using our free

software to feel like they're in a movie theater. So you put on the headset, you look around, you feel like you're in a movie theater. It's also social, allowing you to see friends in there. You see their avatars. You have voice chat. You have hand controllers. You get to wave at them. These are friends who could be anywhere in the world. Anywhere in the world. But you feel like they're sitting next to you on a couch watching a movie together. And you're talking to each other. You're looking at each other. You know, if they're right left, you hear it in the left. It's something between video conferencing and the real world. It's something in that middle ground where it's not quite as isolating as staring at a flat screen

in a window, seeing a person on that flat screen. You actually feel like somebody's occupying some space right next to you. And that's the power of social VR and presence. Well, that's one of the sort of ironies of VR or something, is that from the outside, it looks very antisocial. Right. From the inside, I think it's the most social computing medium that's ever existed. And it's the same misconception that people had about texting and smartphones

and even feature phones back in the day. It's why are kids just staring at the screen all day? When, in fact, they enter being extremely social on it. You have 2 billion people using Facebook. that's surprisingly social compared to just the real world alone. What are some of the other popular use? What we wanted to make with Big Screen

was something that people could use for 10 hours a day, every single day on a VR-A-R-Headset, which meant that it has to provide immense utility and value to people. So we want to bring in content and people that you love, that you want to have an experience with.

So instead of watching Netflix on a 13-inch laptop screen laying over in bed, you get to feel like you're actually in a movie theater watching this movie, as the name alludes on a really big screen. Certainly the trend of going to a movie theater is rapidly declining,

and we get to bring the movie theater into the home. But you also get to do this with people who aren't in the same room as you, couples who are in long-distance relationships, or families where you might have an elderly parent on the other side of the country that you don't get to see often. All of these physical, geographical limitations, we get to overcome them with VR. And video games are another use case, right? Virtual land parties, essentially, you get together, you play Rocket League or whatever game. Right. So you get to bring in. a PC video game that you already love,

Overwatch, Rocket League, and you get to feel like you're playing that on an immersive big screen, but you get to feel like you're playing that in a different world. Maybe you want to be in a campfire in a forest while you're playing a video game like Firewatch,

and you get to bring in your friends into this world. You get to have screens all around you, right? You get to have your Twitch chat open on the side, your game up in front of you and your buddies are right next to you. You get a screen sheet,

like the old days of PC game when you're in a basement trying to cheat and see where your friends are hiding. You get to feel like you're really there with somebody who might not be sitting right next to you. But there's also productivity use cases. This is one of the benefits of isolation in VR.

It allows you to be in a distraction-free work environment. Because their real-world environment is noisy and distracting? Something about the real-world environment is just not great. It's small, it's cramped, it's loud, there are people distracting you, or you just want to do something away from all of that. It allows you to have a distraction-free study environment where you just have your homework in front of you

or you have your code in front of you, you just get to focus on that. You don't have distraction. like your phone. You don't actually see your phone in big screen, and that helps you just focus on the thing that you're trying to get done. Looking out in the next couple of years, what are you excited about? What are your predictions? From an industry perspective, really excited about the new headsets that are coming out over the next 24 months. So the Oculus Go, the Santa Cruz headset from Oculus, as well as all of the new mobile VR headsets, mutually announced

in the next few months. Some of them are standalone. Some of them are dedicated. We'll be launching Big Screen for the first time in 2018 on mobile devices. But those new headsets coming in at a much more affordable price point with higher-end features that were previously only on the PCs, that allows the VR industry to have a much larger addressable market when it comes to a number of users that actually have a headset, which will make it more lucrative for people to start building more content, more content gets made, more users are buying headsets, and that keeps going, helping us get closer and closer to that iPhone moment for VR. also excited to see the first dev kits of all the AR headsets shipped in 2018 people will finally be able to actually build good compelling AR experiences and that's not just a window into an AR world

on a smartphone. But more than anything, it's just watching the general progress year over year of the VR industry over the past few years continue. Back when Facebook bought Oculus that's when expectations of VR started to get wildly away from reality. Oh, by 2016, there's going to be

20, 50 million headsets out there. There might be 100 million headsets by 2017. Some analysts definitely blew a lot of that out of proportion. We're far away from meeting those expectations. But year over year, more people are buying headsets. More people know what VR even is. And each year, as these headsets get double the resolution or half the price or doesn't require Windows PC or doesn't require a $500 graphics card in your PC, that continuous improvement,

I'm really excited for that. All right. Well, thanks, and thanks for being here. Thanks for having me.