VIRTUAL REALITY AND BEYOND - Irresistible Mail · Source: Ericsson ConsumerLab, "10 Hot Consumer...

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VIRTUAL REALITY AND BEYOND The Current State and Future Potential of Immersive Digital Marketing Experiences JANUARY 2016 Bryan Yeager Contributors: Maria Minsker, Corey McNair Read this on eMarketer for iPad

Transcript of VIRTUAL REALITY AND BEYOND - Irresistible Mail · Source: Ericsson ConsumerLab, "10 Hot Consumer...

Page 1: VIRTUAL REALITY AND BEYOND - Irresistible Mail · Source: Ericsson ConsumerLab, "10 Hot Consumer Trends 2016," Dec 8, 2015 201662 KEY STAT: Smartphone users worldwide are interested

VIRTUAL REALITY AND BEYONDThe Current State and Future Potential of Immersive Digital Marketing Experiences

JANUARY 2016

Bryan Yeager

Contributors: Maria Minsker, Corey McNair

Read this on eMarketer for iPad

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VIRTUAL REALITY AND BEYOND: THE CURRENT STATE AND FUTURE POTENTIAL OF IMMERSIVE DIGITAL MARKETING EXPERIENCES ©2016 EMARKETER INC. ALL RIGHTS RESERVED 2

CONTENTS2 Virtual Reality and Beyond

3 Surveying the Immersive Landscape

10 The Current State of Immersive Marketing

14 The Potential of Immersive Marketing

16 eMarketer Interviews

17 Related eMarketer Reports

17 Related Links

VIRTUAL REALITY AND BEYOND: THE CURRENT STATE AND FUTURE POTENTIAL OF IMMERSIVE DIGITAL MARKETING EXPERIENCES

With the first stage of consumer-ready virtual reality and augmented reality technologies coming to market in 2016,

marketers have a new, immersive medium through which they can engage audiences in compelling ways.

■ It is important to distinguish between virtual reality (VR) and augmented reality (AR) technologies. The former is fully immersive; the latter overlays virtual objects and other digital information on top of the real world.

■ The immersive medium is still nascent, despite the fact that its underlying technologies have been around for decades. But there is a general consensus that it is here to stay, and marketers should start experimenting sooner rather than later.

■ Projections for the market opportunity for VR and AR are all over the map and should be looked at with some skepticism until more concrete sales and usage data are made available.

■ 360-degree video is a popular format for marketers getting started with the immersive medium, with low-cost headsets being distributed and live events being held to ensure the target audience has an optimal experience.

■ The cost of creating and delivering an immersive experience varies a great deal, from tens of thousands to hundreds of thousands of dollars or more depending on an array of factors. Costs may very well decrease as such efforts become more common, especially for 360-degree video.

■ Beyond 360 video, marketers are excited about the prospects of interaction and engagement within virtual worlds or environments. Apple also remains a wild card, as it has yet to launch any of its own VR or AR products.

WHAT’S IN THIS REPORT? This report provides an overview of the immersive medium, including its underlying technologies, market opportunity, marketers’ current approaches (and their costs) and future prospects. It is primarily focused on consumer-facing applications, rather than business-facing applications.

% of respondents

Virtual Reality Activities that Interest SmartphoneUsers Worldwide, Oct 2015

See items in real size and form when I shop online64%

Virtual reality smartphone maps62%

Movies that play all around me57%

Internet tech support with all-angle view57%

A virtual reality headset to watch sports from any viewerposition

55%

Desktop/laptop games that can be viewed all around me54%

A virtual home office54%

Smartphone games with a 360-degree view52%

Video calls with participants all around me52%

A smartphone 3-D viewer like Google Cardboard49%

Sports practice in a realistic virtual reality setting48%

Virtual reality dating service33%

Note: ages 15-69Source: Ericsson ConsumerLab, "10 Hot Consumer Trends 2016," Dec 8,2015201662 www.eMarketer.com

KEY STAT: Smartphone users worldwide are interested in conducting a wide variety of activities using VR, such as improving the online shopping experience, navigation and entertainment.

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SURVEYING THE IMMERSIVE LANDSCAPE

After several cycles of hype spanning several

decades, virtual reality (VR) and augmented reality

(AR) technologies have reached the point where

commercially viable products to create and consume

immersive experiences are coming to market. As a

result, marketers have a new medium—the immersive

medium—that they can use to tell stories and engage

with audiences in ways like never before.

Before diving into the potential opportunities and challenges this new medium presents, it’s important to clarify the distinctions between VR and AR, as these terms are sometimes conflated.

VR AND AR: DEFINED VR completely immerses a user inside a virtual world or experience, typically through the use of a head-mounted display (HMD) that is often connected to headphones, controllers and other peripherals that let users navigate through that experience. A key characteristic of a great VR experience is the feeling of “presence”—users feel like they are truly in the synthetic environment being presented.

While VR is fully immersive, AR involves overlaying virtual objects and other types of digital information over the real world, which can be delivered through hardware like smartphones, tablets and HMDs. As a result, AR experiences can be assistive by presenting relevant information based on where a user is at or what activity they’re performing. Google Glass is a prominent example of an HMD that uses AR to try and provide an assistive experience to users. Also worth clarifying is the term “mixed reality” (MR), which is used to specifically describe experiences with real-time comingling of virtual and physical objects achieved by products like Microsoft’s HoloLens.

Among the dozens of VR and AR hardware systems already on the market or in development, a handful of high-profile products from major players are highlighted in the table below. They include high-end systems initially geared toward gamers, including Oculus Rift, PlayStation VR and HTC Vive; headsets that use smartphones as the conduit for accessing VR content, including Samsung Gear VR and Google Cardboard; and AR/MR systems like Microsoft’s HoloLens, secretive startup Magic Leap and Google’s Project Tango, which adds capabilities like depth sensing and motion tracking to bring a greater level of perception to mobile devices.

Profile of Select Virtual/Augmented Reality Devices,2016

Virtual reality

Oculus Rift

PlayStationVR

HTC Vive

Samsung Gear VR

GoogleCardboard

Augmented reality

HoloLens

Magic Leap

ProjectTango

Company

Facebook

Sony

HTC & Valve

Samsung &Facebook

Google

Microsoft

Magic Leap

Google

Scheduledrelease date

Q1 2016

H1 2016

April 2016

Available

Available

Developmentkit in 2016

-

Developmentkit available

Key details

Premium devicefor the Oculus platform

Consumer hardware powered by PlayStation 4

Device for the Valve platform

Entry-level device for Oculus platform

Low-cost, entry-level device forvirtual reality apps

Untethered holographic computer

Augmented realitysystem with Google investments; still inearly development

Tablet & platformfor creating 3-D models of surrounding world

Estimatedprice

$599+hardware

-

-

$99 + 2015Samsung Galaxysmartphones

$0-$25

Developeredition: $3,000

-

Developer kit: $512

Source: J.P. Morgan, "Nothing But Net: 2016 US Internet Key Themes & BestIdeas," Dec 18, 2015202952 www.eMarketer.com

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BEYOND THE HYPE COMES A SURGE OF INVESTMENT VR in particular has been hyped numerous times over the past three decades as being right around the corner for widespread adoption, only to eventually fizzle out due to factors like technical limitations and lack of investment. Companies have been dabbling with consumer-oriented AR for the better part of the past decade, with some useful capabilities (e.g., the Ikea catalog tablet app in 2013 that let users place furniture in their home before buying it), but also many one-off gimmicks that fell flat and were frequently expensive to create (Esquire magazine’s “Augmented Reality Issue” from 2009 comes to mind).

But the consensus among those who spoke with eMarketer for this report and among other researchers that have conducted in-depth investigations in the area is that these technologies are here to stay and will only become more capable and ubiquitous over time.

“For the first time in my professional career, I feel pretty confident that this is not a hype cycle that we’re in,” said Adrian Slobin, global innovation lead at digital agency SapientNitro. “This is the beginning of an evolution in the VR space that will continue.” He noted that there may be some speed bumps along the path of that evolution, but the immersive medium will not “fade away only to reemerge five or six years later. The train has left the station.”

One key reason why there’s so much confidence in the future of the immersive medium is the scale of investment that has flowed into companies creating VR and AR products over the past few years. Long before Facebook acquired Oculus for $2 billion in March 2014, the VR system developer had raised $2.4 million through a Kickstarter crowdfunding campaign—far exceeding its original goal of $250,000 and indicating a strong interest among internet users in finally experiencing high-quality VR in the comfort of their own home.

Google has also made significant investments in the space. Most notably, it led a $542 million round of investment in Magic Leap in October 2014. Reportedly, the company is developing AR technology that will project light onto a user’s retina to mimic the neurological effects experienced when looking at objects in the real world.

The promise is a much more natural experience of overlying digital renderings onto the real world, instead of strapping on a face-encompassing headset. However, the stealthy nature of the company means that few have actually experienced the technology, and those who have aren’t permitted to speak about it publicly.

Many other companies working on immersive technology, content and services have received investments to help turn their vision into reality. Venture capital researcher CB Insights found that from Q1 2014 to Q2 2015, more than $1 billion had been invested across 91 deals worldwide.

Number of Deals and Amount Invested inVirtual/Augmented Reality Companies Worldwide, Q1 2014-Q2 2015

Amount invested(millions)

Number of deals

Q1 2014 $76 15

Q2 2014 $17 8

Q3 2014 $56 14

Q4 2014 $626 13

Q1 2015 $117 25

Q2 2015 $131 16

Note: read as $131 million was invested in 16 virtual/augmented realitycompanies during Q2 2015Source: CB Insights as cited in company blog, Aug 4, 2015201327 www.eMarketer.com

Additionally, VentureBeat reported in October 2015 that by its calculations, 234 companies globally working on VR had raised a total of $3.8 billion, resulting in a combined valuation of $13 billion.

COMPARATIVE ESTIMATES Because many VR and AR systems are still being developed or are just starting to become available for purchase, it is understandable that forecasts on the market diverge significantly.

The major point of agreement among researchers is that millions of devices will be shipped over the next several years, and that the global market for immersive hardware, software and content will be in the billions of dollars. Beyond that, current projections should be viewed with some skepticism and will undoubtedly be revised as more products come to market, more sales data is made available and researchers get a sense of actual adoption rates among consumers and businesses.

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IHS predicts that 7.1 million VR headsets will ship worldwide in 2016. The Consumer Technology Association’s much smaller estimate of 1.2 million headset shipments does not specify whether it includes mobile VR units like Google Cardboard. Deutsche Bank and UBS also have divergent forecasts for VR hardware shipments, with UBS projecting much greater growth than Deutsche Bank in later years.

millions

Comparative Estimates: Virtual Reality Headset andHardware Shipments Worldwide, 2014-2020

2014 2015 2016 2017 2018 2019 2020

Virtual reality headset shipments

IHS, Oct 2015 - - 7.1 - - - -

CTA, Sep 2015 - - 1.2 - - - -

CCS Insight, June 2015 - 2.2 - - 20.0 - -

Virtual reality hardware shipments

Deutsche Bank, Sep 2015 - - 6.5 6.5 9.8 12.2 14.7

UBS*, Dec 2015 0.2 0.4 2.1 5.0 11.0 20.2 33.7

Note: *hardware sold onlySource: various, as noted, 2015202951 www.eMarketer.com

Additionally, IHS expects that mobile VR headsets like Google Cardboard, PlayStation VR and Samsung Gear VR will compose the bulk of headset shipment share in 2016, with more advanced (and expensive) systems initially having a smaller share. It predicts that the worldwide install base of VR headsets will reach 38 million, but not until 2020.

% of total

Virtual Reality Headset Share Worldwide, by Brand,2016

Google Cardboard30%

Samsung Gear VR21%

PlayStation VR21%

Oculus Rift8%

HTC Vive7%

Other13%

Note: total virtual reality headset shipments by the end of 2016=7 millionSource: IHS as cited by The Telegraph, Oct 28, 2015

199420 www.eMarketer.com

Gaming media researcher SuperData Research anticipates that the total worldwide install base of VR hardware will reach 38.9 million by the end of 2016. It also predicts that mobile VR headsets from the likes of Google and Samsung will make up the bulk of the market this year, with a 78% share.

millions and % of total

Installed Base of Virtual Reality Gaming HardwareWorldwide, by Device Type, 2016

Installed base % of total

Light mobile (1) 27.1 71%

Desktop/laptop (2) 6.6 17%

Premium mobile (3) 2.5 7%

Console (4) 1.9 5%

Total 38.9 100%

Note: numbers may not add up to total due to rounding; (1) e.g., GoogleCardboard; (2) e.g., HTC Vive, Oculus Rift; (3) e.g., Samsung Gear VR; (4) e.g.,PlayStation VRSource: SuperData Research, "Virtual Reality Gaming Market Brief 2016,"Jan 5, 2015202937 www.eMarketer.com

There is some consensus that the worldwide VR hardware market will be worth around $3 billion by 2020, based on respective estimates from Deutsche Bank, IHS and BI Intelligence. What is less clear is the market potential for VR games, software and other types of content, as indicated by the comparative estimates in the total VR revenues category.

On the high end, market research firm TrendForce predicts that by 2020, the global market value of VR hardware and software will reach $70 billion, with software revenues outpacing hardware revenues by 2018. Both Deutsche Bank and UBS are more conservative in their expectations. UBS in particular holds the opposite view of TrendForce; it projects that hardware revenues will outpace software revenues through its forecast period, with software accounting for $3.3 billion of a $10 billion market by 2020.

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billions

Comparative Estimates: Virtual Reality Hardware,Gaming and Total Revenues Worldwide, 2014-2020

Virtual reality hardware

Deutsche Bank, Sep 2015

IHS, Oct 2015 (1)

CTA, Sep 2015

BI Intelligence, April 2015 (1)

Virtual reality gaming

SuperData, Dec 2015 (2)

IHS, Oct 2015

TMR, Nov 2015

Total virtual reality

TrendForce, Dec 2015

Deutsche Bank, Sep 2015

UBS, Dec 2015 (3)

Tractica, Sep 2015 (4)

Digi-Capital, April 2015

2014

-

-

-

-

-

-

-

-

-

-

$0.11

-

2015

-

-

-

$0.04

$0.66

-

-

-

-

$0.54

-

-

2016

$1.55

$1.10

$0.54

-

$5.10

$0.50

-

$6.70

$2.18

-

-

-

2017

$1.52

-

-

-

$8.90

-

-

-

$2.60

-

-

-

2018

$2.13

-

-

-

$12.30

-

-

-

$4.00

-

-

-

2019

$2.59

-

-

-

-

-

$5.84

-

$5.48

-

-

-

2020

$3.05

$2.70

-

$2.80

-

-

-

$70.00

$7.20

$10.00

$4.50

$30.00

Note: (1) headset sales value; (2) includes console, mobile and PCrevenues; (3) hardware and software revenues only; (4) commercialrevenues onlySource: various, as noted, 2015202950 www.eMarketer.com

There are fewer estimates for the AR market. Those that exist are based on the premise that as technology advances over the next five years, AR has the potential to become more ubiquitous and commonly used. A widely cited estimate from venture capital firm Digi-Capital states that worldwide AR revenues will reach $90 billion by 2020. The firm anticipates that the VR market will reach $30 billion in the same timeframe.

Other estimates are similarly bullish in their expectations of the future of AR. CCS Insight expects that by 2017, the total worldwide market value for AR smart glasses will reach $1.2 billion, per its June 2015 forecast. Researcher Tractica anticipates that shipments of smart AR glasses will reach 5.4 million units annually by 2020, according to its May 2015 forecast. And a November 2015 estimate from ABI Research was even more aggressive, expecting 21 million smart AR glasses units to ship globally by 2020, with the total market reaching around $100 billion concurrently.

Market research firm International Data Corporation (IDC) anticipates that by 2020, more than 60% of the immersive market is going to be made up of AR experiences. It also expects more than 150,000 unique apps for virtual and augmented reality in key verticals like healthcare, the military and manufacturing during that timeframe.

Additionally, Tractica predicts that the install base of actively used mobile AR apps in categories that include gaming, marketing, ecommerce and industrial will rise steeply, to 2.2 billion by 2019.

Mobile Augmented Reality (AR) Apps in UseWorldwide, 2014 & 2019

2014

135 million

2019

2.2 billion

Note: installed base of actively used apps; includes gaming &entertainment, marketing & advertising, information, education & toys,retail/ecommerce & product visualization, industrial and otherSource: Tractica, "Augmented Reality for Mobile Devices" as cited in pressrelease, March 9, 2015186623 www.eMarketer.com

In a gaming-only estimate from a March 2015 study, Juniper Research anticipated that there would be 420 million mobile AR game app downloads worldwide by 2019, growing exponentially from 30 million downloads in 2014.

ESTIMATING THE AUDIENCE FOR IMMERSIVE EXPERIENCES There are few estimates available for users of immersive technologies. A September 2015 forecast from Deutsche Bank indicates that by the end of 2016, more than 6 million people worldwide will actively use VR on a daily basis, with mobile VR users outpacing those using desktops to power their experiences. The investment firm anticipates that mobile VR usage will become more widespread than desktop VR usage over the next few years, due to the existing scale of smartphone ownership combined with lower barriers to entry and user-friendliness.

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millionsVirtual Reality Users Worldwide, by Device, 2016-2020

2016

3.6

2.9

6.5

2017

5.5

4.2

9.7

2018

9.2

5.4

14.6

2019

13.0

6.5

19.5

2020

16.9

7.5

24.4

Smartphone Desktop

Source: Deutsche Bank, "Virtual Reality," Sep 10, 2015202949 www.eMarketer.com

Additionally, SuperData estimates that there will be 55.8 million VR users worldwide in 2016. Its number is representative of unique users of VR throughout the year instead of daily or monthly active users, and is also specific to video game applications.

Because the consumer market is still in its infancy, eMarketer does not yet have a specific estimate of VR or AR users. VR headsets and smart glasses are counted as part of eMarketer’s estimate of adult wearable users in the US, which one in four adults will use on a monthly basis in 2016. Though specific wearable category breakouts are not available at this time, it is reasonable to expect that there will be at least hundreds of thousands of active users of VR headsets and smart glasses in the US by the end of this year, growing to millions over the next several years.

US Adult Wearable Users, 2014-2019

Wearable users (millions)

—% change

—% of internet users

—% of population

2014

25.1

72.2%

12.2%

10.2%

2015

39.5

57.7%

18.7%

16.0%

2016

63.7

61.3%

29.5%

25.5%

2017

74.8

17.4%

33.9%

29.6%

2018

81.7

9.2%

36.5%

32.0%

2019

86.7

6.1%

38.3%

33.6%

Note: individuals ages 18+ who wear accessories or clothing at least onceper month that is embedded with electronics, software or sensors with theability to connect to the internet (via built-in connectivity or tethering) andexchange data with a manufacturer, operator or other connected devicesSource: eMarketer, Oct 2015198643 www.eMarketer.com

That expectation is based on several prominent, wide-scale initiatives last year and high-profile product launches planned in 2016. The November 2015 launch of The New York Times’ VR app included the distribution of 1.3 million Google Cardboard devices to its print subscribers. And Google itself sold out of its custom Star Wars editions of Cardboard, which coincided with the launch of “The Force Awakens” film in December 2015.

Assuming that the $99 Samsung Gear VR continues to get traction among users of its smartphones, and that the hype surrounding the impending release of systems like Oculus Rift, PlayStation VR and HTC Vive materializes into users, the need for a lightweight headset like Cardboard to expose large amounts of people to immersive experiences will gradually decrease.

As for the composition of potential users, October 2015 data from market research firm Greenlight VR found the highest interest in VR among 10- to 17-year-olds, followed by those ages 18 to 34. Even so, older users are intrigued by VR’s potential, with seven in 10 Gen Xers reporting interest.

% of respondents in each group

US Internet Users Who Are Interested in VirtualReality, by Generation, Oct 2015

Gen Z (10-17) 79%

Millennials (18-34) 73%

Gen X (35-50) 70%

Baby boomers (51-69) 64%

Note: n=2,282Source: Greenlight VR, "Virtual Reality Consumer Report October 2015"conducted by Touchstone Research, Nov 6, 2015200944 www.eMarketer.com

An important target market for many of the consumer-level VR systems coming to market are hardcore gamers, who regularly play PC and console games for hours at a time. This group will be the most likely to already have or are willing to invest in the powerful desktop PCs or consoles required to run VR games.

In a September 2015 survey from research firm CivicScience, 8% of US internet users said they were somewhat or very likely to purchase a VR headset to enhance the video game experience. This group of likely buyers skewed heavily male and was concentrated among respondents ages 34 and younger.

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% of respondents in each group

US Internet Users Who Are Likely to Purchase aVirtual Reality Headset to Enhance the VideoGame-Playing Experience, by Demographic, Sep 2015

Gender

Male 67%

Female 33%

Age

18-24 33%

25-29 17%

30-34 13%

35-44 18%

45-54 10%

55-64 5%

65+ 4%

Income

<$25K 21%

$25K-$35K 13%

$35K-$50K 13%

$50K-$75K 15%

$75K-$100K 15%

$100K-$125K 8%

$125K-$150K 5%

$150K+ 10%

Note: "very" or "somewhat" likelySource: CivicScience, "Video Gaming as a Virtual Reality: Who's In?" Sep 24,2015201970 www.eMarketer.com

Additionally, a Frank N. Magid Associates study released at the January 2016 International CES event found that among US gamers, 56% were generally aware of VR technology, though awareness about specific products was lower. Oculus Rift topped the list of products that gamers had heard of, at 25%, followed by Samsung Gear VR (21%), PlayStation VR (20%) and Google Cardboard (17%). Slightly more than half were not familiar with any specific brand.

Despite the early focus on gaming, immersive technologies have the potential to be used for many more types of activities, and peoples’ imaginations are already opening up to the possibilities. In an October 2015 study from Ericsson ConsumerLab of worldwide smartphone users, the top VR activities that interested respondents included seeing items in real size and form when shopping online, using smartphone maps in VR, viewing 360-degree movies and receiving tech support that has an all-angle view.

% of respondents

Virtual Reality Activities that Interest SmartphoneUsers Worldwide, Oct 2015

See items in real size and form when I shop online64%

Virtual reality smartphone maps62%

Movies that play all around me57%

Internet tech support with all-angle view57%

A virtual reality headset to watch sports from any viewerposition

55%

Desktop/laptop games that can be viewed all around me54%

A virtual home office54%

Smartphone games with a 360-degree view52%

Video calls with participants all around me52%

A smartphone 3-D viewer like Google Cardboard49%

Sports practice in a realistic virtual reality setting48%

Virtual reality dating service33%

Note: ages 15-69Source: Ericsson ConsumerLab, "10 Hot Consumer Trends 2016," Dec 8,2015201662 www.eMarketer.com

The interest in using VR for shopping highlights the challenge that continues to vex digital commerce companies: providing a “try before you buy” experience akin to what’s available at a traditional brick-and-mortar store.

December 2014 research from public relations agency Walker Sands found that 35% of US internet users would be open to purchasing more online with the assistance of VR because it would give them a more realistic feel of the product. While even more respondents (37%) believed VR wouldn’t impact their shopping experience, just 19% said they were unlikely to use VR for shopping.

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% of respondents

Ways in Which US Internet Users Believe VirtualReality* Would Affect Their Shopping Experience, Dec 2014

I would be open to purchasing more online since it will give me amore realistic feel of the product remotely

35%

I would be less likely to visit a physical retail store with theintroduction of this technology

22%

I would be unlikely to use virtual reality in my shoppingexperience

19%

I don't believe that virtual reality would affect my shoppingexperience

37%

Note: ages 18+; *e.g., trying on products virtuallySource: Walker Sands, "Reinventing Retail: What Businesses Need to Knowfor 2015," Feb 20, 2015186278 www.eMarketer.com

Amir Rubin, co-founder and CEO of Sixense, which is developing systems to enable shopping in VR, said that for such an environment to be successful, everything needs to look real for users to believe in the experience. “When you pick up a matching jacket or you want to buy some other type of fabric-type material, it’s extremely challenging to make it look real” because of factors like lighting and movement.

But items like consumer electronics and toys are easier to replicate because companies often have 3-D models of the items already available. “We can get those 3-D models and very easily bring them into a virtual world and apply physics” to make that experience more life-like, Rubin said.

As for potential inhibitors to purchasing a VR device, price is the top concern, according to data from Greenlight VR. Fully 45% of US internet users polled in October 2015 believed the devices were too expensive, and 29% said they were waiting for the price to drop. Other top concerns included the fear of losing track of time when engaging with a VR experience (23%), the perception that the technology is too new (23%) and worries about getting dizzy or sick when using such devices (21%).

What price would consumers be comfortable paying for VR devices? Greenlight VR found the $200 to $399 range to be the sweet spot for respondents; 31% said they would be willing to spend that much.

% of respondents

Maximum Amount that US Internet Users Would BeWilling to Pay for a Virtual Reality Device, Oct 2015

$06%

$1-$19923%

$200-$39931%

$400-$59920%

$600-$9999%

$1K+11%

Note: n=1,781 ages 18+Source: Greenlight VR, "Virtual Reality Consumer Report October 2015"conducted by Touchstone Research, Nov 23, 2015201428 www.eMarketer.com

Perhaps somewhat encouraging for Facebook’s Oculus is that one in five respondents were willing to spend upwards of $599 on a device—the price for the first commercially available Rift VR system announced in January 2016.

Even so, potential Rift users need to have a high-powered PC to support the headset, which could make the total price tag closer to around $1,500. Based on a December 2015 estimate by graphics chip-maker Nvidia, just 13 million PCs worldwide will have the graphical processing prowess to support VR experiences in 2016. But Nvidia also projects that by 2020, there will be 100 million PCs that can support these computationally intense, immersive experiences.

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THE CURRENT STATE OF IMMERSIVE MARKETING

Available research on the use of immersive media

for marketing purposes is thin, but ultimately points

out the obvious: The use of VR and AR to deliver

immersive marketing experiences is still in its infancy.

A July 2015 survey conducted by Altimeter Group and Capgemini found that just 13% of companies worldwide with innovation centers were focusing on VR, with mobility, big data and analytics garnering the most attention and investment.

% of companies studied

Focus Areas of Innovation Centers According toCompanies Worldwide, July 2015

Mobility 63%

Big data/analytics 51%

Internet of things 39%

Robotics 13%

Virtual reality13%

3-D printing5%

Note: n=75 companies with innovation centersSource: Altimeter Group and Capgemini, "The Innovation Game," July 23,2015193910 www.eMarketer.com

Though many consumers are interested in using VR to improve their shopping experience, VR is only starting to be used to enhance physical, in-store environments, based on September 2015 data from Econsultancy. In-store VR booths and VR fitting rooms both had single-digit adoption rates among client-side marketers and agency professionals polled worldwide. Instead, respondents were keen on using digital signage or interactive displays, free Wi-Fi and supplying tablets to customer-facing employees as means to enhance the experience.

% of respondents

Digital Tactics Used to Enhance the In-Store ShoppingExperience According to Agency Professionals vs.Client-Side Marketers Worldwide, Sep 2015

Digital signage/interactive displays60%

58%

Free Wi-Fi47%

48%

Provision of tablets for customer-facing employees44%

40%

Kiosks33%

23%

Beacons (e.g., iBeacons)10%

19%

Virtual reality booths6%

6%

Virtual fitting rooms4%

7%

Other7%

6%

Client-side marketers Agency professionals

Note: n=497 agency professionals; n=333 client-side marketers; used bythem or their clientsSource: Econsultancy, "Quarterly Digital Intelligence Briefing: The CXChallenge" in association with Adobe, Oct 22, 2015199190 www.eMarketer.com

As for AR, the Interactive Advertising Bureau Europe (IAB Europe) found that agencies polled in Western Europe were just as familiar with the technology as they were with sponsored content and responsive web design, even back in December 2014. But just 38% said they understood AR well, compared with 59% who said they understood sponsored content and 48% who understood responsive web design.

A March 2015 study of marketers in Canada conducted by BrandSpark and the Canadian Marketing Association (CMA) found that just 4% of respondents were currently using AR, and another 7% planned to use the technology in the year ahead.

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% of respondents

Current and Planned* Implementation of anAugmented Reality (AR)** Strategy Among Marketersin Canada, March 2015

Current 4%

Planned* 7%

Note: *in the year ahead; **defined as the use of digital technology(typically via an app) to overlay artificial info (e.g., animation, images, video)onto a user's real-time view to create an enhanced experienceSource: BrandSpark and Canadian Marketing Association (CMA), "10thAnnual BrandSpark Canadian Marketers Survey," Oct 26, 2015199587 www.eMarketer.com

For additional details on how marketers are currently using AR and how they’re thinking about using it in the future, please read eMarketer’s brief coinciding with this report, entitled “What We Know So Far About Augmented Reality for Marketing: Q1 2016.”

Despite VR and AR not being on the top of the priority list, SapientNitro’s Slobin said he tells his clients that now is the time to at least start exploring what’s going on in the space. “If you want to play that game again and be caught [getting] disrupted in some way, feel free to sit on the sidelines,” he said. “But it’s probably better to start firing up a team.” By his estimation, failing to do so would be similar to ignoring the rise of the internet in the 1990s, or of smartphones in the first decade of the 21st century.

IMMERSIVE CONTENT CREATION AND DISTRIBUTION One of the most prominent formats marketers have thus far used to deliver an immersive experience is 360-degree video, sometimes referred to as cinematic VR. Such video can be captured using special camera equipment that captures all angles of a particular scene, though it can also be computer-generated.

Regardless of the method, most 360-degree video content being created today is linear in nature, with a fixed length and minimal interactivity. Using the appropriate HMD, viewers can see a scene from a fixed point of view with the ability to look up, down, left and right.

The growing availability of the appropriate camera equipment and post-processing software to stitch everything together has attracted more brands and agencies to the format. Major digital video hubs have also added 360-degree video streaming support, including YouTube and Facebook, which both added the capability in 2015. AT&T, Nestlé and Samsung all released 360-degree video ads in conjunction with Facebook’s launch of its support for the format in November last year. The social network was also reported to be pitching 360 video to ad buyers and is supposedly working on a dedicated mobile app to view such content.

Users viewing these videos can also pan around the scene using their mouse or by moving their phone, ensuring that the content can reach an audience beyond those with HMDs. Littlstar, a media company with a platform for distributing and viewing 360-degree video, even released an Apple TV app in December 2015 that lets users pan around its network’s videos using the Siri Remote, thereby opening up additional opportunities for experiencing immersive content.

Even so, the element of presence in viewing 360 video on a VR headset is more captivating than viewing it on a flat screen. Because the penetration of these HMDs is still low, many brands and publishers have resorted to distributing low-cost Google Cardboard headsets, as with The New York Times example, coupled with a mobile app download to access the content via smartphones.

Outdoor apparel brand The North Face took a similar approach with a 360-degree video campaign in 2015, which involved a trip to Nepal and the summiting of Mount Everest, all done in partnership with Outside Magazine, according to Eric Oliver, the company’s director of digital marketing: “75,000 subscribers of Outside Magazine got a branded Cardboard viewer poly-bagged into their delivery,” he said. Subscribers were encouraged to download the app, check out the experience and then learn more about the story at the publication’s website.

The outdoor brand partnered with cinematic VR technology and production company Jaunt to capture, process and host the video, in part because “they’ve developed iOS and Android applications in which our content fits as part of their library,” Oliver said. That enables broader distribution beyond the subscriber base of the magazine.

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Achieving greater interactivity and a sense of control over an immersive experience typically requires the employment of tools that can help create an actual virtual environment, such as a gaming engine like Unity or Unreal. In addition, by incorporating more sensors like positional head tracking, hand controllers, motion sensing and haptic feedback, the level of presence and interactivity in the experience can be further enhanced.

Delivering these enhanced experiences to an audience currently revolves around live events, where the appropriate technology can be provided and controlled. Jim Cridlin, managing director of digital strategy at Mindshare North America and the head of the firm’s Sensory+ division (which helps clients use technologies like VR), pointed out one instance where the agency helped “an auto manufacturer in Europe allow people to test drive using an Oculus Rift at a mall.” As more advanced devices penetrate the market, these experiences have the potential to be delivered in the home.

Limitations and a New Language to Learn The immersive medium is still new to many marketers, but there is one essential best practice that needs to be taken into consideration: ensuring that whatever experience is being delivered, it needs to be “comfortable so that people don’t feel ill or disembodied,” according to Henry Stuart, co-founder and CEO at VR content production company Visualise.

A feeling of nausea, sometimes referred to as “virtual reality sickness,” can occur if there is dissonance between what the user is viewing on a headset and the motions being made with their head or other parts of the body that may be part of the experience. It’s been an issue since the earliest days of VR, and while technological strides have been made via hardware and software in reducing VR sickness, it has yet to be completely resolved—a potential inhibitor to people spending extended periods of time in a totally immersive experience.

By the same token, the substance of the content matters just as much as the tech capabilities to ensure a smooth experience. “If you attach a camera to somebody’s head and get them to run around, it might look good on a desktop, but it would make you almost instantly sick in VR,” Stuart said.

Additionally, Anthony Batt, co-founder of VR media company Wevr, emphasized that while existing digital media like video can be experienced in VR, it’s nonetheless “a new medium, and that’s very creatively challenging.”

Gevorg Karensky, founder of VR production company Bipolar ID, echoed that sentiment, saying that VR “undoes all the rules that have been created for traditional filmmaking … the passage of time, the way you cut and even the lack of having different ways that you tell an actual story with close-ups or midshots—you don’t have that in VR because it’s a full capture of the world.”

As a result, people creating content for the immersive medium “can’t just throw something quickly together as an afterthought, or make something too quickly,” said Patrick Milling Smith, president of VR studio Vrse.works. “Things need to be conceived, thought out and produced. The content has to be of a certain level for there not to be problems.”

One way to approach this challenge is that “you actually have to think about it as more like software,” Batt said. “There’s just a lot more complexity in making the VR in the first place, as well as during the post-production.”

What’s It All Cost? Cost in creating and delivering immersive experiences is a concern among marketers, especially considering the use of specialized hardware and software as well as budgeting for some level of distribution to ensure it reaches its intended audience.

Ben Nunez, CEO of Littlstar, summed up what many others who spoke with eMarketer said about costs associated with creating 360-degree video. “Costs are all over the map. We’re seeing projects that range from $10,000 in the low end up into the hundreds of thousands and potentially more on the higher end.”

Variables like the level of production quality, the length of the piece and especially the post-production required to stitch everything together all have an effect on the price. Manufacturing custom-branded headsets and developing the mobile apps through which these experiences are delivered are also important considerations that add to campaign costs. However, they may not be long-term requirements as more consumers acquire HMDs and have access to platforms that host immersive media, such as Facebook, Jaunt, Littlstar, Oculus Share, Samsung Milk VR, Vrse and YouTube.

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Lee Nadler, marketing communications director for Mini USA, told Advertising Age in November 2015 that in his experience, 360-degree video preproduction costs around one and a half times more than standard digital video. He also reported that the actual video shoot costs twice as much as normal. Post-production is 10 times higher, aligning with other sentiments about the most laborious part of the process.

Visualise’s Stuart said that the type of roles needed for a 360-degree video shoot are similar to what would be required for a traditional video shoot, but that everyone has to be a specialist in VR. “That carries a higher cost than traditional filmmaking, because you’re having to get these people who are in extremely high demand at the moment.”

Building an experience that includes the creation of 3-D models and environments tends to be even more time-consuming and costly, and adding in more interactivity and sensorial elements like haptic feedback build on that. But the end result can also be more compelling and impactful to the target audience.

Mindshare’s Cridlin emphasized that at the moment, there are tradeoffs between cost and reach when it comes to the immersive medium. “The industry really has been thinking more around the virtual reality space,” he said, in terms of fully interactive virtual environments, but “the scale hasn’t yet been there to wholly jump in,” which is why 360-degree video has been more popular to date.

Cridlin emphasized that he wants content creators to develop experiences that will help draw people in and convince them to purchase higher-end devices, but those creators “want to make sure that there is enough adoption and scale of those VR headsets to make it worth their while to invest.” It’s indicative of the chicken-and-egg stage that the immersive medium is in right now.

Measuring Success Many marketers are in an experimentation phase with immersive media, but that doesn’t mean metrics of success can’t be gleaned from these endeavors. According to Dawson, Greenlight VR has seen “a notable spike in demand for information and services tied to campaign effectiveness in the space,” but it’s still too early to make any broad-based claims about how effective the medium can be for marketers.

Oliver from The North Face stressed that while a lot of digital marketing is very trackable, his company’s attempts at delivering immersive experiences in its retail locations are “not a straight-line-to-a-sale kind of thing for us,” he said. “[The benefit] is a little bit more time in our store, and if a purchase happens, that’s cool.” Oliver added that he can’t necessarily prove that someone engaging with experience contributed to sales, but he does hear from store associates that “people who try it love it. It’s been a universally positive thing for the hundreds of people who have tried it in the store, and the thousands of people who have downloaded content to their phone.”

Rachel Harris, director of national brand activation at spirits manufacturer Beam Suntory, helped spearhead a VR experience for the launch of its Jim Beam Devil’s Cut product. The experience included a 3-D roller coaster ride through the bourbon’s unique production process. Harris said her team’s campaign had quantitative goals, like the number of events produced and consumers reached, as well as qualitative goals. From a reach perspective, the campaign was active in “16 major markets across the US, with upwards of over 750 events throughout the year,” she said, and qualitative feedback was captured “within social and digital components as well as just the comments and commentary and pictures from our actual events.”

There is the opportunity to capture a new level of depth in terms of analytics in an experience, especially if there is commerce occurring entirely within a virtual environment.

Rubin from Sixense said that its system tracks every movement a user makes during a VR experience, enabling the company to log “240 data points every second on exactly what the user is doing—the exact position of their head and their hands.” In a commerce context like what Sixense provides, the platform can track what items the user looked at and “touched” in the virtual environment—“all that is logged and can be communicated to all the data analytics tools to help the marketers do a better job on their end,” Rubin said.

Perhaps the best approach at this experimental stage of the market is to collect important takeaways from each test or campaign and continue to iterate with each new attempt.

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Sadira Furlow, Mountain Dew’s director of brand marketing, said that after each new VR experience her team executes, they share what they have learned across the company, so each subsequent experience is better than the last. Furlow noted that one important takeaway after executing several immersive campaigns is that “audio is incredibly important and the primary way users discover cues on where to look” in an experience. This means that tools like binaural microphones are important to capture sound and create 3-D stereo sound.

THE POTENTIAL OF IMMERSIVE MARKETING

Just like the divergent nature of forecasts for VR and

AR, the future of immersive marketing could go in

many different directions.

Slightly more than one-quarter of CMOs and other senior marketing executives surveyed worldwide believed that VR and AR were the new technologies that would have the biggest impact on marketers by 2020, per November 2014 research conducted by the Economist Intelligence Unit (EIU).

% of respondents

Trends that CMOs and Senior Marketing ExecutivesWorldwide Believe Will Have the Biggest Effect onMarketers by 2020

Internet of things 51%

Real-time mobile personalized transactions 50%

Wearable technology 29%

Virtual/augmented reality 26%

Privacy backlash13%

Other1%

Source: Economist Intelligence Unit (EIU), "The Rise of the Marketer: DrivingEngagement, Experience and Revenue" sponsored by Marketo, Jan 28,2015185166 www.eMarketer.com

Marketers are nonetheless keenly looking beyond the current popularity of 360 video to envision how their profession might operate in a future “metaverse,” where consumers strap on a headset to visit an interconnected virtual environment, much as they open up a web browser or mobile app today.

Slobin from SapientNitro said that one of the big things his clients are thinking about is “how to move beyond the ‘big-splash’ event and actually create content that would drive a consumer back to the virtual world they’ve built,” which will become more important as more consumers adopt VR and AR technology at home.

These virtual worlds, whether they are games or other types of environments, could also include advertising within the experience. A billboard within such an environment “could be programmatically bought and the creative could be dynamically served,” according to Mindshare’s Cridlin, based on factors like actions taken, the weather, location and more.

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There is also the opportunity to have connected social experiences in a virtual environment, which is already being tested with applications like the Oculus Social Alpha app available to Samsung Gear VR users, and solutions from companies like AltspaceVR, which creates virtual spaces where people can interact and engage with each other using avatars.

Tom Edwards, chief digital officer at marketing agency Epsilon, said his company is working on some ideas with clients that involve “collaborating and solving this massive digital puzzle with these other fans around the world.” He described it as a way to “tie the social community with the VR piece.”

Certain industries like consumer packaged goods (CPG) are expressing interest in using immersive technologies like VR to achieve a variety of goals. In March 2015 polling by product content provider Gladson and trade publication Consumer Goods Technology, more than one-third of consumer goods execs in North America had some type of plan to incorporate VR in the future. Potential applications included category management, merchandizing, shopper research and store design.

% of respondents

Primary Business Area Where Consumer GoodsExecutives in North America Plan to IncorporateVirtual Reality*, March 2015

Category management15%

Virtual merchandising8%

Shopperresearch

8%

Store design6%

Other2%

Not planning to use virtual reality62%

Note: numbers may not add up to 100% due to rounding; *technologyimplemented to enhance shopper engagement and/or shoppers' in-storeexperienceSource: Gladson and Consumer Goods Technology, "Current and ConsistentProduct Data Critical for B2B and B2C E-commerce," May 12, 2015194333 www.eMarketer.com

One important wild card in this space is Apple. While its competitors like Samsung and Google have been aggressive in getting immersive tech into the hands of consumers, the iPhone maker has yet to reveal its plans for VR or AR. But there are plenty of hints as to what types of moves it might make.

In May 2015, Apple acquired the AR company Metaio, which had developed a platform to create both consumer- and business-oriented AR experiences. In November that same year, it was reported that Apple had also acquired Faceshift, a developer of motion capture technology that can understand human facial expressions and impose them on avatars in real time. And in January 2016, it acquired Emotient, a technology company that employs artificial intelligence to read and interpret human emotion from facial expressions.

Does that mean Apple will go the route of releasing some type of AR technology? Trying to guess exactly what the company will come out with is a fool’s errand, but it’s highly unlikely that it will sit on the sidelines and let its competitors take the lead in what could turn out to be a very lucrative market.

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EMARKETER INTERVIEWS

Bringing Cinematic Virtual Reality Video Experiences to the Masses

David Anderman Chief Business Officer

Jaunt Interview conducted on December 18, 2015

Marriott’s Virtual Reality Transports Guests ‘Around the World’

Michael DailVice President, Global Brand Marketing

Marriott International Interview conducted on December 15, 2015

How Custom Headsets Enhance Marketers’ Virtual Reality Campaigns

Craig DaltonCo-Founder and CEO

Dodocase Interview conducted on December 14, 2015

Virtual Reality Shows Bourbon’s Journey to the Shot Glass

Rachel HarrisDirector, National Brand Activation

Beam Suntory Interview conducted on December 17, 2015

Hyundai to Launch Augmented Reality Owner’s Manual

Miles Johnson Connected Care Communications Manager

Hyundai Motor America Interview conducted on December 8, 2015

The North Face Uses 360-Degree Video to Connect Brand with Joy for the Outdoors

Eric OliverDirector, Digital Marketing

The North Face Interview conducted on December 11, 2015

Anthony Batt Co-Founder

Wevr Interview conducted on December 16, 2015

Nancy Bennett Chief Content Officer

Two Bit Circus Interview conducted on December 21, 2015

Joe Chen Executive Technical Producer

Vrse.works Interview conducted on December 16, 2015

Jim CridlinManaging Director, Digital Strategy and Sensory+

Mindshare North America Interview conducted on December 9, 2015

Clifton DawsonFounder and CEO

Greenlight VR Interview conducted on December 2, 2015

Tom EdwardsChief Digital Officer, Agency

Epsilon Interview conducted on December 14, 2015

Sadira FurlowDirector, Brand Marketing

Mountain Dew at PepsiCo Interview conducted on December 17, 2015

Omaid HiwaiziPresident, Global Marketing

Blippar Interview conducted on December 4, 2015

John McCreaCMO

MediaSpike Interview conducted on December 8, 2015

Tony MugaveroFounder

Littlstar Interview conducted on December 11, 2015

Ben Nunez CEO

Littlstar Interview conducted on December 11, 2015

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Amir RubinCo-Founder and CEO

Sixense Interview conducted on December 9, 2015

Adrian Slobin Global Innovation Lead

SapientNitro Interview conducted on December 17, 2015

Patrick Milling Smith President

Vrse.works Interview conducted on December 16, 2015

Louisa SpringHead of Content

Bipolar ID Interview conducted on December 18, 2015

Annie Weinberger Worldwide Head, HP Aurasma

HP Software Interview conducted on December 17, 2015

Michael Wilken Director, 3-D and Interactive Production

Saatchi & Saatchi Interview conducted on December 14, 2015

Gevorg Karensky Founder

Bipolar ID Interview conducted on December 18, 2015

Henry StuartCo-Founder and CEO

VisualiseInterview conducted on December 21, 2015

RELATED EMARKETER REPORTS

US Digital Display Advertising Trends: Eight Developments to Watch for in 2016

Canada Trends 2016: Marketer Mastery of Tech, and the Consumer Tastes That Make It Necessary

Q4 2015 State of Video: Monetization, Audience, Platforms and Content

RELATED LINKS

ABI Research

Altimeter Group

BI Intelligence

BrandSpark

Canadian Marketing Association (CMA)

Capgemini

CB Insights

CCS Insight

CivicScience

Consumer Goods Technology

Consumer Technology Association (CTA)

Deutsche Bank

Digi-Capital

Economist Intelligence Unit (EIU)

Econsultancy

Ericsson ConsumerLab

Frank N. Magid Associates

Gladson

Greenlight VR

IHS

Interactive Advertising Bureau (IAB) Europe

International Data Corporation (IDC)

J.P. Morgan

Juniper Research

Nvidia

SuperData Research

Tractica

Transparency Market Research (TMR)

TrendForce

UBS

VentureBeat

Walker Sands

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EDITORIAL AND PRODUCTION CONTRIBUTORS

Cliff Annicelli Managing Editor, ReportsMichael Balletti Copy EditorKate Berman Chart EditorJoanne DiCamillo Senior Production ArtistDana Hill Director of ProductionStephanie Meyer Senior Production ArtistKris Oser Deputy Editorial DirectorEzra Palmer Editorial DirectorHeather Price Senior Copy EditorJohn Rambow Senior EditorAllie Smith Director of Charts

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