We’ve certainly seen our share of “next breakthrough” promises from Louis Basenese — he has worked for a variety of publishers (mostly under the Agora umbrella, I think) and is now promoting a service that he calls VentureCap Strategist, published by Wall Street Daily, and now he’s dangling his take on virtual reality in front of potential subscribers as an inducement to pony up (currently “on sale” at $1,350).
And, of course, we know that buying little speculative stocks for the “next big thing” is not going to work out well a lot of the time — but we can’t resist the occasional little speculation. So Louis’ ad caught my eye, and I thought I’d try to figure out what it is that he’s really talking about for you.
The big idea of virtual reality is, of course, firmly entrenched in “cutting edge” consumer electronics culture already — and with the launch of the Samsung Gear and the Oculus Rift from Facebook, among other less-publicized headsets, the interest is high enough that many newsletter pundits are trying to capitalize… each of them talking up the “next big thing” or the company that owns the critical intellectual property or component designs or other must-have ingredients that will make virtual reality profitable for investors.
Nobody is recommending Samsung, or Apple, or Alphabet, or Microsoft or Facebook as plays on this new “virtual reality” — that’s because those are all huge, profitable businesses, and virtual reality is unlikely to make a big dent in their income statements in the next few years even if it is as big a hit as the most optimistic futurists believe.
Basenese pulls out some numbers to buttress his argument, and he didn’t just make them up — DigiTimes seems to be the source for his $5.1 billion in augmented reality (AR) and virtual reality (VR) sales this year, as well as the forecast that sales for the two will hit $150 billion in 2020, but DigiTimes is also making some big assumptions (as they’ll readily admit), modeling AR as a business that will move on a trajectory like early smartphones and address a huge market, and VR as a “niche” gaming and 3D entertainment business. You can see the basic projections here. That’s not the only market report that’s made projections about VR, of course — Markets and Markets, for example, is projecting VR as a $16 billion market by 2020 (not clear on whether they’re splitting out VR and AR, or splitting them in the same way)
I guess either of those scenarios is as possible as anything else, but we should remember that this is all soothsaying — virtual reality as a niche business for hardcore video game customers is on a fast track, with rabid early demand for the new Oculus and other headsets setting the stage nicely, but augmented reality is still awaiting the “Aha!” moment when consumers really get interested in something beyond a fancy headset for police or a heads-up display for mechanics or factory workers. The first version of Google Glass was a worthy first attempt at a very limited AR wearable, and there have been other “smart glasses,” but there’s not much evidence yet that the marketplace is clamoring for them. Google Glass will almost certainly be reborn in some fashion, and the Microsoft Hololens is getting a lot of attention as a consumer version of a fighter-pilot’s projection visor, but if people were getting beaten up for wearing Google Glass into bars I can’t imagine what would happen if they walked in with a Hololens.
So although you could make an argument that Facebook is the most potentially levered big “brand” player in VR right now, simply because their revenue base is so much smaller (FB’s annual revenue is closing in on $20 billion, Alphabet/Google is around $75 billion, a little below Microsoft’s ~$90 billion, and Samsung and Apple are both above $200 billion), even that requires a bit of a leap of faith. Facebook is certainly committed to virtual reality, as they are to other big priorities like artificial intelligence and increasing global connectivity… but VR is certainly not going to be more than a rounding error in Facebook’s results in 2016, even if the Oculus Rift is more successful than average expectations and sells a million units. Mark Zuckerberg has indicated that sales need to hit 50-100 million units before VR becomes a meaningful new “platform,” and the headsets are likely to lose money for a while and be very low-margin compared to Facebook’s core advertising business. (OK, before you call me out on this: I suppose you could throw HTC in with that mix as maybe levered to VR headsets, too, but HTC has been unable to market their core products into meaningful sales against big competitors, so it’s hard to take them that seriously.)
Which is why everyone, including Louis Basenese, is trying to come up with the “hidden” winners of the virtual reality revolution — Michael Robinson and Ray Blanco have touted NVIDIA because of their leading graphics processing (VR demands dramatic computing power), Jason Stutman has touted HiMax for their microdisplays (they powered the tiny Google Glass screen), and even Louis has pitched other companies in VR — back in December I concluded that he was probably recommending Spectra7 for the role their equipment can play in gesture recognition, a key element in interacting with virtual worlds.
Everyone’s looking for the emergence of “Intel (INTC) inside” branded VR guts, or the ARM holdings (ARMH) or Qualcomm (QCO