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Oculus ran into three problems almost immediately after the launch: poor product fulfilment, overpricing and VR sickness

Facebook (FB) acquired Oculus Rift for US$2 billion in 2014 which gave this Kickstarter project an intense publicity boost. Rift is a virtual reality (VR) goggle that has multiple usages in gaming, medicine, and tourism. The Oculus team started in 2011, and it took them four years to come up with a product which caught fire with its transformative VR experience.

After acquiring Oculus, FB took over one year to fine-tune its product to prepare it for mass consumption. It was only in January 2016 that Oculus was confident enough to set its public launch date on 28 March 2016. This public launch is its moment of truth. We would know if the Rift has enough drawing power to gain widespread acceptance and gain momentum as a revenue source.

It has been one week since the launch of Oculus and enough time had passed for an initial review of its product. The first major point to note is that while the Rift can serve multiple purposes, Oculus had chosen games as its starting point by giving away VR games such as ‘Lucky’s Tale’. Its strategy is clear. It wants VR to gain acceptance recreationally as the first step for market acceptance.

Favorable Product Review

For Mark Zuckerberg to justify the US$2 billion price tag, the product must be good. Initial reviews by gamers were decent. Gaming site Kotaku reviewed it as

1. Cool product

2. Slick user experience

3. Tidy physical setup

Keep in mind that this review was done by seasoned gamers who had played and evaluated thousands of games. The Oculus Rift stood out in favourably in this regard.

Issues

However, it was not a bed of roses for Oculus Rift, and it ran into three problems almost immediately. I would list them out for you to decide how significant or severe these problems are. They are:

1. Poor product fulfilment

2. Overpriced product

3. VR sickness

We will look at each of them in detail in the following segments:

Poor Product Fulfilment

The good news is that there is high market demand for Rift. Despite the expensive tag of US$599 and limits of 1 per customer, pre-orders were ‘better than I ever could have possibly expected’, according to Oculus Founder Palmer Luckey. The exact numbers sold are kept a secret.

When the official launch date of 28 March 2016 came, it turned out that Oculus couldn’t get enough accessories for its sales package. It apologised and mended fence by waiving all shipping costs, both domestic and international. Fans were forced to wait an extra ten days before they received their product.

Overpriced Product

Consumers are willing to pay a premium for premium products. You are probably willing to pay US$200 a night for a stay at a 5-star hotel compared to a 3-star hotel. Similarly, Oculus is pricing themselves above the market as if Rift is a premium VR product.

Source: Gamespot

Only time will tell if Rift is indeed the premium product that would encourage the average man on the street to fork out US$600 for it. The initial wave of fans is not representative of the entire market as they are likely to be the first adapter.

VR Sickness

VR sickness is not unknown to the Oculus, and I suspect they took over a year to solve this problem before it was launched commercially. Columbia University had described it as:

“Virtual Reality (VR) sickness can cause intense discomfort, shorten the duration of a VR experience, and create an aversion to further use of VR.”

Oculus responded to this problem by upgrading its Development Kit 1 (DK1) to Development Kit 2 (DK2) which had a better screen and positional tracking. The sickness was reduced drastically after that and deemed sufficient for launch.

The only question is this VR sickness hurdle is high enough to deter gamers from using it. The Kotaku testing revealed that after 20 minutes of gameplay, its tester experienced VR sickness and made the following assessment:

“You gotta want this stuff enough to put up with feeling queasy from time to time.”

The severity of the VR sickness is currently out in the open. We will have to wait until the vast majority of the public had used and experienced Rift before their feedback enters the mainstream view. This feedback are crucial to Oculus and decide the public acceptance for VR goggles.

The major danger for Rift is that it would go the way of Microsoft Band. Despite the good initial review, this fitness tracker went into obscurity due to its discomfort.

Conclusion

Analytic firm Suisse had high expectations of Rift sales to hit 5 million this year. Based on this high expectation, they don’t expect Rift to turn a profit until five years later. This is reminiscent of Facebook 2011 purchase of Instagram for US$1 billion. Instagram spent the next four years acquiring customers and at the start of 2015, it had no revenue.

Then Facebook started its advertising efforts on Instagram in 2015. Credit Suisse expects Instagram to contribute US$3.2 billion of revenue for 2016. This is based on its strong growth in acquiring users which drew in advertisement revenue.

It is possible that Oculus has developed the minimum viable product in Rift and not an awesome VR product that many expected. The challenge for Oculus would be to overcome these teething issues and gain widespread acceptance among the public.

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Image Credit: Oculus Rift

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