Market Insight

Valve and HTC collaborate on virtual reality – Is the HTC Vive a threat to old-timer Oculus?

March 02, 2015  | Subscribers Only

Piers Harding-Rolls Piers Harding-Rolls Director – Research and Analysis Director, Games, IHS Markit

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At Mobile World Congress, HTC announced it was collaborating with games company Valve to launch a PC-based virtual reality headset in 2015 branded HTC Vive. Will Valve’s huge addressable market of gamers and its Steam PC games distribution platform allow it to leapfrog Oculus as the most desirable VR headset?

Our analysis

It might seem premature discussing market threats within the VR sector, when really there is no market of significance yet to speak of. That is not to say that consumer interest in VR is anything but very real – certainly at the enthusiast gamer end of the spectrum – but the ingredients to build the market into something noticeable have not quite been assembled as of yet.

It is the promise of longer term riches and emerging platform dominance which is fuelling many of the largest technology and consumer electronics companies to splurge large amounts of cash through R&D budgets or through investments and acquisitions on both virtual reality or its adjacent cousin, augmented reality.

In particular, those technology companies that are struggling to make a lasting impact in the biggest growing CE categories of recent years – smartphones and tablets – as well as the app distribution ecosystems – are keen to not be left on the sidelines for any future high growth opportunities. Hence HTC’s move to position itself strongly in virtual reality at this early juncture.

Where does HTC Vive sit in the emerging VR industry landscape?

HTC has eschewed Samsung’s mobile device approach to VR and opted for an integrated headset that needs to work with a consumer’s PC. In this sense the headset is a tethered experience, but, like Oculus’ Rift headset, will give access to more complex content and will not be constrained by battery or mobile device overheating issues.

The rumoured price point of $300 is also similar to Oculus’ Rift Development Kit 2, which is priced at $350, but more expensive than Razer’s OSVR headset dev kit available in June for $199. The form factor of the headset is very gamer-focused and looks to be aimed squarely at early adopting gamers.

While there are similarities with Oculus’ approach to the market, HTC’s role in the VR value chain is more limited to a hardware and device role. Its partnership with Valve means that it gains access to millions of Steam platform gamers which is a coup, but it will have ceded the potential to gather any significant revenues from content sold through the platform. As witnessed with Valve’s Steam Machine initiative, this adds a commercial constraint which may impact HTC’s ability to compete aggressively on headset pricing as the market emerges.

The unique proposition offered by HTC Vive in collaboration with Valve, is in positional tracking, which is said to allow users freedom to walk around the room while immersed in virtual reality. This contrasts with the Rift, which is positioned as a sit down experience. However, the tethered nature of the Vive headset rather undermines this proposition and I really question whether users will enjoy the experience of walking around their furnished rooms with the headset on.

Gamers will be early adopters; HTC looks beyond gaming

Quality of gaming experiences will depend largely on the specifications of the consumer’s PC. For Oculus Rift Developer Kit 2 the recommended specifications are a desktop computer running a dedicated Nvidia GeForce GTX or AMD Radeon graphics card with DVI-D or HDMI graphics output, with capability of running current-generation 3D games at 1080p resolution at 75 frames per second or higher.

In effect, the addressable market for these PC-based headsets across gaming are similar to the core PC gaming market as it stands. Valve’s Steam platform recently grew to 125 million active accounts of which a substantial subset will have the required hardware to run VR applications in a successful way depending on the games involved.

While this addressable market is a suitable early adopter segment to target, HTC has bigger ambitions, reflected in the promotional video for the Vive – much of which seemed to be showing immersed but passive viewing experiences - and its announced partnerships with HBO and Lionsgate. Considering the hardware constraints on delivering high quality gaming experience, the ability of the headset to provide other more passive media using less powerful PCs is an important attribute when aiming to broaden to the mass market. Whether the mass market really wants to put on a black plastic headset and immerse themselves alone in video content remains to be seen.

Does the $2bn paid for Oculus by Facebook look like a bad bet right now?

The VR headset industry is fragmenting rapidly in 2015 with new entries from Razer, Samsung, Carl Zeiss and now HTC as the technology to build this hardware becomes more commoditised. More fragmentation in hardware is inevitable, as we have witnessed in other areas of the wearable industry.

However, beyond the manufacture of headsets, there remains three companies that are well positioned to build an end-to-end solution which includes both access to content and distribution – Valve, Sony and Oculus. Of these Oculus and Sony are alone in offering a complete in-house hardware, content and distribution based solution. Combine this with the power of Facebook’s social graph and exclusive Facebook content and the future still looks strategically solid for Oculus.

On this basis, Facebook will still be satisfied with its purchase, but HTC’s announcement is likely to add pressure on Oculus to bring its consumer product to market sooner rather than later. While publicly Oculus supports the growing VR industry ecosystem as a way to build consumer awareness and drive content creation, it is clear that HTC and Valve's collaborative entry into the market is a threat to Oculus' leading position in this nascent but rapidly developing opportunity.

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