Technology for virtual reality (VR) is expensive, the headsets are bulky and require users to be tethered to computers, and users can suffer from motion sickness. Despite those concerns, however, venture capital for augmented reality (AR) and virtual reality (VR) firms has nearly tripled since 2015, according to the VRVCA VR/AR Global Investment Report & Outlook (PDF).
In 2017, venture capitalists placed $3 billion with augmented reality (AR) and virtual reality (VR) firms. That's a 12% increase from 2016 and approximately three times the amount of funding in 2015. Most of the growth was fueled by investments in firms that are developing augmented reality products.
Last year sales of virtual reality headsets failed to grow as quickly as anticipated, although conditions improved during the holiday season as companies reduced prices. With disappointing headset sales for most of the year, venture capitalists favored AR companies and looked toward firms that are developing enabling technology.
Indeed, enabling firms captured 40% of venture capital that was invested in AR and VR firms. Investing in firms that provide enabling technology reduces the risk of being exposed to short-term consumer penetration and the need for a single platform to be successful, according to the VRVCA report.
Pixvana is an example of a VR enabler. The firm developed a software as a service platform in 1995 called SPIN Studio that helps virtual reality filmmakers create content, reports GeekWire.
In November, it secured $14 million from a group of investors led by Paul Allen’s Vulcan Capital. The group includes Raine Ventures, Microsoft Ventures, Cisco Investments, Hearst Ventures, and Madrona Venture Group. More recently, it announced that it has created WunderVu, which is a consultancy for clients that need help with developing VR content.
Like in 2016, a large portion of venture capital went to a small number of larger deals. Just three deals involving investments in Magic Leap, Improbable and Niantic represented approximately 34% of venture capital allotments last year.
Magic Leap, which secured $502 million in funding last year, appears to be developing technology that will buck the trend of headsets being bulky. Its lightweight headsets will begin shipping this year and will have a small processing unit that users of the technology can hang on their waist. What’s more, the company has announced that it has entered into a deal with the NBA to give sports fans a new game viewing experience that includes being able to watch events from different angles, including directly overhead and separately from the same level as the basket court. The company also has a portal for content developers.
Other venture capital investors last year included corporations that are seeking to develop technologies that could disrupt their respective industries. Those investors include Google, Qualcomm, Alibaba, BMW, TimeWarner, Comcast, and Walmart.
The venture capital funding and other developments illustrate that AR and VR has potential to expand beyond digital gaming. Walmart, for example, could develop innovative marketing content with VR or AR. Businesses can also use the technology to either train employees or assist workers with their tasks. The aircraft maintenance industry is an example.
GE Aviation ran a six-month pilot program last year using Google Glass and Upskill’s Skylight software. The program concluded that 60% of mechanics in the study preferred using AR to access procedures instead of traditional methods, reports MRO Network.
Venture capitalists appear to be aware of that preference. Earlier this year, RealWear snagged $17 million in funding for its HMT-1 AR wearable device, and AR software provider Upskill raised $17.2 million in capital from a group of investors including Accenture, GE Ventures and Boeing HorizonX .
Corporate training and assisting workers with conducting aircraft maintenance, of course, isn’t associated with marketing functions. But as AR and VR becomes adopted for a wide range of applications, the technology will evolve, making it more accessible to the general public and therefore a more feasible marketing channel.