Tuesday, December 15, 2020

When will virtual reality take off? The $100 bet.

About four years ago, Professor Daniel Lemire and I made a $100 bet on how quickly virtual reality would reach a broad, mainstream market. Specifically, my side of the bet was, "Virtual reality hardware (not counting cardboard) will not sell more than 10M units/year worldwide before March 2019." He bet that it would.

In early 2020, we decided to wait settle the bet because it looked like there was some chance VR would reach 10M units/year in 2020. Because of COVID and people looking for entertainment at home, Valve's release of Half Life Alyx, Supernatural (the VR exercise program), and big pushes on consumer VR by several companies, we wanted to wait and see if it was off by just one year, if 2020 was the year.

At this point, the results are in, and it is clear VR has not reached far beyond early adopters and enthusiasts. Estimates of total hardware sales vary depending on what is considered VR hardware, but most estimates I've seen have worldwide unit sales at around 5-6M in 2020.

Barron's has a nice summary: "We’ve been talking about virtual reality for decades, but it’s gone pretty much nowhere. Despite all of our advances in tech, VR hasn’t been able to bridge the physical and digital realms in any substantial way." TechCrunch adds, "There are signs of growth though it’s clear [VR] is still a niche product."

So what went wrong? Looking back at VR hype in 2016, there were a lot of reasons to be optimistic: HoloLens from Microsoft, Sony entering VR with Playstation VR, Valve pushing hard on VR in the Steam store and with their own products, Xbox looking like it might do VR, Google showing interest in VR, and, though it always seemed like vaporware to me, there was a lot of excitement around the promises made by heavily-funded MagicLeap. It looked likely that someone would make a must-have game or other compelling use of VR that might attract tens of millions of people.

Speculating a bit, I think the issue here goes beyond just needing more time, so beyond waiting for gradual acceptance of VR and growth. I think the problem is that the non-virtual-reality experience is close enough for most purposes, making VR uncompelling to set up and use.

For example, take the virtual tourism experience of visiting the International Space Station in Google Earth. It's fun and compelling enough without virtual reality, so VR in virtual tourism only a little bit of wow to the experience. Half Life Alyx seems to me to suffer from the same problem, a fun game with some compelling content, so great to try, but not a must-have. Exercise programs like Supernatural or Beat Saber fall in the same category, fun, cool to try, but not something without okay substitutes or alternatives.

At the time we made the bet back in 2016, I said something similar about why I might lose the bet: "There are several wild cards here. For example, it is possible that much cheaper units can be made to work. It's possible that someone discovers very carefully chosen environments and software tricks fool the brain into fully accepting the virtual reality, especially for gaming, increasing the appeal and making it a must-have experience for a lot of people. As unsavory as it is, pornography is often a wild card with new technology, potentially driving adoption in ways that can determine winners and losers. A breakthrough in display (such as retinal displays) might allow virtual reality hardware that is much cheaper and lighter. Business use is another unknown where virtual reality could provide a large cost savings over physical presence. I do think there are many ways in which I could lose this bet."

Unfortunately, I don't think such must-have, compelling VR experiences exist. Perhaps at some point it will. Chris Pruett, who runs part of Oculus, speculated about that, saying: "My guess would be something that is highly immersive, that involves active motion of your body, and ... it's probably going to be something that you either play with other people or is shareable with other people." That sounds plausible to me, though, more broadly, I think it has to be a must-have experience without okay substitutes in non-VR, which is a high bar. My prediction now in 2020 would be that VR will continue to struggle for years to break out beyond enthusiasts and early adopters, at least until it has a truly must-have experience.

I think Daniel Lemire took the harder side of this bet, so I'll match his $100 donation to Wikipedia to settle the bet. Back in 2016, I did add a couple ways of making my side of the bet even harder, saying I doubted even over three years in 2016-2019 that VR would sell a total of more than 10M/units, which appears to be close, and that Google Cardboard-like devices wouldn't go beyond being just a toy, so not regularly used by tens of millions, which looks like it was correct.

And I want to thank Daniel for making this bet. Whether you are betting with the hype or against it, along with conventional wisdom or against the flow, it's hard to publicly take a stand and one way or another and be willing to be wrong, especially when big company money is betting against you. This was an interesting bet.

If you enjoyed this, you might also be interested in our 2012 bet about whether tablets will replace PCs.

Update: Daniel Lemire has a post up on his thoughts on the bet, "Virtual reality… millions but not tens of millions… yet".

Friday, December 04, 2020

Facebook and investing in the long-term

Kevin Roose, Mike Isaac and Sheera Frenkel at the New York Times had a great piece ([1] [2]) on the internal debate inside Facebook on removing disinformation:
Facebook engineers and data scientists posted the results of a series of experiments called "P(Bad for the World)." ... The team trained a machine-learning algorithm to predict posts that users would consider "bad for the world" and demote them in news feeds. In early tests, the new algorithm successfully reduced the visibility of objectionable content.

But it also lowered the number of times users opened Facebook, an internal metric known as "sessions" that executives monitor closely.

Another product, an algorithm to classify and demote "hate bait" — posts that don’t strictly violate Facebook’s hate speech rules, but that provoke a flood of hateful comments ... [Another] called "correct the record," would have retroactively notified users that they had interacted with false news and directed them to an independent fact-check ... [Both were] vetoed by policy executives who feared it would disproportionately show notifications to people who shared false news from right-wing websites.

Many rank-and-file workers and some executives ... want to do more to limit misinformation and polarizing content. [Others] fear those measures could hurt Facebook’s growth, or provoke a political backlash ... Some disillusioned employees have quit, saying they could no longer stomach working for a company whose products they considered harmful.
The article is an insightful look at the struggle inside Facebook on recommender systems for news, metrics, and short vs. long-term metrics and growth. Key is fear of harming short-term metrics like sessions per user and engagement.

Any attempt to increase quality of news or ads is going to result in a short-term reduction in metrics engagement, usage, and revenue. That's obvious and not the question to ask. The question to ask is, does it pay off in the long-term?

It's unsurprising that once you've kicked off all users who hate what Facebook has become and addicted the rest to clickbait, the remainder will use Facebook less in the short-term if you improve the quality of content.

This is just like any other investment. If you invest in any large expense, you expect your short-term profits to drop, but you're betting that your long-term profits will rise. In this case, increased news quality is an investment in bringing back lapsed users.

Even measured over weeks, sessions per user is going to take a hit with a change to news quality because users who like higher quality news already disengaged and abandoned and current heavy users won't like the change. It will take a long time to pay off.

For Facebook, reducing disinformation probably would also be an investment in other areas. Facebook is polluting society with disinformation, externalizing costs; cutting disinformation is an investment in reducing regulation risk from governments. And Facebook wants good people, and many good people are leaving ([1]) or won't even consider working there because of their practices, a considerable long-term cost on the company; cutting disinformation is an investment in recruiting and retention. So Facebook probably would see benefits beyond lapsed users.

Facebook and others need to think of reducing disinformation as an investment in the future. Eliminating scams, low quality ads, clickbait, and disinformation often will reduce short-term metrics, but is a long-term investment in quality to reduce abandons, bring back lapsed users, and in other long-term business goals. These investments take a long-time to pay off, but that's why you make investments, for the long-term payoff.