Virtual Worlds

The pandemic and Mr. Covid have shown us in 2020 that we need to learn to live at home. We spoke about dark kitchens last week, but don’t think the virtuality of our world will be limited to that. For example, long gone are the days where our children only meet their friends at school or hang out in the park or the football club. These days it’s all about Fortnite, Among Us, GTA, and many more games and apps which take us to a different, virtual world where we can interact, learn, work, play and develop our relationships.

We saw this as a trend long before Covid-19, but as with much of the digital world, Covid-19 has triggered massive growth, developments and investments.

In this short article, we will highlight what we call Virtual Worlds, some of the main use cases and what the investment trends are. We will also recap some of the biggest names to play this world as well as some of the lesser known but potentially interesting startups out there.


Main types

We believe Virtual Worlds consist mainly of interactive and social/online video games, virtual reality (VR), and its cousin, augmented reality (AR). The digital and computer created simulated environment can be accessed by anyone at any time and becomes a social and interactive environment. We believe the virtual worlds are still in their infancy and their potential is massive. One day these gadgets might replace or merge into cell phones or gain massive adoption, as the gadgets become cheaper, easier to use, and more convenient. We do know that investments are constantly increasing and tech keeps developing, creating more use cases and powerful tools.

Virtual worlds today are fairly independent from each other as gaming and other applications do not really match and interlink. However, there are proponents that believe that in the near future we could see a profound link between all virtual worlds, with a much higher interaction with the “real” worlds, thus transforming our lives forever.

Oculus Quest 2, an affordable VR headset which doesn’t require a computer to operate, has shown exponential growth in sales and opened the market to a huge customer base.  

According to research, revenue from virtual worlds may reach $400 billion by 2025, from roughly $180 billion in 2020. This is mainly due to the growth in the gaming market from $175 billion to roughly $365 billion, and AR & VR markets from $3 billion to $28 billion by 2025.


Online Gaming as the new gathering place

Escaping from reality is becoming an increasingly popular option. With schools, bars and gathering places closed (or social distancing measures in place), online video games are a way to connect with other people and friends, as well as to meet new people. It will take some time to replace “actual” meeting of people, but enjoying a new activity or game together will certainly grow in popularity. Experiencing games such as a Eleven Table Tennis, where you play ping pong against a friend or random person is quite surreal, as you feel you are in the same room playing the real sport.

Regarding monetization, the world has moved from one-off fees to either subscription based revenues, or in-game purchases. It is estimated that in the beginning of the previous decade, over 80% of revenues came from one-off sales whereas it is expected by 2025 that games will be essentially free and revenues will mainly come from sales (subscriptions, skins, tokens, lives, etc.) within the games.

In this regard, thanks to the proliferation of in-game purchases, the economic power will shift from the developers to the gamers. This has enabled many gamers to become developers and, as barriers to entry decrease and revenues increase, it is increasingly easier to break in the space. Monetization rates will increase and entertainment cost per hour should still be much lower than other traditional entertainment sources.

In this regard, monetization of games will increase exponentially, as people incorporate new subscriptions and adapt to the new model of online gaming.

Finally, another area we believe will increase considerably (and has already gained massive popularity especially in Asia) is eSports. Millennials are constantly dedicating a significant part of their time to eSports and to games and the industry around them is constantly increasing with tournaments and world cups being televised or streamed to millions.


Virtual and Augmented Reality

Virtual Reality (VR) is usually defined as the representation of an artificial environment using technology (mainly motion sensors, accelerometers, cameras, sound, all linked by software). On the other hand, Augmented Reality (AR) is also a computer technology that creates a 3D interactive digital experience, but is not fully immersive as in VR. AR keeps everything in the real world and simply adds to it. Think of Pokemon Go for example as one of the most famous AR games which revolutionized this space.

The affordability in the hardware, and the development of software has allowed virtual reality to gain significant traction and be accessible for mass production. Although it has still not scaled worldwide, developed countries such as the US, China, South Korea and the UK are increasingly adopting the technology.


Use cases

VR gaming and video are the two largest consumer use cases, with over $20 billion expected to be spent in 2023. These games can be either played on standalone systems or they can be powered by VR headsets. Lower price entry points and advanced immersive experience and availability of multiple gaming content, platforms and hardware have fueled the adoption of VR in gaming.

In retail and marketing, AR and VR can provide brands an edge in terms of customer experience. From virtual wardrobes and product packaging, to virtual sommeliers providing customers with detailed educational info about wines.

Virtual try-on technology can enhance customer engagement and allow them to act and purchase goods quickly and safely. They can visualize, customize, and experience products. In this way, companies minimize the time and cost spent on retail advertising.

For example, in fashion VR has been having quite a profound impact. Virtual simulations of store design, layout, and environments can be extremely useful without the need for huge expenses. Moreover, VR can also offer customers a 360-degree experience and allow them to try on clothes virtually.

VR and AR are also being used for product testing and product development. This way, companies can test prototypes before they are produced and even allow their potential customers or focus groups to test them in a setting almost as good as the real one.

The military is another place where AR and VR are being heavily adopted. Not only in terms of training and simulation of missions and tasks, but also for treatment of issues such as Post-Traumatic Stress Disorder (PTSD). The use of this technology reduces costs massively and in a world where technology is adopted by children from an early age, VR proves an effective method of training.

In healthcare, other than PTSD, therapy using VR can treat a patient in a controlled, yet real, environment. Phobias, depression, anxiety are just some of the illnesses that can be treated using VR. Moreover, due to its interactive nature, future and practicing doctors have begun using VR to practice surgeries and procedures in a cost-effective and safe environment. This will optimise costs and reduce the risks of malpractice and errors. VR is also used for treating autism and people to develop communication and social skills and diagnose those with visual or cognitive impairments.

In terms of education, AR and VR has tremendous potential. Education doesn’t stop at the military or medical fields, but extend to schools with virtual reality also adopted. With schools shut because of Covid-19, VR can be an excellent way for students to still meet and interact with other students and learn in a classroom. Field trips (and tourism) can also be enhanced as they can enjoy almost anything virtually (museums, farms, fields, cities, historical eras).

The sports industry poses another amazing opportunity. Players, coaches, spectators, and enthusiasts are being offered ways to watch or train like never before. In terms of training, players and coaches are able to watch and relive situations in order to learn and improve. From the viewers and spectators side, they will be able to literally be “inside” the field of almost any sporting event. Streaming of live VR events and games is quickly taking on and becoming mainstream. This means many will be able to experience remotely, either for free or at a lesser cost.


Ways to invest

There are different ways to ride the virtual worlds, which include stocks, funds, and startups. Please note that we do not have a position nor recommend any of these investments, as this is purely informational, should you be interested in the trend.

IDC reports suggest that the amount spent on virtual and augmented reality will increase exponentially from approximately $12 bn in 2020 to almost $79 bn in 2024. Over 50 million people in the US will use VR tech in one form or another and 5G networks are expected to increase the reliability and speed of VR hardware, creating an enhanced experience and even larger potential with the use of the cloud.


The easiest way today is to invest in those listed stocks which offer direct exposure to virtual reality (VR) or gaming.

In terms of gaming, we believe Tencent, Activision Blizzard, Electronic Arts (EA), Sony, Nintendo, Avid Tech, and Microsoft are some of the best brands and developers out there. The advent of eSports has also increased the interest in gaming stocks and investment, and there are several exchange traded funds (ETFs) that group some of the best stocks and provide diversified exposure. Some of these are Global X Video Games & Esport (HERO), Vaneck Video Gaming Esports (ESPO, and Roundhill Bitkraft Esports (NERD).

Regarding Virtual and Augmented Reality stocks, we find that some of the names such as Sony (Playstation VR which sold over 5 million headsets), Nintendo and Microsoft will overlap, as they cover several verticals in the technology and gaming world, as well as the tools needed to enhance the virtual reality experience through their platforms. We also find Oculus, one of the best headsets at attractive price points in the VR space, acquired by Facebook. Facebook’s arm, Facebook Reality Labs, is investing heavily in AR/VR content and is expected to invest over $3 billion in the next decade. You can also look at EA which has developed tons of content and games for Oculus Quest 2 and Sony’s PS.

Other providers include Unity Software (the preferred platform for VR content), HTC (Vive and Vive Pro) and Lenovo.  Moreover, Apple has recently acquired NextVR in an effort to ramp up its VR division, including video content, sports streaming, and hardware such as glasses for meetings and gaming gadgets.

VR is also being tested in the working space and with online shopping. Boosted by COVID-19, companies are looking at ways to enhance productivity and keep companies safe. Facebook’s Infinite Office is a virtual office space, allowing users to “meet” and collaborate on different projects within the digital world. Moreover, Microsoft is looking at the corporate marketplace as opposed to retail, focusing on a broad range of use cases from education to industrial automation. VR is already in use in healthcare, such as phobia and anxiety disorders.

On the commercial side, we point to PTC, which attempts at a virtual industrial revolution. The company’s suite of software is taking a shot at incorporating AR and VR into product design simulation and collaboration. This is expected to be the main growth component of the company. Remote collaboration, 3D simulation of product design, or virtual training modules, PTC’s AR platform aims to help industrial companies to adapt and develop with the help of tech.

Startup landscape 

There are tons of startups arising in many of the mentioned use cases. We have identified the following are some of the most notable startups in the VR/AR space. Please do not take any of these as recommendations to invest in, as they are simply examples of what is out there in the VR/AR world. We do suggest that if you are looking for an investment opportunity, you focus on which use case you would like to get involved in, or which problem/solution interests you the most and take it from there.

Spree Interactive. SPREE Interactive is a pioneer and leader in delivering turn-key large-scale, multiplayer, free-roaming commercial VR attractions for the location-based entertainment industry.

Marxent. Leader in product visualization, in 2018, Marxent made history with the largest ever rollout of Virtual Reality for in-store shopping. They are inspired by imagining the future of the customer experience.

Adventure Lab. Adventure Lab is creating a social adventure platform brought to life by real live performers that guests can experience from anywhere. The platform will enable the upcoming generation of performers and experience creators to customize and game master cooperative play adventures for guests. 

Gorilla in the Room. Offers AR and VR research solutions that integrate the underlying behavioral economics principles. The solutions are designed to immerse respondents in a real-world context and prompt customer behavior. Powered by mobile platforms for research, the 3D stimulus is delivered directly to respondents’ mobile phones.

Augmented Pixels. Augmented Pixels is a technology company that develops a proprietary simultaneous localization and 3d mapping technology. It specializes in the field of augmented reality navigation and 3d mapping for mobile phones, drones and robots

Labster. Labster offers students a true-to-life lab experience at a fraction of the cost of a real lab.In our virtual lab simulations, students work through real-life case stories, interact with lab equipment, perform experiments and learn with theory and quiz questions. Thanks to engaging 3D animations, students can explore life science at the molecular level and look inside the machines they are operating. Anzu has built the world’s most advanced in-game advertising platform. Their mission is to empower brands to enter the video game space through advertising that’s native, creative, and dynamically updatable.

OmniAZ. Omniaz is building augmented reality shopping experiences for the consumers of tomorrow through the use of computer vision and augmented reality (AR). Our scalable solution provides brands and retailers in the FMCG and retail industry with the ability to converge the online and offline shopping experiences in order to better serve and engage with consumers.

Azmi Studio. Started in 2018, AZMI STUDIOS has expanded from being a game development company to a full-fledged technology venture dealing with AR/VR, IoT, AI and other emerging technologies. They specialize in tailor-made mobile or desktop platforms and virtual try-on solutions that help brands engage their customers and boost the retention rate. 


Final thoughts

We firmly believe AR/VR and the virtual gaming world will experience yet a massive growth stage and that we are in the early days of these technologies. As angel investors, investing in VR/AR and online gaming can prove profitable and engaging, and may prove to be the next big step in terms of consumer and commercial technology.

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