Virtual reality still needs to find its business model | Opinion

It's unlikely that anyone ever really expected otherwise, but Facebook's announcement that it's working on in-app advertising systems for its Oculus VR headsets went down like a lead balloon with many vocal VR consumers.

So negative was the reaction to the very idea -- which has yet to actually be fleshed out in technical terms, though Facebook has made the eyebrow-arching claim that the ads will be "unobtrusive" -- that the only developer named as a participant in the trial scheme, Resolution Games, pulled out within a matter of days, leaving it unclear which games, if any, will actually host Facebook's ads.

This was an extremely predictable backlash -- to an extremely predictable step on Facebook's part. Indeed, part of the reason why the response was so rapid and so negative is precisely because this is exactly what Oculus fans and VR players more generally have feared Facebook would do ever since it acquired the then-nascent VR startup. Last year, the company's intentions became pretty clear when it announced that using an Oculus device would require logging in to a Facebook account. Facebook is an advertising business, so nobody's actually surprised or shocked that the next step is using people's Facebook data to push promotions for products, services, or bile-spewing would-be autocrats to its users in VR.

Making advertising "unobtrusive" in a medium that completely takes over your sight and hearing seems like one of history's all-time great oxymorons

The other side to the backlash, of course, lies in that whole "unobtrusive" claim because, above and beyond the increasing discomfort many people (especially the tech-savvy users who form VR's actual market right now) feel about Facebook's use of their information to target advertising, the actual notion of ads popping up in VR is pretty unpalatable in general. Making advertising "unobtrusive" in a medium that, by design, completely takes over two of your major senses -- sight and hearing -- seems like one of history's all-time great oxymorons from the very outset. Outside of a few very narrow situations where the right game and the right advertiser come together -- I'm thinking appropriate billboards in a sports stadium or next to a racetrack, for example -- there aren't really any ways that you can feed Facebook's ads for knock-off Chinese sex toys and local businesses in cities you haven't lived in for almost a decade into a VR experience "unobtrusively."

The announcement, the backlash and the rapid climbdown by the participating developer, however, form a neat little narrative that's entirely ignoring a much bigger and more inconvenient truth. Facebook's efforts to make advertising in VR work aren't going to stop because VR early adopters protest -- and part of the reason for that is that VR is actually in pretty serious need of this kind of experimentation. As much as it discomfits the kinds of consumers who have invested in this medium thus far, one of the biggest unanswered questions about VR's presumed ascendency to mainstream relevance is what kind of business model it's going to use once it gets there. And while filling users' faces with supposedly "unobtrusive" Facebook ads is almost certainly Not It, experimentation to figure out how people making VR games, apps and experiences are going to get paid is vitally important.

The reason why this hasn't been explored very much so far -- and the reason why efforts to do so are likely to be met with resistance, even when they're actually good ideas -- is that there's a mismatch between the existing audience for VR and the audience the medium hopes to reach in the not-so-distant future.

The existing audience is very, very much made up of core gamers -- serious hobbyists with both money to spend on the kit required to make VR work well (which may be only a few hundred bucks at the low end, but easily rises into thousands at the high end; it would take a serious bout of masochism for me to ever sit down and calculate how much I actually spent on the headset and PC upgrades to get my Valve Index setup working nicely), and the space required to actually have a home VR setup. This is an audience that's deeply invested and, for the most part, holds strong views about business models. Their vision for a utopian VR future is one dominated by standalone games, a bastion of tradition standing proud against a sea of microtransactions, subscriptions, and other new-fangled business malarkey, and they'll object loudly to any attempts to push things in a different direction.

Losing the early adopters in an attempt to kickstart market expansion is likely to result in disaster so VR will end up with a patchwork quilt of business models, at least for the next few years

Yet go in a different direction things must. Just as smartphones did a decade ago, VR fundamentally changes the interaction paradigm for video games in ways that will make current monetisation models unpalatable to many consumers, while opening up possibilities for new ones. The interaction paradigm, in this sense, is not so much in terms of physical interaction and control, but in terms of the timing and location of the interaction. Smartphones turned gaming bite-sized, making it into an activity for snatched moments in the middle of the day -- a bus ride, a bathroom break -- and keeping immersion low so players can dip in and out rapidly. VR goes the other direction in terms of location -- firmly grounding the experience in a carefully set up and fixed environment -- but also favours short experiences, with longer sessions becoming uncomfortable both physically and psychologically for many players. Immersion, however, is higher than with any other kind of game; once the headset is on, you're in the experience, and while you may not want to be there for long, you also don't want to be distracted while it's happening.

These differences are fundamental to how the business model for the medium will ultimately function. Free-to-play turned out to be a much more comfortable fit for most players who couldn't wrap their heads around paying a big chunk of cash for a game they played in three minute chunks of idle time (even if those chunks added up to countless hours in the long run). Similarly, some other model will likely transpire to be the best fit for what VR has to offer -- deep immersion in short bites.

Will that ideal model turn out to be advertising-supported experiences? It seems relatively unlikely, despite Facebook's best efforts; the immersive nature of VR would be thoroughly broken by most types of advertising. Something very subtle and clever like product placement within VR experiences could work, of course, just like trackside billboards for appropriate products in a VR racing game -- but this applies only for certain very specific scenarios, and is never going to be the billion dollar marketing opportunity Facebook is hoping for.

Subscription services that offer up new, short VR experiences regularly are one possibility I've floated in the past; a resurrection of the episodic gaming notion could also fit the bill nicely, taking a prestige TV approach to spacing out content over weeks. Other approaches will no doubt be tried, because despite the resistance of the existing market, VR companies have their eye on a bigger prize; as headsets become more widespread, they'll bring with them an audience less keen on upfront price tags and less resistant to alternative business models.

In the meanwhile, though, there's a balancing act to be struck -- because right now, those core gamers are the only people really driving any revenues for VR, and losing the early adopters in an attempt to kickstart market expansion is likely to result in disaster. Thus it's likely that VR will end up with a patchwork quilt of business models, at least for the next few years -- and Facebook's attempt to turn marketing into a revenue stream for the medium will likely be a part of that at least to some degree, no matter how rocky a start it's had in recent weeks.

VR isn't a great fit for the traditional pay-upfront, monolithic game model, any more than smartphones were -- and AR, of course, is likely to be even less well-suited to paying $30 to $60 up-front for a game or 'experience.' Figuring out what people will pay for and how is going to be one of the most pressing challenges for the medium as it continues its slow transition from core early adopters to mainstream uptake.