Gaining exposure to emerging technologies has long been a popular strategy for maximising investment growth. As we look to the future, there are some developments that look especially encouraging – like Virtual Reality and Augmented Reality. But before we can understand how it can be used in an investment strategy, we need to look at the technology itself.

One of the earliest attempts at Virtual Reality was stereoscope photos and viewers in 1838. Research by Charles Wheatstone showed that the brain processes different 2D images from each eye into a single 3D object, giving the user a sense of depth and immersion[1].

one-of-the-first-virtual-reality-examples

One of the first examples of VR technology.

Hollywood has also been predicting the use of these new technologies for years. For example;

  • The Terminator (1984) = Augmented Reality (“AR”).
  • The Matrix (1999) = Virtual Reality (“VR”).

Augmented, Mixed, and Virtual Reality

AR overlays computer-generated text, images, video or sound with a user’s real world. Another form of reality, Mixed Reality (“MR”), is similar but allows the digital content to be anchored in, and interact with, the real world. We have been softly introduced to AR technology with Pokémon Go, which set records for gross revenue and total downloads within a month of its release[2].

VR goes one step further and fully immerses the user in a digital world through the use of a headset which blocks out all natural surroundings.

How advanced is the current hardware?

AR and VR are no longer just imagined concepts. Between 2010 and 2015, venture capital firms spent US$4bn across 353 deals, and another US$2bn over the last 12 months[3]. As at October 2016, there were ~1,000 VR start-ups and ~700 AR start-ups in the United States, according to AngelList. However, technology giants still dominate the space with Facebook, Google and Apple all buying more than 10 smaller AR / VR firms since 2010.

High-end consumer VR headsets are already being shipped to customers, including Sony’s Playstation VR (NZ$630), Facebook’s Oculus Rift (US$700), the HTC Vive (NZ$949) and Samsung Gear VR (NZ$199, pictured below).

samsung-virtual-reality-gear

Microsoft’s MR headset, HoloLens (pictured below) is currently for sale as a Developer Edition (US$3,000) but it is expected AR equipment is still 18-24 months away[4].

microsoft-mr-headset-hololens

In terms of future returns performance for investors, the key areas of growth will initially be in headsets and other hardware. Once a sufficient customer base is achieved, the amount of software and services that utilise this hardware will likely increase. As shown in the graph below, it is expected that AR will make up a larger proportion of the market from 2018 / 19 onwards. The e-commerce industry will also be significantly impacted, with Citi Research forecasting AR commerce to reach 25 per cent of all online retailing by 2035.augmented-and-virtual-reality-revenue-forecast                                                                                          Source: Digi-Capital.com

How will this technology be used in our day to day lives?

Uses for AR and VR are not constrained to just gaming and entertainment (virtual movies, theme parks, zoos, music concerts and live sports); there is a wide range of potential applications in education, medicine, industry and business.

Students may be able to experience museums on the other side of the world without leaving their classrooms, and medical students could practice performing surgeries without placing patients at risk. Additionally, doctors may be able to view inside the body to assist with diagnosis or pre-surgery to help plan surgical strategy or to aid rehabilitation.

Marketing and advertising will likely transform to include branded video experiences with the ability to preview products prior to purchasing, and e-commerce will develop to allow customers to try on clothes in a 3D environment, virtual test-drive a new car or see how a new couch or paint colour may fit in their lounge. Tourists will be able to preview a destination before they travel and prospective house buyers will be able to tour through existing and yet-to-be-built properties from anywhere in the world.

The technology will likely assist architects, engineers and designers by making the design process smoother, quicker and cheaper, while enhancing communication with customers. Product diagrams for repair technicians, assembly instructions and measurements could be displayed through the AR system, leaving hands free to work. Warehouse pickers are already being provided with real-time requests, efficient routes and automatic scanning of items.

AR could also be used to enhance everyday activities by displaying real-time statistics, research, explanations or information. We may see AR assist consumers by displaying nutritional information and price comparisons when scanning an item at the supermarket, directions could be projected onto the street while walking or driving and even emotional reactions may be able to be gauged.

The companies that are likely to benefit the most will be those that truly understand how consumer behaviour will change as a result of AR / VR technology.

Potential negative effects

Negative effects of AR and VR technology such as psychological disorders, addiction, motion sickness, social isolation, false memories, obscured vision, and increased privacy and cybersecurity risk are still being investigated.

Global stocks and investment growth for VR and AR

The Milford Global Fund has exposure to Facebook, Google and Microsoft which, along with being market leaders across a variety of capabilities, are all front-runners in the AR / VR space. Other beneficiaries of the technology comprise content providers (Disney, Tencent), semiconductor manufacturers (TSMC, Intel, NXP) and physical retailers (Sherwin Williams, Nike).

If you want to learn more about our products and services, please get in touch with our team.

Stephanie Perrin

Analyst

Disclosure of interest: Milford Funds Ltd holds shares in Facebook, Alphabet (formerly known as Google), Microsoft, Disney, Tencent, TSMC, Intel, NXP, Sherwin Williams and Nike on behalf of clients.

Disclaimer: This is intended to provide general information only. It does not take into account your investment needs or personal circumstances and so is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser.

[1] Virtual Reality Society.

[2] Guinness World Records.

[3] Pitchbook, Digi-Capital.

[4] Digi-Capital.