We’re virtually there: VR is finally coming to the consumer market.

Once reserved for high-end arcades, virtual reality will soon be available directly in your living room. Immersive video games, the Wonders of the World, or a game of Texas Hold Em poker with your friends can be accessed from the comfort of your own home.

This rise of virtual reality could have massive implications for the entertainment industry. COVID is already keeping most people from attending live concerts and movies in person. But will this create a permanent change in consumer behavior, and a surge of new VR-ready content?

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Jan Goetguluk is the founder and CEO of Virtuix. Virtuix has developed a zero-friction, omnidirectional virtual reality platform that allows for a full-range of body movement. Its Omni is available in commercial arcades across the globe, but the company has just recently launched a new product that is targeting the consumer market. Virtuix is rapidly adding registered users, and has financial backing from several high-profile investors including Mark Cuban and 12 VC funds.

In an exclusive interview with 7investing, Jan explains why he believes now is the time for the consumer VR market. He describes what types of  games developers are producing, the important role of Facebook’s standalone headsets, and the opportunities for VR outside of gaming.

Jan also walks us through the commercial opportunities for augmented reality that enterprises are adopting for simulations, maintenance, and training. He shares his thoughts on how soon we’ll see immersive worlds like in Ready Player One and which publicly-traded companies investors should keep an eye on.

And in our closing segment, Jan answers several questions that were submitted on Twitter by our 7investing followers!

Interview timestamps:

00:00 – Introduction to Virtuix and the Gartner Hype Cycle

02:45 – Virtual reality and the consumer market

04:46 – Standalone headsets and Facebook’s hardware lead

08:29 – Power of the platform: Consumer opportunities outside of gaming

10:00 – Game developers, movie producers, and immersive VR worlds

16:09 – Augmented reality in the commercial market

20:15 – Closing: What’s driving the rise of VR

22:00 – Bonus: Jan answers questions submitted by our 7investing followers!

Publicly-traded companies mentioned in this interview include Activision Blizzard, Electronic Arts, Facebook, IMAX, Microsoft, and Samsung. 7investing’s advisors and/or guests may have positions in the companies that are mentioned.

This interview was originally recorded on October 22, 2020 and was first published on October 27, 2020.

Transcript:

Simon Erickson  0:01

Hello everyone and welcome to this episode of our 7nvesting podcast. I’m 7investing founder and CEO Simon Erickson. Very excited to talk today about virtual reality. It’s been now six and a half years since Facebook bought Oculus. So is VR finally ready for primetime? Well, to help us answer that question, I brought in a VR expert, Jan Goetgeluk is the founder and CEO of Virtuix out in Austin, Texas. He’s going to share his experiences and his opinions on the world of virtual reality. Hey, Jan!  Thanks for joining 7investing.

Jan Goetgeluk  0:34

Hey, Simon, thank you for having me. Much appreciate it.

Simon Erickson  0:37

Jan, I’ve really enjoyed following your story at Virtuix. I know that you have 12 venture capitalists on board, Mark Cuban is an investor in your company. I’ve watched you on Mad Money with Cramer in the past. Congratulations on how everything’s going. I know that the original perspective you had on VR and direction for your company was in the commercial opportunities, kind of these gaming centers around the world.  Can you tell us a little bit about how that has played out in recent years?

Jan Goetgeluk  1:02

Yeah, definitely. It’s interesting. VR has followed an interesting path. So have we as a company. We actually initially started out focused on the consumer markets early days in 2012/2013, lots of excitement. But VR has truly followed the the Gartner Hype Cycle, if you’re familiar with that curve. It was a lot of hype and a peak of the hype, and then the trough of disillusionment didn’t work out as quickly as massively as people thought. But now VR is on this slope of enlightenment. It’s interesting how VR has followed that Gartner hype cycle to a tee. We initially focused on the consumer market, but then as you mentioned, those early years, consumer VR was slow to take off. So we we pivoted to the commercial market, we started selling our product, which is an omnidirectional treadmill that lets you walk and run inside VR – inside video games and other applications. It’s so wild experience. We started selling that to the commercial markets, entertainment, venues, VR arcades, which was a big, big phenomenon a few years ago. And then most recently, we also started selling a multiplayer configuration called Omni Arena, to the higher ends of the entertainment marketplaces like Dave and Busters, Sky Zone, and big entertainment centers. It has done really well I think. Commercial VR, commercial entertainment has had a strong demand for VR. And VR has done well in that setting. People that visited those venues, they loved the experience of trying VR. And that’s been a big market for us in the last few years. But now for the first time, you know, we are going back to the to the consumer market as well with a new consumer product, because now consumer VR seems ready for for primetime.

Simon Erickson  2:45

Yeah, let’s talk about that pivot a little bit Jan, because I know that if you’re selling to a commercial VR arcade, or something, it’s all about the payback period, the ROI, you’re going after a different type type of customer with the consumer. But you know, it’s got to be a lower price point, there’s got to be different things that they’re wanting. How are you approaching the consumer market for VR?

Jan Goetgeluk  3:05

Yeah, it’s very different. And the reason we did that was, look, we’ve shipped now almost 4000 Omni systems commercially to the entertainment market. We are in 45 countries, over 500 entertainment venues. And it’s our customers, our players at those entertainment venues that start asking us, “where can I buy this? When can I get this from my home?” And that’s what prompted us to start working on a consumer version of the Omni actually taking us back to the original vision of the company. But but it’s very different. Games are different for the home and they offer the commercial market. Omni One, which is our home product that we announced a few weeks ago, is optimized for the home lighter.  Cheaper, easy to fold up and store. And also the business model is different. We call it the Peloton for gamers because it follows the Peloton business model if you will. An upfront purchase price for the hardware, but then also recurring revenues from games from content games we sell on our store and monthly subscriptions for online gameplay, which is very common in the game industry. So  it’s a completely different animal than than the commercial markets. But the commercial market in our case, fits nicely into the whole market because we have this out of home sales channel – thousands of systems in the commercial market. Hundreds of thousands of players soon to be a million registered players. That’s a great sales channel for our home product. So one market the out of home commercial market feeds nicely into our next market, which is the home. So one one supports the other, which is quite nice.

Simon Erickson  4:46

Sure, and I know that the Omni is like you said the zero friction kind of almost think of it as a treadmill, an omnidirectional treadmill that you’re actually walking on so you’re getting the full experience and working out when you’re doing playing a VR game. Which is very different than anything else I’ve seen out there. But if I recall, it doesn’t matter you you wish headset is used. You’re agnostic to whether you’re using an Oculus, or HTC headset or a Samsung headset. I suppose that the majority of the revenue in the VR global market is from the headsets right now? Is it Facebook, that’s a step ahead of competitors, or who seems to be winning on the hardware side of this?

Jan Goetgeluk  5:25

Definitely Facebook, especially on the consumer side, I have to say Facebook is building an absolute monopoly on the consumer side of VR, and they were the first ones to come out with this standalone headset. That’s the big difference now compared to a few years ago. As a standalone headset, you no longer need a gaming PC. Now you can play VR with just a headset, everything works on the headset, so you don’t need cable, you don’t need a high end performance PC. So that that really is bringing VR to a mass market, not just that segment that has VR and gaming PC’s at home. And that’s how VR got started. That’s no longer the case. And Facebook is absolutely dominating that market. And they just announced the Quest 2. (A) $300 product. Right? So they’re heavily subsidizing the hardware. They’re not I’m speculating, but it’s widely known that they’re certainly not aiming to make a large margin on the hardware on the upfront sale of the hardware. They aim to make it up with with the selling content, selling games, and building a building that that market share. It’s very hard for anyone else to come into the consumer market with a headset and compete on that price point. And effect, what we’re seeing is no one else wants to do it, or headset manufacturers like HTC and HP may also come out with a standalone headset. But they may focus more on the enterprise markets. Because it’s such a hard fight against Oculus who has billions and billions of dollars that they don’t mind losing on upfront hardware sales. It’s really hard to compete. So to your question, absolutely. Facebook is dominating the consumer side of VR, and it’s looking like a they will have very few competition competitors in that market.

Simon Erickson  7:18

Sure. And are we do you think, Jan, this is is speculating of course at this point, but are we a couple of years out from a VR headset, that standalone and doesn’t have the wires that you’re talking about? Being able to integrate with a smartphone, were you able to play VR games off of a smartphone with a VR headset on?

Jan Goetgeluk  7:34

Well, that’s a route that was explored a few years ago. Samsung, for example, has a Samsung Gear VR where you take your your phone, a Note 7 in that case or a later version, and you could clip it into this holder. And that was your VR headset. That’s no longer done. But a standard VR headset is actually has all the components of a smartphone. If you look at a standalone VR headset, it has it has a screen, high resolution screen, it has a processor, and it has sensors, basically everything you find in a standalone VR headset, you can find them in a smartphone. But the way of doing that by taking an actual smartphone and flipping it onto your face, that that’s out of fashion that that’s no longer done. Companies now just bring out a standalone VR headset separately from from any smartphone.

Simon Erickson  8:29

Sure, okay. And then the consumer opportunity too. You were saying that, you know, expectations of getting this lower price point into people’s hands. This is not just a hardware hardware sale. This is a platform that you can build off of. Are there opportunities outside of gaming that once someone has a headset and maybe has an Omni in their home, can you expand that into other opportunities too?

Jan Goetgeluk  8:51

Yeah, if we look at, for example, back to Lockless on the Oculus store, the applications you can have on the Quest headset, it’s more than gaming, it stretches to so social experiences, meetup places where people go and meet up with other people. There’s an application for virtual events where you meet up with friends and you go to a concert in VR, there’s applications of watching sports live in VR, front row seats, again, social with other people. So VR is definitely  more than gaming. And same for our platform. Omni One, we will have our own game store and our own applications. And suddenly gaming is our focus because gaming is just a lot of fun, especially with the Omni where you can literally walk and run around inside video games. But but it’s more than gaming. We will also integrate with those social applications where you can just hang out with friends and family. And in our case, you can actually also just walk around together or do things together. You don’t have to just stand in place or sit on a chair, which is a limitation of just a headset. We have a much richer experience, if you will.

Simon Erickson  10:00

Are the gaming developers that you’re working with, (do) these tend to be like the larger game companies that we know of? The Activision Blizzard’s of the world? Or are they smaller, innovative, really progressive VR focused game makers?

Jan Goetgeluk  10:13

Right now it’s more of the latter still. Some of the big big game studios have not gone the VR route yet. Activision, you mentioned EA Sports. they’ve stayed away from VR. Just yet others have Ubisoft. Of course, major game studio has done a lot of VR. Bethesda, which was recently bought by Microsoft, interestingly, big game developer and publisher has done some VR. Fallout 4 VR Skyrim VR, but for the most part, it’s still smaller studios. So do I say smaller some of are big in their own right? But focused on VR.  And VR is its own medium. You can’t just easily take an existing game like Call of Duty and say, “okay, here’s the VR version.” That doesn’t work. Good VR games need to be made for VR from the start. And so a lot of great VR games exist today that had their own big following games like Beat Sabre are very popular. I think now 20 games or so have more have sold more than a million copies in VR. 20 VR games. So people are starting to make money in VR with VR specific games.  A lot of these studios have grown and now are sizable and and very well known and popular. But it’s it’s not yet preceded the big existing game studios because hey, if you make Call of Duty, no, you can sell Call of Duty to 200 million PlayStation 4 players on day one, right and VR that size yet and that (the) limitation. But I think it’s changing now with Oculus and Oculus Quest, you know, Oculus Quest 2. The VR user base grows and grows and grows. And it becomes more and more interesting to make games for that medium. So it’s just a matter of time, until the big guys also start to focus on a VR medium.

Simon Erickson  12:05

That makes a lot of sense. Now you’re looking forward to watching some football games with you in the front row from a virtual reality experience. Maybe go watch some Rice Owls or something like that. Or the New Orleans Saints, if it was it was up to me, but it’s something tangential to gaming. How about entertainment? How about movies? You know, we’ve seen an IMAX where you’ve got directors like Christopher Nolan filming films in IMAX cameras, because he wants to project those onto the IMAX screen. Are we starting to see any reception from production studios in movies for VR?

Jan Goetgeluk  12:34

Yes, the answer is yes, it has been done. Some movies exists today. It’s very hard. (The) struggle is how to do it. Well, it’s not easy. It’s completely different medium. If you look at it, I’ll just tell you exactly an example of why if you look at a 2D screen, the director is completely in control of where you are looking. He can make you look exactly where you need to look, because you’re just looking one directory at a screen. If you’re in VR 360 degrees – what if you’re looking to the left, and the important thing is happening behind you? Missed the biggest part of the movie, it’s very hard storytelling in VR, (storytelling) hasn’t fully been figured out yet. Because it’s expensive. And there’s challenges there. Ultimately, you know, VR is good for interactive movies, and ultimately, an interactive movie. What’s the difference between an interactive movie and a video game? Is there a difference? Ultimately, you’re back in the individual game rounds. I think VR is best suited for full interactivity, full immersion, and has good use things together. I don’t just need to look at something as we’re used to watching a 2D screen for a movie.

Simon Erickson  13:51

That’s a perfect segue to a question I had to ask you on is “Ready Player One.” Ernest Cline, you know, from Austin. They’re one of the pivotal books that went then Steven Spielberg made into a movie. This is an immersive world that he envisioned where people actually have the Oasis where they’re interacting with other people. It’s all completely virtual. I mean, what are your odds, Jan? Okay, so let’s give you a five year time horizon October 2025, we come back and we talk again, has some company attempted to create an Oasis of an immersive virtual reality world out there?

Jan Goetgeluk  14:22

It’s a great question its a billion, a trillion dollar question because most VR companies want to create that that Oasis. And in parts of the races exist today, some of those social applications I mentioned. You can literally hang out in VR and meet up with with your friends and family. One of our team members here, he has a brother on the other side of the country. He doesn’t call his brother anymore. They just meet up in VR every day, and they meet up at in this poker game and they sit down at a poker table in VR and just throw down some costs and talk for half an hour. The notion that we’re going to call somebody with a brick against our ear, that’s going to feel quite outdated in the future. So, look, first of the races exist today. The question is, will there be one world that seamlessly lets you do all these different things? I think the answer is yes. Will it be controlled by one entity? I don’t think so. I think it’s more like like the internet, the World Wide Web, you can enter this virtual world, there is a lot of things to do, a lot of different games applications. But they’re not all controlled by by the same company. That it will come together in bits and pieces from different places. But ultimately, yes, look, ultimately, I think people will spend a lot of time in VR, not just for gaming, but for social interactions, watching sports, whatever it may be, people will spend a lot of time in VR. It’s a great medium. And it’s becoming more and more a mass market and mainstream. So that Oasis will basically be that VR world where in which you spend a lot of time and that is part of it obviously exist today, a lot of people are spending a lot of time in VR today.  Yeah.

Simon Erickson  16:09

You were mentioning the Hype Cycle coming back around. So it’s, it’s really starting to be the time for VR. Now. IDC, the research firm agrees with you, they’re expecting a five year compound annual growth rate for VR as a whole global industry to increase at 77% a year for the next five years. So that’s a huge market we have to pay attention to I think it’s worth $137 billion by 2024. A lot of their expectations are for the enterprise side of this. You mentioned interactive, you know, just like a video game is interactive for you. There’s opportunities, whether that’s in simulations, or industrial surveillance or anything like that, that they kind of think that there’s an opportunity for that on the consumers or I’m sorry, on the commercial side of that. Any thoughts on kind of you know, how Microsoft is developing the all the HoloLens and kind of all these different companies or how they’re approaching the commercial opportunity for VR, or augmented reality too AR as well?

Jan Goetgeluk  17:02

Yeah, AR, definitely AR on the on the commercial side on the enterprise side AR’s. I find AR to be quite different than VR. AR is basically going to augment your existing reality, Microsoft HoloLens, Magic Leap, didn’t turn out to be as as big as people thought it was going to be, now also shifting to the to the enterprise market. I think AR has a great place in the enterprise market where you can wear glasses and an augmented reality for whatever you need to do. Whether you’re picking stock in a warehouse, or you’re doing a medical surgery. VR, I think is, is different, because VR takes you out of the real world, and put you in a different world, which is the definition of entertainment. If I want to be entertained, I want to leave my existing world and put me in a new fantasy world try that. And so I think I think VR will have mostly applications and entertainment. Some non entertainment as well, definitely education, very big training and simulation, which is related, we actually sold quite a few Omni’sto the military, military agencies and contractors for training and simulation purposes. Oil and gas as well, hey, let’s do a training on an oil rig. Let’s do that in VR. So education, training and simulation is very big for VR. And because we can truly put people in an environment that would otherwise be too costly to build physically. So definitely lots of enterprise applications for VR. I think ultimately, the consumer market for VR is bigger. I think So ultimately B.ut in the meantime, look, we focus on the enterprise market for the Omni for the last few years quite successfully. You know, we’ve shot we shipped over $10 million worth of product to that market. AR I see more as an enterprise medium, less of a consumer medium.

Simon Erickson  18:58

Yeah, that makes a lot of sense. It sounds like there’s a lot of transition from the spin that companies are typically putting in today for travel for whatever it is in sight in on person, in person or on site experiences and moving that virtually might be the opportunity for commercial side of it. Jan, a couple of years ago, I came out to your headquarters out there in Austin, Texas. I actually used the Virtuix Omni. It was awesome. It was quite the experience, I’ve got to say. That has been several years ago and I know you guys have been up to a lot of exciting things since then. What is the game that if we buy the Omni that we have to try out? That’s one of your favorites to play?

Jan Goetgeluk  19:33

I think the most popular game in the commercial market is a game called Elite Force. And it’s basically like Call of Duty. It’s like playing Call of Duty, but you’re in the game with your friends, running and gunning. I mean, it’s incredible. If like Call of Duty, imagine being inside a game and and running around with your friends. Look, it’s ultimately first person shooters that is among the most popular genres of gaming. Look, we try to offer something for everybody. We have kids games, we even have a game where you just walk around in nature and enjoy a nice nature environment. We have pirates games, scary games, haunted house, you name it. So we try to offer something for everybody.

Simon Erickson  20:15

Perfect. And then my last question is, you know, our audience here at 7investing – mostly individual investors, we are very interested to see how this, this virtual reality market plays out. Is there anything that you think that we should be really paying attention to, especially if it’s not obvious, or something that you would recommend us keeping our eye on?

Jan Goetgeluk  20:33

I think I think the developments from by Facebook Oculus, the Oculus Quest, I think you’ll see rapid traction there. I think PlayStation is going to come out with a new headset for the PlayStation 5. I think it will be quite accessible. So you’ll see a lot of these these headsets, new headsets coming to market that will be successful. That will see rapid uptake much more so than a few years ago. And in our case, if your viewers are interested, I’ll mention our own investment round we’re doing today it’s a it’s a Reg A rounds on the seed invest platform. So now thanks to Regulation A, a company like ours, we’ve raised over $20 million today from investors: Mark Cuban, VCs. Now for the first time, you can also raise money from everyday investors. Doesn’t have to be accredited anymore. So if people are interested, they can visit us on seedinvest.com. And look, check out our investment campaign and they can invest invest money in Virtuix, as well as people want to have exposure to the growing VR market.

Simon Erickson  21:39

It’s really neat. Jan, I’m really excited to see where you go with this. I mean, also to follow the progress you’ve made in recent years. Thanks so much for chatting here with me and 7investing this afternoon.

Jan Goetgeluk  21:48

Thanks so much, Simon. Thank you for having me.

Simon Erickson  21:50

And thanks again for tuning in. We are here to empower you to invest in your future. We are 7investing. Okay, Jan. If you’re up for it, we actually got some questions submitted to our 7investing Twitter feed from our audience that they’d like to ask you about virtual reality. Are you game for taking a couple of questions from our audience?

Jan Goetgeluk  22:10

Yeah, definitely.

Simon Erickson  22:11

Okay, great. The first question comes from Thiên Phúc. Jan, he asked which companies have adopted augmented reality for medical surgical procedures with some commercial success. Any thoughts on medical?

Jan Goetgeluk  22:25

Yeah, I think I think Microsoft HoloLens has seen some activity and traction in the medical field. And then the second one, magically, which we mentioned earlier, the latest news I read was that they were going to focus primarily on medical going forward.  They had to scale back their ambitions quite a bit, and so they’re now are also really focused on the medical field for the application of of AR.

Simon Erickson  22:54

Okay, great. Another question from The New Investor Book. This is our buddy Max. He’s asking when will we see widespread adoption of AR again being used in engineering. I know we talked a little bit about engineering as an opportunity. We’re making some real progress in that field.

Jan Goetgeluk  23:07

Yeah, and it’s the same names you know, ers why now been dominated primarily by Microsoft HoloLens. Other companies that were in the space have seen some setbacks, magically Mehta is another one actually had to fold. AR is inherently more difficult than VR. Frankly, the VR medium is ready, products are great. Consumer ready, obviously people are buying it and using it. AR is not there yet. Even HoloLens 2. It’s not really yet ready for primetime. It’s more still experimenting, people are trying to see what to use it for. So it we’re still a few years away, I believe from from from AR being ready for the market, commercially or consumer.

Simon Erickson  23:50

Okay, great. Another one from Vetris_stocks here saying that there’s a lot of use cases that are out there. Do you have any ideas of publicly traded stock winners from the virtual reality trend? Now, of course, Virtuix is the one that we pick, because that’s the one that you work for Jan, but any other companies that you just respect what they’re doing out there in the virtual reality world?

Jan Goetgeluk  24:09

Yeah, I mean, just few pure players. But companies I mentioned before Facebook, look, VR is still a small part of what they do, so I don’t think by investing in Facebook and to get complete exposure to VR. But I do respect what they do. I mean, I think they have a great product, very aggressive on pricing. As I mentioned before, they’re basically building a complete monopoly in the consumer VR space, which I think is gonna be very large. Mark Zuckerberg always wanted to have his own platform, which he didn’t have. Facebook still today is just an app on other people’s platform, which is a risk that he identified. So he always wanted to create his own platform and, and that’s why he bought Oculus six years ago. And I think he’s succeeding. I think he truly will have an incredible VR platform that will be successful and have widespread adoption. So Facebook is a big one. And then the other public companies in the VR space are again a bigger companies that do some VR but one is Sony with PlayStation, PlayStation VR. One is HP, which which develops VR headsets, quite good products, mainly commercial and enterprise focus, but doing doing that really well. And HTC. HTC is still one of the leaders in VR headsets today, and I suspect it will continue to come up with new VR headsets going forward.

Simon Erickson  25:40

That’s great. And then the last one is from Jason Ricketts. He’s saying how many games from Activision Blizzard or Electronic Arts, with these massive followings, which by the way, have 10s of millions of people playing FIFA soccer or playing you know, the Activision games right now? How many of these games could they possibly get on their platform to really drive gamers into virtual reality experiences, as opposed to the existing ones on today’s because you talked a little bit about this earlier, young, but what do you think about these larger game makers going into virtual reality?

Jan Goetgeluk  26:08

Yeah, only a few have gone to virtual reality to the ones that you’ve just mentioned, Activision. And EA Sports have not. EA Sports particularly. Look, sports games are more or mainly from a third person perspective, looking at a field. So it’s hard to translate that to VR. You’re not in a first person perspective. Which really, that’s really what VR is all about. And Activision also hasn’t hasn’t gone to VR just yet. But others have. Ubisoft, big game developer, Bethesda, just bought by Microsoft, because I think are the two biggest ones that have dabbled with with VR, but I do think that the bigger ones will start to focus on this VR medium.

Simon Erickson  26:54

Great. Jan. Thanks very much for taking the questions from our 7investing audience.

Jan Goetgeluk  26:58

Pleasure. Thank you for having me.