a16z Podcast | Truce for Mobile, Battle for VR

Major Hardware Announcements & Ecosystem Shifts

• Google Daydream:
  • Google is shifting from a pure software/services model to in-house hardware manufacturing (Project Pixel) to control the VR ecosystem, mirroring Apple's strategy.
  • Daydream creates a "kite mark" certification for high-end Android phones ($400+ price point), ensuring consistent performance by mandating specific Qualcomm chips, OLED screens, and fast refresh rates.
  • The ecosystem aims to abstract away hardware fragmentation, requiring only two variables to test for developers rather than thousands of phone configurations.
  • Current Daydream headsets lack positional tracking (relying only on rotational tracking), leading to internal tension between the low-end mobile approach and Google's high-end initiatives like Project Tango.
• Oculus Santa Cruz Prototype:
  • Revealed a standalone, untethered VR headset prototype combining high-end industrial design (similar to the $600 Rift) with mobile hardware and inside-out positional tracking.
  • The device aims to replicate the "Holy Grail" of VR: ease of use comparable to an iPad without the need for external sensors or high-end PCs.
  • Expected to launch next year, with mass market availability predicted to be roughly two to three years away.
• PlayStation VR (PSVR):
  • Priced at $500 (headset only) or $600 (with controllers), requiring a PlayStation 4 (not the Pro, though the Pro improves performance).
  • Benefits from a massive installed base of 40–50 million PS4s, significantly larger than the current PC gaming VR market.
  • Features positional tracking and hand controllers, offering a "mainstream" high-end experience that is superior to Daydream/Gear VR but behind the HTC Vive and original Rift.
  • Sony is funding a slate of native VR titles to ensure quality, though concerns exist regarding "VR modes" in legacy franchises (e.g., Resident Evil, Final Fantasy) causing motion sickness.
• HTC Vive & Valve:
  • Valve's Gabe Newell has shifted focus to VR, stating they are "in it to win it."
  • Upcoming rumors suggest a next-generation untethered Vive (wireless streaming from PC) and continued development of "Destinations," a social platform using photogrammetry to scan real-world locations into VR.
  • Steam (PC gaming) has 100 million monthly active users, a figure often underestimated by Silicon Valley compared to the mobile market.

Technical Breakthroughs & Performance Metrics

• Asynchronous Space Warp (ASW):
  • A new technology allowing hardware to duplicate and alter frames when the GPU cannot keep up with rendering demands.
  • Provides a 2x performance improvement and dramatically lowers minimum GPU requirements for PC VR.
• Multi-View Rendering:
  • Allows a single rendering pass to generate images for both eyes simultaneously.
  • When combined with Vulkan and full stack control (as in the standalone headset), this promises a 50–100% performance boost over current Gear VR standards.
• Moore's Law as an Economic Principle:
  • The "Holy Grail" headset (standalone, positional tracking, 4K resolution, sub-$300 price point) is projected to arrive in ~4 years rather than the previously estimated 7 years due to accelerated investment.
  • Tech advances are compounding faster than historical trends, accelerating the path to a viable standalone platform.

Market Strategy & Business Models

• The "Full Stack" Strategy:
  • Major players (Apple, Facebook/Oculus, Sony) are moving toward owning the entire hardware/software stack to avoid the "zero margins" and dependency issues seen in the Android mobile era.
  • Google's Daydream attempts to create a broad, fragmented mass-market ecosystem (similar to Windows) to drive economies of scale, contrasting with the high-end, controlled ecosystems of Apple and Oculus.
• Pricing & Developer Economics:
  • VR app pricing is currently anchored to mobile standards ($5–$10), making it difficult for premium titles to gain traction without massive scale.
  • Indie content is viewed as a bridge between mobile quality and AAA triple-A expectations, often relying on shorter content runs (a few hours) rather than 20-hour epics.
• Social Networking as the Killer App:
  • Facebook is betting on VR social connectivity (avatars, virtual presence) as the primary non-gaming use case to create network effects.
  • The "network effect" in VR is currently a double-edged sword: highly valuable once scaled, but nearly worthless at initial adoption.

Forward-Looking Statements & Risks

• The Trough of Despond:
  • The VR industry is currently at the "Peak of Inflated Expectations" in the Gartner Hype Cycle, predicting a "Trough of Despond" in approximately two years.
  • Survival depends on whether capital and sales momentum can power through the inevitable drop in enthusiasm to reach the next technological plateau.
• Use Case Evolution:
  • Historical precedent suggests initial use cases (e.g., first radios for nuclear alerts, first portable radios for recipes) are often wrong; VR will likely evolve beyond gaming into broader social and content creation tools.
  • Potential for VR to become a "social layer" on top of the internet, similar to how Facebook became a layer on top of the web.
• Platform Risks:
  • Sony faces the risk of "poisoned wells" if users try poorly ported legacy games first, potentially scaring off the mainstream market before native titles take over.
  • Hardware manufacturers (like HTC) are wary of outsourcing software to giants like Google or Facebook, leading to a potential "truce" fracture where everyone fights for full stack dominance.