Immersing Ourselves at the 2015 Game Developers Conference

We attended GDC 2014 and 2015. While virtual reality was present last year, this year we are convinced it is here to stay and will have wide spreading impact across several industries. The number of head-mounted devices has increased significantly along with numerous sensors and input systems to support the ecosystem. Content is beyond belief; it really is real. You experience fear, joy, anxiety; your heart can race; this stuff is amazing. Science fiction has become real, and we believe that wide-spread adoption could occur within a year and a half – quicker if open source virtual reality gains traction, which we saw evidence of already taking place.

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Introduction

Last week, we returned to the Game Developers Conference (GDC) in San Francisco and, once again, were blown away by another year of technological advancement in both hardware and software. Last year, Oculus’ DK2 release was the show’s highlight. Virtual reality (VR) enthusiasts jammed Oculus’ booth, and DK2 stole the show, especially with Facebook stepping in and buying the Company for $2 billion a week later. Sony also introduced and demoed Project Morpheus, and there were a few peripheral sensor technologies to enhance the experience using motion control.

While VR was just getting going last year, now it looks like a sure bet, with several new head mounted displays (HMDs), a bigger catalogue of content, and many new periphery products to enhance the immersive experience. We would say that about 35%-40% of the booths at the show had some VR content on display, and the crowds were definitely gathering around VR and AR demos. Another key difference this year was that VR has moved from sitting down to standing up.

Over the course of the three days, our goal was to try to demo as many new HMDs and games as possible and talk to industry enthusiasts about where they think VR and AR are headed. This year, we were able to get hands-on demos (in some cases multiple demos) with four head-mounted displays including Oculus’ Crescent Bay, Samsung’s Gear VR (Powered by Oculus), Razer’s OSVR, and Vuzix. HTC, and Valve entered the scene at the beginning of the week with the Vive, a dual screen HMD that has been getting positive reviews from those lucky enough to get a demo. Not only are the number of HMDs increasing, but this year there were many more peripheral products to complement and enhance the VR experience.

At GDC 2015, we uncovered new themes including:

1. VR is real, and the industry is expanding,
2. Oculus is no longer alone, although we believe it is still in the lead,
3. Input devices including motion detection/control are more prominent for VR gaming,
4. There is room for both tethered and wireless HMDs, but today wired enjoys much higher quality of experience (we believe wireless solutions could one day have the same quality),
5. VR/AR will penetrate many more markets than just gaming,
6. Open-source virtual reality (OSVR) could drive hardware and content innovation.

We Have No Doubt that VR is Real

Everyone at GDC was talking about VR. Game engine developers, game producers, quality control programmers were all talking about immersing themselves in VR demos. Any booth that had a HMD had a lineup. Any booth that had a HMD had spectators. Any booth with a HMD had a wait time (Oculus’ line had a 2 hour wait). Any VR system input devices had a wait. What surprised us was how motion detectors and controllers have evolved into the VR ecosystem. VR gaming content is here we flew an amazing spaceship (and battled enemies approaching in 360 degrees in three axes), we explored new worlds, we came face-to-face with T-Rex, and unsuccessfully tried to hide from Smaug before he destroyed us with his fire breathing breath. We witnessed tons of people sliding off VR goggles whose faces were frozen with awe. People in the Moscone Center were hyped about VR, how far it has come, and how much further it will go.

Although we anticipate HMDs to hit the market this year, we don’t know when developers will release commercial VR games and applications en masse. Studios continue to develop content, and input systems keep appearing to support the ecosystem. What’s holding back the mass adoption in gaming and commercial VR applications is the lack of consumer VR HMDs. We’ve seen the HMDs; we’ve tried them; there’s no doubt that they are real and that they work. But only Samsung’s Gear VR and Google Cardboard are available for purchase today. Most of the other manufacturers remain tight-lipped about when commercial versions will be available. It was encouraging last week when HTC announced that they will release a developer edition of its Vive HMD in the spring with a full consumer release slated before the end of the year[i].

We also believe OSVR could hasten a commercial HMD release. More on OSVR later, but in summary, our conversations with industry professionals suggested that many HMD and input system manufacturers are about to adopt OSVR. One of our sources, who claimed to know C-level Oculus executives, stated that Oculus is also looking at OSVR. Obviously HTC’s news could light a fire under some of the other manufacturers to come to market sooner. It seems like by the end of the year we’ll see at least one HMD launch and possibly more. So 2016 will be interesting.

Long Live the King, Maybe

Oculus had the most popular booth. And Oculus’ HMDs were the HMDs used for demonstrations at most VR booths. Our theory is that Oculus provided the industry’s first software developer kit, which included the Oculus Rift HMD. So eager developers naturally selected Oculus to begin programming VR applications and games. Given the number of HMD developers that we saw and OSVR enthusiasts whom we met, we anticipate that Oculus won’t be as dominant at GDC 2016.

VR enthusiasts couldn’t get enough of Oculus. Oculus anticipated their demand to try the Rift Crescent Bay (Oculus’ newest prototype). The Company required pre-registration via an application to book a demo appointment. We downloaded the app and found a two day wait, which meant that we had to line up to wait for a turn. Even though we weren’t in Vegas, Lady Luck shined on us as we were amongst the first to try Crescent Bay in the opening ten minutes of the expo (strategically our first stop). Thank goodness we were lucky because a lineup that wrapped around three sides of the Oculus compound greeted us as we exited the booth.

Our experience with Oculus. In a large open concept area there were about 20 swivel chairs set up with Samsung’s Gear VR surrounded by private rooms for the Crescent Bay demo. Following a satisfying Gear VR demo (more on that in the next section), we were escorted into one of the private rooms to experience Crescent Bay. Crescent Bay was brilliant. Absolutely spectacular. Don’t get us wrong; both experiences were impressive, and if either was your first with a VR HMD you would have been impressed. But between the two, Crescent Bay was far more stupefying.

We have to say that the Crescent Bay demo was so sensational that we went back the second day to do it all over again. Unlike the Gear VR demo, where we were seated, we stood for the Crescent Bay demo. We immediately found ourselves standing on the edge of a building, then dodging laser beams zipping past our heads as we were caught in the middle of two robots having a shootout. Once our hearts stopped pounding, we stared at a gentle, ET-like alien, and as its face approached ours, it suddenly soured and blasted a terrifying roar. A ferocious tyrannosaurus rex stomped toward me, stopped and flashed its slobbering jaws. Before we could turtle, the rex continued onward, and we watched with awe as it walked over us and left. We were jaw struck at how real virtual reality could be.

VR is not only about visuals – 3D sound is equally important. The new Crescent Bay has integrated headphones. “My ears tingled when bullets whizzed past my head,” I said as we compared our experiences. We raved about how deeply immersive the experience was – we felt isolated in these virtual worlds even though Oculus attendants were present[1]. In some demos we turned the audio down so that the Oculus attendant could direct us to look at the demo’s finer details, including a cutesy village that exploded with detail the closer we inched our faces toward it. Hearing the faint slaps of a fish jumping out of a stream to the left felt natural; as did the rustling bushes behind us (we spun around to find the noisy culprits staring at us). Small, audio details like these completed the VR experience and highlight the importance of audio to an immersive, VR experience.

We asked gaming professionals what they thought about Oculus – one word…AWESOME! We spoke with close to twenty gaming enthusiasts who had tried Crescent Bay, including a few VR company executives. “Mind blowing!” said a lead programmer. Another lead designer said, “The ‘immersiveness’ is awesome.” “Vivid!” noted a game developer from China. “It’s improved over last year,” stated a game software quality control engineer. “Worth the wait,” said a game developer Vice President who didn’t look old enough to have a drivers’ license. “Everyone has to try it!” exclaimed a game software CEO.

Although the majority of people were impressed, some were muted. “I saw the screen pixels,” said a programmer describing the Gear VR. We noted this as well at times. “They didn’t know how to treat certain particles,” said a game producer. Googling “game particles” returned a matrix of unrelated images that confused us more. So if any of you know what he was talking about, please let us know.

Although most of the excitement at GDC 2015 centered on Crescent Bay, the Oculus’ HMDs have an Achilles’ heel – the screen. As revealed in an iFixit[ii] teardown, Oculus uses a Samsung Galaxy screen as the display. Putting on our engineering caps, swapping a screen wouldn’t be easy. There’s form factors to consider, possibly different resolutions and refresh rates. It occurred to us during GDC that this is perhaps why Oculus and Samsung co-developed the Gear VR: Samsung provides its display expertise while Oculus offers its VR secrets. We believe that this exchange gave Samsung first mover advantage into the consumer market with Gear VR.

HMDs in the Kingdom

This year there were several new HMDs on the scene. Samsung Gear VR was used in several booths including Oculus’ (Samsung developed Gear VR in conjunction with Oculus). This wireless HMD is essentially a shell that slips over a Samsung Galaxy 4 mobile phone. Gear VR is the second major HMD available for consumers (Google[2] Cardboard was the first), and is available on Samsung’s website for $199.99 (not including the phone). Enthusiasts also queued for their turn with Gear VR, and although the wait was not as long as that for Crescent Bay, their enthusiasm was as intense. Whenever we strolled by Oculus’ booth, all Gear VR seats were filled. Our take is that Gear VR is one of the slickest-looking HMDs around. It was light, comfy, and had a pleasing “iLook” to it. But…

…we had some issues with Gear VR. While the Gear VR still gave you a sense of movement and rendered seamlessly when you moved your head, the lenses fogged up after five minutes, which limited the experience[3]. I actually took the Gear VR off before demoing all of the games and content because my left eye blurred. On other occasions our Gear VR experience was not nearly as problematic, but we agreed that the games and content didn’t have the “WOW!” factor when compared to the Crescent Bay demo.

Perhaps the issues we had with Gear VR were due to the fact that it isn’t tethered to an external video card via a cable like Oculus, HTC, OSVR, and Sony’s Morpheus. Gear VR uses a processor resident on the HMD to drive content to a Galaxy screen, and the resolution of the content was visibly less than that provided by Crescent Bay. For now, “cableless” HMD processors are slower than a computer video card, but we believe that several years down the road they will likely provide an equal experience.

But we thought we’d give Gear VR another shot. We had tried Oculus twice, so in the interest of fairness, we decided to extend the same courtesy to Gear VR. For some reason, we enjoyed the Gear VR substantially more. Perhaps it was because we had time to anticipate what we needed to do before immersing ourselves: get a tight fit, focus the lenses, and stop thinking about the technology. We relaxed and both had a great Gear VR experience, but the graphics were still not close to as impressive as what we saw with Crescent Bay.

Look Out Oculus, Others Have Come to the Party

The OSVR platform seeks to unify input devices, games, and output in order to take VR to the next frontier. With contribution from VR leaders, including Unity, Unreal, Intel, Bosch, Razer, Sixense, and Leap Motion, this open-source platform provides hardware schematics, software APIs, and software plugins to drive game development. One prominent game developer told us that OSVR is VR’s future, and that close to 25 HDM manufactures are set to adopt it. Our source claimed to know senior Oculus executives and said even they may switch to OSVR.

Razer’s OSRV HMD was a hit. Last year, Razer announced its development kit, which you can pre-order for $199.99 here. This year, developers seemed eager to try OSVR, and so were we. The demo was okay (a futuristic racing track), and the look was pretty cool. The hardware fit our heads nicely, but our concern was much like Gear VR, the lenses were tuned with a couple of knobs, and neither of us could quite get them into focus. But since we had given Crescent Bay and Gear VR two chances, we returned the second day to give OSVR second try. That’s when we saw the Leap Motion booth.

Leap Motion sensor on the front of a Razer OSVR HMD. You can see demon fighter Sean Peasgood’s virtual fingers wiggling at the bottom of the screen.

Leap Motion has controllers that sense hand movement and can be used with any HMD. For their demo (inside the OSVR booth), they had attached their controller sensor to the front of a Razer OSVR HMD (one team member agreed with our theory that the sensor could eventually be integrated into HMDs). We played a game where we extinguished fire demons by throwing balls of water at them and evaporated water demons with balls of fire. Two things surprised us. First, the HMD required little to no tuning for a great visual experience, and second, the game was fun and completely immersive since the demons attacked from every possible direction[4].

Perhaps the biggest contender to Oculus’ crown (many reviews indicate that it may already have taken it) is Valve, creators of the classic Half Life action game. Valve brought its SteamVR headset to the show, but only those with appointments were allowed to see it – unfortunately, we weren’t one of the lucky few. Using the Vive HMD developed by HTC, a Taiwanese manufacturer of smartphones, SteamVR evolved without the benefit of development kits (although one should come this spring). HTC also announced that a consumer version will be available sometime this year.

An interesting component of SteamVR’s product that is getting a lot of attention was its motion tracking base stations and innovative controllers. The base stations allow for full motion control of the hands and body. We heard that roaming around a large open space felt great, but we wonder how problematic it may be in the home (do users have to have an empty space to prevent themselves from tripping over furniture?) That said, all the reviews we read were ones of users being blown away.

Those lucky enough to try SteamVR noted that one major advantage it has over Oculus is its controllers. Reviewers appear to like the tethered hand controllers, but it appears as though Valve may eventually make these wireless[iii]. Not only are the controllers equipped with index triggers and clickable thumb pads, but like the HMD, they also have tracking sensors for the base stations to follow. It was interesting that similar to Oculus, Valve and HTC will likely keep the HMD tethered to a computer to minimize latency issues[iv].

Vuzix unveiled its IWear 720 video headphones at the conference. The platform leverages OSVR, and its 57 degree field of vision makes the VR experience amazingly immersive for not being a full 90+. Vuzix, is making gains by focusing on the optics rather than the processing of video. In a nutshell, Vuzix starts with a tiny compressed display that it then projects into the HMD’s “pupil” optics – the easy part. The projector then shines light onto nano structures built into the HMD’s pupil lenses, which then disperses the light without distortion across the very large field of view – the hard part. Vuzix has also made significant inroads with its commercial Smart Glasses solutions – DHL completed a pilot that resulted in a 25% efficiency increase[v]. We were told that the next Smart Glass iteration will have integrated cameras, and the prototype looked like a regular pair of sunglasses. Cool!

As an OSVR side note, Vuzix’s VR content was eerily similar to that we experienced at the Razer booth. When we probed an OSVR executive about this, he stated that this was the power of OSVR. He claimed that Vuzix took their OSVR content, spent two days tweaking it, and were able to stream the same demo on IWear 720.

Some HMDs Were Missing

Sony’s latest version of Project Morpheus appeared at GDC 2014 but was not available for a demonstration this year. No reason was given, and we won’t speculate, but we would have liked to see how Sony’s development and content are coming along.

Magic Leap, the company bequeathed with a $542 million investment last October (led by Google and including KPCB, Andreessen Horowitz, Obvious Ventures, Qualcomm and Legendary Entertainment), was an augmented reality HMD that people were talking about. We were not expecting to see anything as the Company remains in “stealth mode”. Magic Leap had a recruiting booth but remained tight lipped about any commercial or technical aspects of the product. Perusing Magic Leap’s careers website, we noticed optical metrology, optical diffraction, laser and fiber engineering, and processing positions. Putting on our engineering caps, this suggests that Magic Leap may not implement a Gear VR-style, smartphone solution, but rather an optical lens system that directs light onto the user’s eyes.

Plenty of New Input Devices to Enhance the Virtual Experience

An input device is an accessory used to enhance VR beyond just video and audio. Last year, we found several companies showcasing their offerings. This year, they were everywhere. Guns with haptics (feedback through the sense of touch), controllers that slide over a finger, sensory rings, light sabers – all were there to support VR games. A few input devices stole the show.

Omni VR treadmill could be the ultimate immersive experience. One of the most popular booths at the show, Omni showcased an input system that allows for complete freedom of movement within a small space. While public demos were not available and we were unable to try the product, the booth was mobbed by onlookers all day long. They watched one of the Company’s gamers work up a sweat as he walked, ran, and sprinted his way through a shoot ‘em up game. His motion (all 360º of it) was streamed to a display that allowed spectators to see what each of his eyes saw through his Oculus. Omni’s treadmill first gained widespread attention when it appeared on Shark Tank (ABC’s investment reality show). The Sharks turned down the Company’s proposal, but weeks later, Mark Cuban joined venture capitalists in raising $3 million for Omni.

Speaking with Omni’s management onsite, they mentioned that they already had preorders for units on their website. And although Omni plans to tweak the model slightly for the consumer launch, the treadmill is close to completion. The consumer version is expected to be released this summer with a price tag of $699 for a package that includes:

1. Virtuix Omni gaming platform,
2. one pair of Omni Shoes for comfortable, extended gameplay (you have to use these shoes),
3. one pair of Omni Tracking Pods and tracking software,
4. one Omni Harness for support, safety, and rapid, untethered action,
5. one year limited warranty (voided if purchasing from an un-authorized re-seller), and
6. TRAVR and other demo games demonstrating novel VR game dynamics with analog, de-coupled player direction and speed.

While we do not see everyone gaming on a treadmill, it may make more sense to be in a secure treadmill environment when immersed in VR rather than stumbling around a room with furniture and obstacles. Omni is clearly a peripheral to watch, and with one killer game/application we think it could be a major consumer product to complement VR in the future. A few people we chatted with commented that this was the future of gaming. We agree and also see the future of home exercise and injury rehabilitation to include the Omni.

Privately-held Nod is a new company developing wearable gesture rings; rings that allow people to engage objects via movement. Based in Mountain View, California, many on the design team are alumni of Apple, Google, Facebook, Amazon, HP Labs, Samsung, and NASA. The ring on display at GDC 2015, which is also called the Nod, is a universal controller that allows for communications with all smart devices within a 30 foot range. No commercial Nod is available, although it is slated for release sometime this year[vi]. No word at the booth on when Nod will unleash its game controller unto the public.

Are you ready for some Star Wars? Sixense demonstrated their virtual lightsaber with their STEM (Sixense Tracking Embedded Module). The system comes with two hand controllers with built-in sensors, another sensor that’s installed on the HMD, and a base station that transmits an electromagnetic field to read the sensors. Although the system cannot detect finger motion, it can detect where the controllers are even if they aren’t in the line of sight. This allows future Jedi masters to twirl, parry, dodge, and thrust to their hearts’ content without the letdown of being removed from an immersive experience.

Our last day at GDC 2015 revealed an unbelievable surprise. At the end of one isle was a Japanese haptics company named Miraisens. We had walked by their booth several times on our way to see the “big VR names”. Few people milled around Miraisens booth but had we been more observant, we would have caught on that something special was happening there.

“3D Haptics Technology” was what Miraisens banner read. Haptics involves bringing the sense of touch to VR and has been around for a while. But “3D haptics?” We never heard of it before. BIG mistake. What Miraisens does is recreate the sense of touch in several dimensions by means of vibration. Some way, somehow, they had a tiny, mouse-shaped black box that could simulate water running down our fingers, electricity shocks, the bumpiness of running your fingers over bumpy rocks and smooth pebbles. It was magical. Even better, it felt real. We were then treated to a driving simulation (not VR) where we held a secret sensor in each hand. While driving, we could feel the bumps in the road, the slippery grass when we drove off the shoulder, acceleration – we felt the car accelerate. We’re positive Miraisens technology will also have a major role in the future of gaming – 3D touch.

Best Friends Forever

“What’s Pong?” a young coder asked after I joked that Pong was my favorite game. The young man was serious. He shook his head, and my smile collapsed. Dejected that the young fellow would never know the fear of burning a tennis court into his dad’s black and white TV, we wandered over to the North Hall of the Moscone Center to check out the software companies.

And that’s when we saw it – a museum of arcade games. We froze, bit our bottom lips, and stared. Glancing at each other and cracking smiles was all it took to read each others’ minds. We dove onto the machines taking turns playing Asteroids, Galaxia, Frogger, and Star Wars. The games were fun, interactive, and just as intense as any VR experience that we had. These games were immersive but without headsets, 4K video screens, or 3D audio. They drew us into their world using only knobs, joysticks, and crappy television monitors. Yet, in spite of the ancient technology, these boxy dinosaurs opened trunks of childhood memories from the days of hanging out in noisy arcades, watching girls play Ms. Pac Man while we self-debated whether to spend that last quarter on another game of Qbert or bus fare to get home. Arcades were places to escape the real world, which is exactly what virtual reality aims to achieve. But in spite of the complex interlacing requirements of current HDMs, it doesn’t take much to get away; it really doesn’t.

After 20 minutes, it was time to go. And as we rounded the last machine, there it was: Pong, standing proudly albeit with neglect. We were drawn to the ol’ boy, and stood silently in its glory. No longer functioning, we gave Pong’s simulated wood-grained finish a stroke and its dials a gentle spin.

After paying our respects, we left. But as we turned to give it a last glance, Pong’s huge screen looked like it was watching us. A couple of teens took our places before the machine. We watched them inspect the weathered carcass and engage in a discussion with full smiles. Maybe they knew they had just had an ancient VR experience; maybe they didn’t. All we know is that Pong didn’t care; it wanted their quarters.

Acronyms Used in this Report

AR                   augmented reality

GDS                 Game Developers Conference

HDMI              high-definition multimedia interface

HMD               head-mounted display

OSVR              open-source virtual reality

STEM              Sixense Tracking Embedded Module

VR                   virtual reality

[1] On one occasion when our demo was over, we removed our headset and were startled by camera flashes. Oculus had a crew of people who had snuck in to photograph us during the demo. They asked if we had heard the camera or seen the flashes; we had no idea that they were there.

[2] Speculation in The Wall Street Journal suggests that Google may be getting serious about VR. Sources say that Google has tens of engineers working on an Android operating system to run VR applications.

[3] Last week at Mobile World Congress, Samsung did announce a new, smaller Gear VR for the Galaxy S6 and S6 Edge that has incorporated mechanical vents to eliminate this issue

[4] As a side note, if you’re ever near a VR demo, pay attention because the person wearing the HMD can’t see you. A Leap Motion attendant and a curious gamer engaged in a technical discussion stood a little too close to Sean. They barely dodged Peasgood’s mitts when he whipped around to deliver a one-two punch that killed a couple of attacking demons.

References

[i] Brad Chacos, Move over, Oculus: HTC announces SteamVR-powered Vive VR headset, PCWorld, March 1, 2015

[ii] iFixit, Oculus Rift Development Kit 2 Teardown, March 19, 2014

[iii] Nicole Lee, HTC’s Vive made me believe in VR, engadget, March 4, 2015

[iv] Nicole Lee, HTC’s Vive made me believe in VR, engadget, March 4, 2015

[v] Vuzix Delivers Working Enterprise Smart Glasses Solution to DHL for Warehouse Picking, Vuzix, January 28, 2015

[vi] FAQs, Nod, Inc., 2015

Disclaimers

The particulars contained herein were obtained from sources that we believe to be reliable, but are not guaranteed by us and may be incomplete or inaccurate. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation of offer to buy or sell the securities mentioned herein. Sophic Capital Inc. (“Sophic Capital”) may act as financial advisor, for certain of the companies mentioned herein, and may receive remuneration for its services. Sophic Capital and/or its principals, officers, directors, representatives, and associates may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise.