Standard Life Investments

Through the Lens

Virtual reality – virtually a reality

Virtual reality has been capturing the imagination of technology enthusiasts for a long time, but its commercial success has so far been limited. This area of technological innovation has split into two fields - virtual reality (VR) and augmented reality (AR). With VR, the whole field of the user's vision is taken over by computer-generated images. With AR, a computer-generated image is superimposed on a user's view of the real world.

A virtual revolution

To date neither approach has achieved commercial success - you may remember the now discontinued Google Glass. Despite this, technology firms continued to invest in VR/AR technology. In March 2014, for example, Facebook paid US$2 billion for Oculus VR, the manufacturer of a virtual reality headset even though the product was still in the early stages of development.

We are now seeing acceleration in new product launches and corporate announcements. Samsung, HTC and Sony have all announced the launch of VR products, with more companies set to follow. In the AR arena, Microsoft recently launched Hololens, a device that enables three-dimensional virtual objects to be visible to a user within a physical space, much like holograms. Google is also rumoured to be planning a re-launch of Google Glass in the near future.

Back in the real world…

The technology is set to have a major impact on the entertainment industry. The most obvious example is the world of video gaming. Here, companies are increasingly embracing the new technologies: Electronic Arts recently announced that an episode of its upcoming Star Wars game will feature VR, while Microsoft has said its Xbox games console will embrace VR.

Increasingly, however, the applications of VR/AR devices go beyond the simple consumer 'wow'- factor, with many targeted at professional users. This includes everyone from IT designers and surgeons, to stock-market traders and field service engineers. The goal of the technology is to improve productivity and promote collaboration across teams. For example, by using AR modelling, a group of architects from across the world can work on a virtual building model as if they were in the same room.

So what does this mean for investors?

As with many technological evolutions, VR/AR has given us numerous investment opportunities to consider. Some of these are within the industry's global supply chain. For example, companies such as graphics process manufacturer NVidia should benefit as VR headset manufacturers demand everfaster graphics chips. There are also opportunities for specialist suppliers, including those who manufacture small display components for VR such as Taiwanese firm Himax. It can also bring considerable changes to industries that can use VR to enhance a user's experience of their products. This includes the media sector - imagine an immersive 3D virtual reality experience of a football match or a news report.

Looking to the future

Virtual and augmented reality technology is fast becoming a reality. So much so, that some predict it will eventually supersede the laptop, tablet and smartphone to become the next 'computing platform'. A bold claim but, as we have seen, the VR/AR revolution already has meaningful investment implications for the technology sector and beyond. It's not all upside, however: it could get even harder to get teenage kids out of their games room and round the dinner table.