Silicon Valley shouldn’t underestimate Sony’s potential in VR.

The Information published a piece yesterday citing Superdata research on sales of high-end VR headsets in 2016. It predicts Sony’s Playstation VR will outsell its two main competitors, Oculus Rift and HTC Vive, by a solid margin in 2016: 750,000 units vs. 355,000 and 450,000, respectively.

I summarized my response to the article in a tweet:

Since a few of you asked what I meant, I’ll elaborate and lay out the bull case for Sony below:

1. 40 million PS4s distributed worldwide. Each of these households has a dedicated graphics processing device plugged into the internet and a TV. The incremental cost of the VR headset starts at $399, which is affordable for many users and should only get cheaper with scale. The Oculus and Vive, alternatively, require purchasing new computing hardware in addition to the headset, which can be cost prohibitive.
2. Ease of use. PS4 might be the most intuitive high-end system on the market. That’s because you’re plugging into a dedicated device and O/S for gaming. Oculus and Vive have to work with lots of 3rd party hardware, running an O/S like Windows. 3rd party hardware makes user experience trickier. Apple won the high-end PC game against Microsoft in the 2000’s by tightly integrating its O/S with 1st party hardware. This strategy may be the right one in VR too.
3. Demonstrated marketing firepower. At PS4 launch, Sony spent $59M in 5 months on advertising, selling 7 million units over the same period in time. Its “Greatness Awaits” campaign, with 13M+ YouTube views to date, was very effective at targeting its core gamer demo of 30-year old men. I suspect neither Oculus or Vive is nearly as well known to consumers as Playstation. A consumer survey at the end of 2015, nearly a year before Playstation VR’s launch, found awareness of Oculus was 35% vs. 29% for Sony’s then-called Morpheus. Vive was at 16%. Another survey in April 2016 drew a similar conclusion. I have to imagine if this survey was conducted post-launch, Playstation VR would be #1 in awareness thanks to its established brand equity.
4. Baked-in distribution. In Q2–2016, Playstation revealed it has nearly 21M “Plus” subscribers with credit cards on file, and 60M total monthly active users. Vive does have more than 125M users of its Steam Service, and Oculus’ parent Facebook has over 1B. But the vast majority of these users lack the dedicated hardware or have credit cards on file. I suspect Playstation has equal if not slightly better distribution advantages than the other platforms.
5. Established game studio relationships. Playstation already has 64% market share for console gaming, which means that if you’re a AAA game studio you have to work with Sony at some point. Sony has confirmed 230 developers are working on titles for Playstation VR. Steam has around 277 titles which claim VR support, most of which are Vive-ready, and only 116 of which are Oculus-ready. To corroborate, I counted 103 Oculus titles listed publicly. If there is no overlap with Playstation’s catalogue, Playstation should own roughly half the market for developers. Moreover, Playstation developers are more likely to be the large studios with big game budgets.

All that said, I wouldn’t count out Oculus or Vive by any means. It’s too early in the market’s evolution to call a winner. More than one platform should succeed at scale, as we saw with iOS/Android, Playstation/Xbox, Windows/Mac, Google/Bing, Intel/AMD, etc. Both Oculus and Vive have strong technical advantages and, in many ways, are more innovative solutions. Both will continue to push the envelope through R&D and build better experiences for VR. Oculus has the massive advantage of the Facebook social graph. Vive has the dual advantages that indie developers love working with them, and that Steam is a 125M user monopoly for PC game distribution.

The big question is: will those advantages be enough? Do consumers want “perfect” VR, and are they willing to pay thousands for it? Or do they want another peripheral for their game console that is “good enough” and cheap? If the latter, Playstation will have an early lead. The data suggests it already does.

Back in March, I wrote that 2016 will be the year when VR reaches the rest of us. 2017 will be the first year of the platform wars. Time will tell who the winners will be, but if I were a developer, I certainly wouldn’t rule out Sony.