Saturday, June 24, 2017

What Ever Happened To Virtual Reality?

Why is this not a "thing" already?  South Park already did an episode about it back in 2014!  Maybe because it won't become a thing - or not much of one.
One of the most interesting things about investing over the last 20 years or so has been the rise of the "Next Big Thing!"   It seems that people these days are no longer content to invest in companies that make profits and pay dividends.  Rather they feel the need to get in on the ground floor on something hot and make themselves billionaires.

Maybe it is started with Microsoft back in 1980 or so.  As I noted before, Bill Gates signed a very lucrative contract with IBM and essentially transferred the entire wealth of International Business Machines Incorporated to that of Microsoft.  IBM went from the 600 lb gorilla of the computer world to a small enterprise software company.  Microsoft ended up becoming one of the most valuable computer companies on the planet if not the most valuable, all based on one product, an operating system.  And not a very good operating system, either.

The mythology quickly spread that if you only had known in advance this was going to become a big thing and had invested on the ground floor like Paul Allen did, you could end up the richest man in the world. From Rags to Riches nearly overnight.  Well, maybe not overnight, but over a period of years.  But the reality of this was, no one could have foreseen that this license agreement would be so lucrative, particularly in the years before the IBM PC when Microsoft was just a marginal player in the software marketplace.

In other words, it is a bullshit story, and people like to show pictures of shaggy-haired Microsoft employees circa 1978 with the caption, "Would you have invested?" - the underlying premise being that you should invest in whatever the latest half-assed thing is coming down the pike.    But that would be a false analogy.   Even the people who invested in Microsoft back then had no idea that this IBM contract would turn out to be such a lucrative deal.   Never confuse getting lucky with being brilliant!

But in the last 10 to 20 years or so, it seems like this get-rich-quick mentality has taken hold in the tech world.  If only we had known the smartphone was coming out, we could all have bought Apple stock when it was cheap.   If we all had invested in this Facebook thing we all would be billionaires.  And so on and so forth.  However, what this neglects to mention is that many of these companies really aren't making much of a profit and some in fact are just hemorrhaging cash.  Of the bunch only Apple seems to have a rational P/E ratio and is cranking out profits and dividends on a regular basis.  And Facebook?  Only the insiders are profiting in a real way.   People who bought the stock retail might be doing "OK" but are not becoming wildly rich.

We've trained a lot of investors to act like Pavlovian dogs, drooling for the "Next Big Thing" -  the next big tech breakthrough, the next must-have handheld appliance or device, or whatever.  As I noted before, Motley Fool was hyping 3D printing as the next big thing.  And it turned out that 3D printing was just a thing.  It's an interesting thing, it's a thing that's been around for a very long time in the form of urethane printers, but is now gone more mainstream.  But it wasn't a sea change or a new paradigm and it didn't "Put China Out Of Business" or any of the other claims were made by the hypsters and the hucksters.

The Apple Watch was promised to be the "Next Big Thing!" but never really went anywhere. Wearable computing was supposed to be the must-have appliance for everyone.  Everyone would have to have a Fitbit and so on and so forth.  It didn't quite work out that way, although quite a few products were sold.

People thought that if Apple made a lot of money selling one product then they would make a lot of money selling other products.   They didn't learn the lesson from Microsoft that a lot of these tech companies are Johnny One-Notes, and fail miserably in any area outside their core competency.  And I suspect you will see this happen again, as some computer company or cell phone company starts to believe they can build self-driving cars.

The "Internet of Things" we were told was going to be the Next Big Thing.  All of us were going to buy a "Nest" thermostat so we can control our house temperature from our smartphone, or open our garage door, turn lights on and off, or look into our refrigerator to see whether we had any food, or all sorts of things which sounded really cool, but most people didn't want to actually pay for.   Most folks, like myself, thought their thermostat worked OK, and didn't really need to access it from a smart phone or have it hacked by Russians.   When I go away, a neighbor stops by and checks on the house - a lot cheaper and easier than dicking around with WiFi enabled appliances.

The difference between the smartphone and the smart refrigerator is that the smartphone became a must-have appliance for nearly every American and sales skyrocketed.  Not so many people need a refrigerator with a camera in it.  In fact most people just want the simple plain refrigerator.

And the problem with smart phones is, well, they are a commodity item now, sold on price, not exclusivity.   You pay more for data access than you do for the device - and even data plans are dropping in price.   There is no real headroom left on smart phones, just as PC prices (and profit margins) came crashing down once everyone had one.    When an item becomes a commodity, prices plummet - which is why the car business is murder and has tight margins.

Virtual Reality was touted as the Next Big Thing after all these other Next Big Things, and it seems to be stalling as well.  Oculus Rift made a very loud announcement about their VR headset and then delayed quite a long time and introducing it.  Once it was introduced, sales were less than expected and there were some management troubles at the company.  Worst yet, other companies were producing VR headsets that are basically just headpieces that mount on the standard smartphone, undercutting the cost of the standalone Oculus Rift.

Facebook bought Oculus Rift and Zuckerberg claims it will be "The Next Big Thing!"   But I suspect like Microsoft's forays into smart phones, gaming, MP3 players, and so forth, it may end up being a distraction for the company more than anything.

Unlike a smartphone, a virtual reality headset really isn't a must-have item.  And in fact a lot of people just really don't want it, or are just not interested in it, or just really don't even know it exists. Sure, it generated a lot of buzz with online gamers and whatnot who would enjoy the alternative reality aspect of it.  But the rest of us are not so interested in walking around with something clamped onto our head.  Most of us feel we spend way too much time using smartphones, tablets, and computers as it is, and would rather experience more reality than virtual reality.

Compounding this are some technical glitches with the VR headsets.  Unless the frame rates can keep up with reality, when the user moves his head the image on the VR headset is slightly delayed due to the processing time needed to render the images, as well as inaccuracy in the headset tracking position software.  As a result, the user's inner ear signals to the brain and the visual signals from the eye are offset. This produces a condition very much akin to sea sickness - actually the same condition -  where your inner ear is giving you one message (rocking motion) but since you're inside a ship it appears the walls and ceiling are stationary.  Power-vomiting can ensue.  This is not a good selling point.

Some are arguing that augmented reality is the wave of the future.  I find this very interesting as I recall that IBM used to run a series of ads more than two decades ago that showed a guy sitting on a park bench with some sort of Google Glass type of device on his head, and he was manipulating a spreadsheet by reaching out into space.  He could see the numbers overlaid over reality - an augmented reality application decades ahead of its implementation.  It was sort of like those AT&T ads from the past promising all sorts of great things in the future.   Many of them came true, too - just not from AT&T, who turned out to just be an ISP.

Augmented reality promises to reduce or eliminate the "Vomit Comet" aspect of virtual reality, but obviously cannot deliver on the ultimate virtual reality experience.  Of the two, I will put my money on augmented reality, particularly if they can make that Google glass thing kind of work.  But it seems that since Google Glass (another Next Big Thing) failed miserably in the marketplace nobody has been interested in eyeglass wearable computing.  In fact the entire wearable computing things seem to sort of flop too.

This is not to say that any of these things I mentioned above won't eventually become successful, as they will.  It's just really hard to predict when they will become successful and how.

So how do you pick the right horse?  The answer is you can't.  Sometimes it's just best to sit on the sidelines and watch these things play out rather than try to jump in, particularly jumping in too soon before the market has settled out and the weaker players have gone bankrupt.

You don't have to run in every race.  You don't have to invest in everything that comes down the pike. It's better to run in races you think you can win and overall have a winning record, then to try to do everything and lose more often than you gain.

Leave the "Next Big Thing" to the Venture capitalists and people who can afford to lose Millions and Billions.