Last week at Google's I/O 2017 developer conference the company made a number of new announcements which are very exciting for VR consumers. Within the industry though, the announcements represent somewhat of a repositioning of industry players, one that puts Oculus' mobile strategy in a rough spot. Oculus was first to market in the 'high-end' mobile VR space when they launched Gear VR in conjunction with Samsung in 2014. Though the companies worked together across hardware and software, ultimately Oculus would be responsible for the software platform (Oculus Home) and Samsung would be responsible for the hardware (Gear VR). The collaboration proved fruitful. Back in 2014, and for several years thereafter, Gear VR was far away the class-leading mobile VR experience. And between a combination of sales and pre-order giveaway bundles, the install base for the headset has grown beyond 5 million units and more than 1 million monthly active users. Impressive numbers—far more than any of the high-end VR headsets—but it wasn't until the November 2016 launch of Google's Daydream VR platform, just six months ago, that Gear VR had any serious competition. This is Awkward [caption id="attachment_63247" align="aligncenter" width="640"] image courtesy Google[/caption] Google's jump into high-end mobile VR with Daydream has brought an unfortunate wrinkle into the Oculus + Samsung relationship... although the two have been strong partners, as a leading manufacturer of Android devices Samsung is an even bigger and stronger partner with Google, and has been for much longer; when you compare the scale of Samsung's Android business to their Gear VR business... well, there's really no comparison. Last week at Google's annual I/O developer conference, the company announced that Samsung would be offering an update to its Galaxy S8 and S8+ smartphones that would make them compatible with Daydream. As the S8 and S8+ are also both compatible with Gear VR, they will be the first phones to support Daydream and Gear VR. And our expectation is that future Gear VR phones from Samsung will continue to be Daydream ready. That means Oculus' formerly exclusive partner for mobile VR is no longer exclusive For consumers (in the near-term) that's a good thing. It means that whether a game is on Daydream or on Gear VR, consumers will be able to play it (whereas other phones can only do one or the other). For Oculus however, this is the beginning of an awkward Google-Samsung-Oculus love triangle and a major new threat for Oculus' mobile VR platform on Gear VR. It All Comes Down to the Numbers [caption id="attachment_55669" align="aligncenter" width="640"] image courtesy Google[/caption] The 5 million unit install base for Gear VR is an impressive figure if you're comparing to other VR headsets out there, but because Google's Daydream platform is not restricted to specific smartphone vendors (whereas Gear VR is Samsung only), its addressable market and growth potential is vastly larger. In fact, Google said last week that with new Daydream ready phones coming to market (including Samsung's update to the S8 and S8+) that the company expects "tens of millions" of Daydream ready phones in the wild by the end of 2017. If things go according to Google's projection, that figure will only continue to grow as (we expect) a larger share of Samsung's future phones launch with Daydream support. Granted, Google still needs to convince people with Daydream ready phones to actually buy a Daydream headset. As we know, hardware is worthless without content. Oculus has certainly curated the largest and arguably best high-end mobile content library on Gear VR so far, but they also had the largest install base to entice developers with. But that seems unlikely to be the case for long since any Android phone can potentially be a Daydream phone, whereas Gear VR is fundamentally constrained only to (select) Samsung phones. New developers interested in building mobile VR experiences need to decide first which platform they'll target. Now with both platforms having controllers and being capable of running on the same hardware, Daydream and Gear VR are largely identical from a game design standpoint. So any developer thinking about building for mobile VR will likely choose the platform with the largest addressable, if not simply release for both platforms. [irp posts="62055" name="Gear VR Controller Review"] Over time that may leave Oculus' mobile platform with little content differentiation to draw users, and a comparatively much smaller pool of potential users to convert to VR users in the first place. Continued on Page 2: It Gets Worse » It Gets Worse That wasn't the only blow to Oculus' mobile strategy at I/O 2017. Perhaps even more critically, Oculus' biggest hardware competitor, Vive, has ceded platform control of it's mobile VR initiatives to Google and Daydream. Google announced last week that they're developing standalone mobile VR headsets, and that HTC and Lenovo would be the first companies to deliver them. This is a significant bolstering of Google's Daydream platform, because it means that HTC is not going to compete at the platform level in this portion of the mobile VR space, and instead has left that work to Google, Oculus' biggest platform competitor in the space. [irp posts="63294" name="Hands-on: Google's Standalone Daydream Headset Prototype with WorldSense Tracking"] That only compounds the problems we identified above in the case of the Samsung S8 and S8+ becoming Daydream ready devices. These standalone Daydream headsets will be an additional set of users added to the Daydream ecosystem, making it increasingly difficult for a developer to justify developing only for Gear VR; and while many will likely deploy on both platforms, developers who only want to develop for one will almost certainly aim for the larger of the two as long as they remain largely identical. Continued on Page 3: How Does Oculus Survive on Mobile? » How Does Oculus Survive on Mobile? Oculus and Gear VR need some differentiating factors if they are going to stand a chance against Google's impending mobile VR takeover. There's at least three places they could create that differentiation, and one move that could at least help put them on even footing. Content At present this is perhaps Oculus' biggest advantage in the mobile VR space. The platform has more than 700 apps, and while not all of them are great, that's a much larger library than Daydream which is currently floating around 150. Oculus could attempt to force content differentiation through funding the development of platform-exclusive content—and this seems likely given past practices—but such deals will become increasingly expensive for the company if the Gear VR install base begins to significantly lag behind the Daydream install base. Experience/Positioning Right now, the capabilities of Gear VR and Daydream are nearly identical from a user perspective. Both now offer a motion controller for input, and in fact there's a number of games that are deployed on both platforms with little to differentiate the experience. It's possible that Oculus could push the hardware envelope and dream up some new tech that would fundamentally differentiate the end-user experience on Gear VR compared to Daydream. It looked like inside-out positional tracking could have been that trump card when the company showed off the impressive standalone Rift 'Santa Cruz' prototype back in 2016, but Google's newly announced standalone Daydream headsets also bring inside-out positional tracking to the table. Other experiential differentiators could be things like eye-tracking, face tracking, mouth tracking, pass-through AR capabilities, and more. The problem though is that these are all currently high-end capabilities and would likely push the price of Gear VR up, necessitating a "premium" positioning of the product and platform, attempting to pitch it as the 'high-end of mobile VR'. Doing so seems risky however, as one of mobile VR's biggest appeals is the low cost. Developer Tech Oculus is quite proud of the engineering work they've done on their developer tools, and in some cases they can bring distinct performance advantages, allowing developers to create better looking games on the same hardware (or identical looking content on less expensive hardware). For instance, on desktop, Oculus pioneered the ASW technique which managed to reduce the hardware requirements for games on the Oculus platform compared to other VR games. It isn't clear if Oculus could create the same advantages in the mobile VR space, but making the lives of developers easier is one way to keep them coming back. Even Footing by Being Vendor Agnostic It would likely take a serious rearchitecting of the company's mobile platform, but Oculus could ditch Samsung as their exclusive partner and make Oculus Home on mobile compatible with any Android smartphone that meets a certain minimum specification, just like Daydream. Such a move would negate some (but not all) of Daydream's core advantages as a vendor-agnostic platform and make Gear VR just one headset of many that would support Oculus Home on mobile. Hell, they could even let Daydream headsets work with Oculus Home. This move would compound well with an approach that seeks to differentiate on a content basis, with Oculus potentially pitching their platform as the place to get the best mobile VR content. And while such a move might seem unlikely due to Oculus' close partnership with Samsung, given that Oculus wants to succeed as a VR platform in the mobile space—rather than a hardware manufacturer—opening the door to as many devices as possible is in their best interest. - - — - - When Google announced Daydream back at the beginning of 2016 it became immediately apparent that the Google-Samsung-Oculus love triangle was due to face some challenges. There's no way that this caught Oculus off-guard either, and so I can only imagine they have been planning their next steps in the mobile VR space. We'll have to wait and see how the company intends to navigate these new challenges, though I would venture to guess that Santa Cruz will play a major role in their forward looking mobile strategy.