The Business of Virtual Reality: A Conversation with Ariel Shimoni (Part II)
What is the future of virtual reality? In Part 1 of our discussion with Ariel Shimoni, StartApp’s Director of Virtual Reality, Shimoni outlined where we stand in the VR lifecycle – and why we shouldn’t be waiting for the “killer app” to arrive.
Today we talk about the role that VR content will play in VR’s development, measurement in virtual reality, and how brands and publishers should consider what they deliver to the end user – as well as how to monetize those relationships.
Note: This conversation has been edited for length & clarity
You spoke previously about VR content that’s been driven by the gaming sector. Where do you see other immediate use cases? Are there any brands that you’re seeing doing really interesting stuff?
Ariel Shimoni: Other than gaming, I see a movement in the education sector. Both VR and augmented reality are something that they can leverage for hands-on education, getting students of a variety of ages really, really excited about a topic
VR is also being used in healthcare as well – in patient care. For example, VR is being used to create a meditative state of mind for people who are bedridden after a surgery or for elder folk that are in long sessions of treatment in hospitals, helping them calm their senses. I’ve read about it in a few places and I thought it was just brilliant.
What about monetization? Who is going to make money at this? First, on the publisher side, how should they be thinking about monetization opportunities in VR? Is it appropriate to characterize their dilemma as a choice between paid content and integrated advertising? Where are the opportunities and the obstacles on both fronts?
Ariel Shimoni: The in-between of monetization through paid content or through paid software versus through VR advertisements has to do a lot with the type of content that you create and what platform you’re going for.
For example, the high end rigs like the HTC Vive or the Oculus Rift have their own distribution platforms like Steam and the Oculus Store, and you see there’s a vast majority of paid content. These are premium content, games, and experiences that people are willing to cough up $60 for, which is the price of a full-feature console game today.
In the high-end part of the VR ecosystem, yes, it’s very, very similar to what we see in the console gaming industry. When you scale down and go to mobile VR, which is something that is a little bit more casual, you see a lot more variety in the type of apps that are available in there.
There is a far wider audience that is consuming the content. Most of these people are maybe Cardboard users that will use the VR experience once or twice, will show it to their friends, and toss it aside. Here, a paid model is far less relevant. Then in comes advertisements. And that’s what we do, or at least try to do, in my department at StartApp.
How does that work? What are you seeing around advertising? It’s such a new area and I know finding the data and finding the right ways to integrate ads into a VR experience that’s aligned with the user behavior is hard. What are all the opportunities and obstacles that you see around advertising in virtual reality?
A: With VR comes both opportunities – that I’ll talk about in a second – and a lot of challenges. How to not break the immersion of the experience? How do you not make the user throw up or feel physically uncomfortable with the ad that you’re placing in front of his face?
In terms of the opportunities – and this is something I’ve been talking to a lot of agencies about – I believe VR is going to mature into the most effective advertising tool we have seen.
In terms of attention and how memorable your brand would be, VR is something that is unmatched. It is on the advertisers and marketers to understand how a story should be told inside these experiences and how to build these stories. It starts with finding the right production company that really knows how to build a 360 environment around whatever story you want to tell.
Here in New York we’ve managed to partner with a few very, very good production companies that are working with some agencies in the city. From there, and maybe this is kind of where VR is really lacking, you go about trying to distribute this thing and this is where things are a little slow right now. Like we said, the option is not here yet. Set your expectations right and understand that you will get some traffic but not even close to mobile or desktop.
On the publisher’s side, we work with them very closely to discover how to integrate an advertisement inside their existing experience that might not interfere. For example, if you have some video content a classic pre-roll of a 360 video can be very familiar and easy to integrate.
To take it further, you can integrate products inside your experience via interactive 3-D models. For example, a bank can put an ATM machine inside an existing VR experience but that ATM is interactive – the use can learn more about the bank, go see a 360 video, all these things that might be a very unique experience for VR.
The last step in this advertising funnel would be: what you can learn from the experience? That’s where analytics come in. This is where things can get a little bit tricky. What can we learn from a user inside an immersive experience inside VR? On desktop, you can know where the cursor is or where he clicked. On mobile, you also have very specific location data and know exactly what the click rate & install rate are.
In VR, we can track where the user is actually looking. If you have your logo displayed and the user is looking at it, did he just glance at it or did he spend a good second looking directly at your logo or did they look all the way to the back and just check out some flying birds that you put back there? All of these things are a part of what we can learn inside VR.
The next step of this is called emotional tracking. By using a lot of sensors inside of the device we are able to understand whether or not the user has been pushed back by something or if his device jiggles – whether he’s laughing or not.
How do you talk to brands and agencies about measurements around virtual reality?
A: That’s a really interesting question because as a part of the discussion we’re trying to understand and define non-existing KPIs . These things still need to be cultivated and I don’t think there’s enough real data to support it yet. We’re living in an era where KPIs and even ROI is a little bit pushed to the side and is being overtaken by building an experience and understanding how to sell or tell a story in these environments. I think that’s where we are right now.
Where are you seeing the real uptake globally?
A: The U.S. has been the dominant power in VR consumption. The entire ecosystem. From the companies that invent all the way down to the people who buy the hardware and consume the content. The US has been almost completely alone. After that, and way back, is China and then we have a fraction of a percent in Europe.
Japan might have their own thing going on but I don’t have a lot of data about what’s going on specifically with VR in Japan. So far it is almost exclusively a US thing.
Let’s close out on the topic that may be the hardest one for you to talk about, which is you. What’s your background? How did you get to VR and this place? Where did you grow up? How did you get to develop a real interest in VR?
A: Originally, I’m from a small kibbutz down near the south of Israel. Like I said, I’ve been a gamer since I can remember. I remember getting my first PC when I was about five years old. I’ve been obsessed with role-playing and adventure games since I was very young.
That kind of opened up my thinking about virtual reality back in the ’90s when I was a very young teenager. Nintendo came up with their VR device, which was a complete debacle.
With playing role-playing and adventure games, specifically, there is an escape there, right? You’re a wizard in this world with demons and monsters and you always want to see what’s over that other hill and explore. Just the idea of immersing myself in these worlds was something I literally dreamed of.
I’ve been in digital advertising for about 10 years. Six of them with StartApp working with app developers and game studios on monetization. About two and a half or three years ago, when news started growing about VR and Facebook is buying Oculus for $2 billion, I see that mobile VR is really starting to pick up.
It is very clear that mobile is going to be the gateway drug for this technology. Everybody has a smartphone. You can buy a Cardboard for $5 or make one your own and you’re immersed in these worlds. I just jumped at the opportunity. I went to Gil, our CEO, and I was like, “Look, we have an opportunity to explore a completely new medium. We are a mobile company and since mobile VR is right here let’s see if we can do something.”
That was the start of StartApp Immerse – our VR exploration unit. I got one of our graphic designers and a very talented HTML 3-D developer to work on the development stuff. We just started building 360 environments and learning from our mistakes and that was the start of it. It’s been great. It’s been a trip