Determinants of Diffusion of Virtual Reality

Table of Contents

List of Figures

List of Acronyms

1 Abstract

2 Introduction
2.1 Problem and Goal
2.2 Thesis Structure

3 Virtual Reality Technology
3.1 History
3.2 Recent Developments
3.3 Definition and Distinction
3.4 Related Technologies

4 Theoretical Framework
4.1 Innovation Diffusion Processes
4.1.1 Innovation
4.1.2 Adoption
4.2 Additional Terms
4.2.1 Diffusion Theory by Rogers
4.2.2 Awareness
4.2.3 The Bass Diffusion Model
4.3 Compatibility and Network Effects

5 Virtual Reality - The Object of Diffusion
5.1 Determinants of successfull Diffusion
5.2 Finding initial Markets
5.2.1 The Gaming Industry
5.2.2 The Adult Industry
5.3 Model Evaluation
5.3.1 Critical Examination

6 Conclusion and further Questions
6.1 What can hamper the Diffusion?
6.2 Closing Comments

References

STATUTORY DECLARATION

List of Figures

2.1 thesis structure

3.1 The image shows early virtual reality HMD¹ and data gloves developed by NASA Ames Research Center

3.2 Oculus Rift head-mounted display

3.3 Google Cardboard example

4.1 The schematic representation of the adoption process

4.2 Diffusion progress as a function of time

4.3 Diffusion bell curve by Everett M. Rogers

5.1 View of the conceptual model of virtual reality systems

5.2 Search trends of the term virtual reality on Google between January 2013 and August 2015

5.3 A theoretical diffusion curve of virtual reality with several saturation levels

5.4 Global Games Market 2012-2017 by Newzoo Games Market Research from 2014

5.5 Several market saturation levels

List of Acronyms

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1 Abstract

Every technological revolution, beginning with the invention of the hand axe, the wheel, train tracks, the telephone, television, all the way up to the computer; they all had a definative influence on society and its economy. The technological advances press a continuous demand for new answers to an outdated political and jurisdictional system. Thereby, society as a whole is forced to undergo reconstruction.

Numerous important researchers, as well as the mass media, are describing virtual reality (VR¹ ) as a milestone of technological development. The age of VR has just begun, and already it is changing the way we communicate, consume and work. It is reasonable to assume VR as the next dominat me- dium of the future. Predictions made on VR technology foresee an adoption within society and mass markets in future times, yet lack the ability to find the specific determinants of a positive diffusion scenario. This renders such prediction inadequate, as they are not based on observable data.

In this paper a definition of VR is developed that captures the technology a theoretical construct. Furthermore, the on-coming diffusion of VR into ’Initial Markets’ is analyzed. Therefore, fundamentals of diffusion- and ad- option theory are used as the theoretical framework. Representors of such market spaces are chosen carefully and are comprised of; the computer- and video-gaming industry and the adult entertainment industry. Whereby, the adult entertainment market recieves closer attention due to its capacities to innovate media technologies.

2 Introduction

Despite historical traces dating back to the 1950’s, VR technology stands at a respectively early stage in its development. Several large companies such as Facebook, Nokia, Samsung and Google are conducting research and developing VR-products for the consumer markets. However, diffusion in these markets is currently not taking place, making it impossible to gather relavant data. The proposed solution utilizes core ideas of the diffusion- and adoptation theory, as well as characteristics of the network industries in order to identify important determinants of a diffusion of virtual reality.

2.1 Problem and Goal

The starting position of the analysis is the assumption that VR will defuse. So another question that arises is how will VR diffuse? In other words, which individuals are likely to be early or later adopters of VR, how long will this diffusion process take, and what factors will determine the eventual shape of VR technology?

It can be prefixed that virtual reality is not a single good like a microwave or a car. The technology appears in complex systems of hardware devices and media content working together. Therefore it is no way to identify "a single virtual reality" that can be inputted into an emperical model that is able to output market chance predictions.

The diffusion theory models are properly designed for single goods or clearly distinguished technologies like electrical-driving cars, home internet access or cable tv connections. Furthermore, diffusion models create better results with an assumed market potential as a saturation level.

Therefore, the two main problems that appear during a diffusion analysis of VR can be determined at this point:

- Virtual reality is a complex term for a technology that includes lots of hardware devices and software applications that cannot be fully described and distinguished for now.
- The assumptions of a market potential and the identification of initial markets are not self-explanatory and must be explained, sufficiently.

The thesis concentrates on finding arguments to identify initial markets and to discribe the technology at a meta level. It deals with VR as the object of diffusion.

Virtual reality can also be seen as a driving diffusion force for specific ap- plications. However, this is not the scope of the thesis due to the early development state and the low marturity level. Even though it is imagin- able in a later stage of development caused by the foundational character of the technology.

Due to the range of imaginable possible devices and a not foreseable range of media content provisions the description of the whole technology must be a theoretical approach.

The goal of the thesis is to argue a theoretical positive diffusion scenario of virtual reality seen at a meta level aided by determinants despite the absence of analyzable data.

2.2 Thesis Structure

In the previous section the main question and problem where introduced. The theoretical framework is described in chapter 4. It will contain fun- damentally explanations of important terms like Adoption, Innovation and Diffusion and explain the relevant diffusion theories based on the theories by Everett M. Rogers and the Bass Model by Frank Bass. Both models in conjunction on the basis of utility awareness provide indic- ations to figure out most relevant determinants whose degrees of charac- teristics work as criteria for a diffusion wich are described in section 5.1

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Figure 2.1: thesis structure

3 Virtual Reality Technology

Although, virtual reality techniques are used in sciences like medicine, en- gineering, design and within military since years, the scope of the thesis are the mass market relevant manifestations and a diffusion within consumer markets.

3.1 History

It is important to know that VR didn’t just come into being in the last few years. Although, digital flight simulators became widly utilized for pilot training in the 1970s. (Gigante 1993, p. 1) Some people identify the birth of virtual reality in rudimentary Victorian "stereoscopes," the first 3D picture viewers. Others might point to any sort of out-of-body experience. But to most, VR as we know it was created by a handful of pioneers in the 1950s and 1960s.

Conceptual manifestations of virtual reality exists since the 1920s. The technology was first introduced by the Link Corporation, which created a simulated training device for pilots called the Link Trainer. It basically consisted of an airplane cockpit set atop a pneumatic platform which was controlled by the pilot via a directional stick. The whole platform shifts in response to the pilot’s control as the horizon line changed. Movie pro- jectors would later be introduced to the device in order to provide a more realistic experience.(Gaddis 1997)

In 1962, after years of work, filmmaker Mort Heilig patented what might be the first true VR system, a multi-sensoral simulator was called Sensorama. The viewer could take a motorcycle ride through New York, complete with fan-generated wind, the noise and smells of New York. However the system was not interactive. The route was fixed and pre-recorded. (Gigante 1993, p. 5)

In 1965 Sutherland (1968), considered as a pioneer of computer graphics explains the development of a tracked stereoscopic HMD at Harvard Uni- versity.

Another common virtual reality related device are wired gloves. In 1985 the company VPL Research, Inc. is founded by Jaron Lanier. The company created the DataGlove. The DataGlove is an instrumented glove that re- ports the posture of the wearer’s hand to the computer. It was an contract work for the NASA VIEW lab. Later in 1989 the company announces a complete virtual reality system called RB-2. Mattel introduces the Power- glove and tracking system for Nintendo Entertainment System, which fails as a video game product despite a reasonable price.(Boas 2013)

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Figure 3.1: The image shows early virtual reality HMD and data gloves developed by NASA Ames Research Center

Source: https://ia600304.us.archive.org/13/items/AILS_AC89-0437-11/AC89-0437-11.jpg

In 1991 the company virtual reality Systems, Inc. releases their VR- 2 Flight Helment. It was the first head mounted display priced under $10000.(Sherman/Craig 2002, pp. 24-35)

Virtual reality technology has been prohibitively expensive, the equipment being too bulky and graphics and game play being subpar in the early years. Even though virtual reality was promising as a technology but it was not ready for the mass market in the shape of entertainment products.

In order to provide a market overview the following section concentrates on the recent developments in virtual reality and the consumer products.

3.2 Recent Developments

Dr. James Clark, Chairman of Silicon Graphics Computer Systems Inc.¹ predicted that ...soon the home computer will have the power and functionality of VR graphics, and such a telecomputer will enable a whole new range of applications to be engaged in by the ordinary user...

(Gigante 1993, p. 2). This statement might have been ahead of the times. It was in 1992. Now, 23 years later, the statement could match the developments much more. In the following there are some important projects collected. These examples shoud illustrate the recent developmental state of virtual reality technology.

Oculus Rift In 2012 an entrepreneur named Palmer Luckey revealed a $300 virtual reality headset called the Oculus Rift. While the Rift became a symbol of VR’s resurgence, the groundwork, as described in section 3.1, had been laid years before.

It was initially proposed in a Kickstarter campaign² during which Oculus VR (at the time an independent company) raised US $2.4 million for the development of the product.

In March 2014, Facebook agreed to acquire Oculus VR for US $2 billion in cash and Facebook stock. Mark Zuckerberg, CEO of Facebook explained the acquisition on his fanpage by the following "...Immersive gaming will be the first...After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face just by putting on goggles in your home."

Software, most notably video games, must be custom programmed to use the Rift. Therefore Oculus VR offers a software development kit. This is a feature complete SDK³ which handles the difficult aspects of making content for a virtual reality headset for the developer, such as the optical distortion and advanced rendering techniques.

The Rift is an open platform, and thus developers do not need any approval or verification to develop, distribute, or sell content for it, and do not have to pay any licensing fees. (MCV/Matthew 2015)

The Rift will be released in Q1 2016, making it one of the first consumertargeted virtual reality headsets. It has a resolution of 1080x1200 per eye, a 90 Hz refresh rate, and a wide field of view.(oculus.com 2015)

Google Cardboard Google Cardboard is a virtual reality platform de- veloped by Google for use with a fold-out cardboard mount for a mobile phone. Intended to be a do-it-yourself starter kit, Google Cardboard is a head-mounted housing unit for smartphones. The compbination of a smartphone with the cardboard and a supporting application creates a VR headset.

It is intended as a low-cost system to be a do-it-yourself starter kit to encourage interest and development in VR and VR applications. It was in- troduced at the Google I/O 2014 developers conference for Android devices.

Google provides two software development kits for developing Cardboard

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Figure 3.2: Oculus Rift head-mounted display

Source: http://www.thesixthaxis.com/wp-content/uploads/2013/10/OculusRift-Final.jpg

applications. One for Android operating system, and one for the game engine Unity⁴. Apps that support the cardboard are available on the Google Play store and App Store for iOS.(CNet/Broida 2014).

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Figure 3.3: Google Cardboard example

Source: http://cdn.slashgear.com/wp-content/uploads/2014/12/fold1.jpg

Google Jump Jump is an ecosystem for virtual reality filmmaking to create 360 degrees movies developed by Google. It was announced at Google I/O on May 28, 2015.

Much as Google did with the Cardboard viewer, for Jump the company developed specifications for a circular camera array made from 16 cameras that it will release to the public. Once footage has been shot, the VR video is compiled from the individual cameras through "the assembler", Jump’s back-end software.

The assembler uses computational photography and "computer vision" to recreate the scene while generating thousands of in-between viewpoints.[12] Finalized video shot through Jump can then be viewed through a stereoscopic VR mode of YouTube with a Cardboard viewer.(Verge/O’Kane 2015; androidcentral.com/Duino 2015)

Gear VR Samsung Gear VR is a virtual reality head-mounted device de- veloped by Samsung Electronics in collaboration with Oculus VR. It can be used in combination with a samsung smartphone that works as the screen and driving computer, mounted inside the Gear VR device. Like Google Cardboard, Gear VR has no display itself. But it has Oculus Rift’s head-tracking module built into the headset unlike Google Card- board, enabling more accurate and lower-latency tracking than headsets that solely rely on standard mobile sensors. Additionally the headset has numerous input methods and a headband to keep the device on people’s heads.(Samsung 2015)

Motion-Sensing There are several projects that aim motion-sensing and haptic simulations. For instance, PrioVR⁵ is a full virtual reality suit con- sisting of sensors, a chest harness, headband, tracking hub and hand con- trollers with additional elements on higher tier suits. Another example is NeuroDigital, a small company based out of Miami, FL, that successfully completed a Kickstarter campaign to raise funds for GloveOne⁶.

Its glove is designed to give users haptic feedback in VR applications.

The following section addresses the development of a broad definition in order to capture the technological developments overall.

3.3 Definition and Distinction

Virtual reality seems to be a the technological system aimed at creating an electronically simulated environment in which the user experiences a sense of presence.(Biocca/Levy 2013, p. 41) But it has often been portrayed as a medium, like telephone or television, typically defined in terms of a partic- ular collection of technological hardware, including computers, 3D goggles with headtracking features, headphones, and motion-sensing gloves. This conceptual understanding is useful to producers of virtual reality related hardware. However, for researchers, policymakers, software developers, or media consumers, a hardware- or device-driven definition does not go far enough because of the following reasons:

It fails to provide any insight into the processes or effects of using these systems it also fails to provide a conceptual framework from which to make regulatory decisions and fails to provide a method for consumers to rely on their experiences with other media in understanding the nature of virtual reality.

A technology-based view suggests that the most salient feature in recog- nizing a "VR system" is the presence or the absence of hardware devices. Examining the technological apparatus alone does not seem adequate for this purpose.

Also an related problem is the lack of theoretical dimensions across which virtual reality can vary. All systems meeting the basic hardware requirements “are VR,” and all others are “not-VR.” However, once this initial classification has been made, such a definition offers no suggestion of how systems classified as “not-VR” may resemble those that “are VR,” nor how different virtual reality systems can be compared.

In the absence of a clear theoretical unit or any relevant dimensions for study, it is difficult to perform any kind of research that addresses the similarities and differences among various virtual reality systems, or that examines VR in relation to other media. Probably the most effective solution to the problems with the current usage of virtual reality would be to abandon it entirely (at least for research purposes), in favor of a more theoretically grounded term.(Biocca/Levy 2013, p. 41)

Most popular definitions of virtual reality make reference to a particular technological system. This system usually includes a computer capable of real-time animation, controlled by a set of wired gloves and a position tracker, and using a head-mounted display for visual output.

The following are three examples of such definitions:

virtual reality is electronic simulations of environments experienced via head mounted eye goggles and wired clothing enabling the end user to interact in realistic three-dimensional situations. (Coates 1992)

Virtual reality is an alternate world filled with computer-generated images that respond to human movements. These simulated environments are usu- ally visited with the aid of an expensive data suit which features stereophonic video goggles and fiber-optic data gloves.(Biocca/Levy 2013, p. 43)

The terms virtual worlds, virtual cockpits , and virtual workstations were used to describe specific projects In 1989, Jaron Lanier, CEO of VPL, coined the term virtual reality to bring all of the virtual projects under a single rubric. The term therefore typically refers to three-dimensional real- ities implemented with stereo viewing goggles and reality gloves. (Krueger 1985)

A sustained definition is needed, addressing the aforementioned faults by defining virtual reality as a particular type of experience, rather than as a collection of hardware. Defining virtual reality in this way provides a con- crete unit of analysis and a set of dimensions over which VR can vary, and means for examining VR in relation to other types of sensual experience. The following definition is provided for targeting the experiental nature of virtual reality and the basic understandig for the thesis:

Definition 1.⁷ Virtual reality simulates environments with the capability to stimulate human senses by allowing the user a bodycontroled type of interaction.

The definition also fulfills the purpose of an ambitious goal for developers of applications that taking advantage of virtual reality devices and the device manufactures as well. The quality of a VR system can thus be measured in the degree of realism of sense-stimulation.

However, whether or not a system can be classified as immersive VR depends crucially on the hardware, software, and peripherals (displays and body sensors). Thus, for this analysis of the diffusion a conceptual model is inevitable and explained in chapter 5.

3.4 Related Technologies

Some technologies are mentioned together with the term virtual reality and thereby sometimes put at the same level. In order to have a clearer distinction important related technologies will be explained briefly.

Holographic Displays Normally, a hologram is a photographic record- ing of a light field, rather than of an image formed by a lens, and it is used to display a fully three-dimensional image of the holographed subject, which is seen without the aid of special glasses or other intermediate optics. A hologram is an encoding of the light field as an interference pattern of seemingly random variations in the opacity, density, or surface profile of a photographic medium. When suitably lit, the interference pattern diffracts the light into a reproduction of the original light field and the objects that were in it appear to still be there, exhibiting visual depth cues such as parallax and perspective that change realistically with any change in the relative position of the observer.

In its pure form, holography requires the use of laser light for illuminating the subject and for viewing the finished hologram.

Scientists of Griffith University’s School of Engineering are working at a graphene-enabled high-definition 3D holographic display with a wide view- ing angle of up to 52 degrees, based on a digital holographic screen com- posed of small pixels that bend the light. Currently, the technology has only been used to produce holographic images up to one centimetre in size. A holographic display is not suitable for a virtual simulation of an realistic environment.

Augmented Reality Augmented reality (AR⁸ ) is a live direct or indirect view of a physical, real-world environment whose elements are augmented by computer-generated content such as sound, video, graphics or other data. As a result, the technology functions by enhancing one’s current perception of reality. Google Glass is an example for an augmented reality device: Google Glass is an head-mounted display that can receive voice commands from the wearer. It displays informations like emails, phone calls or other information e.g. about the wearer’s location directly into the field of vision of the wearer.

There are several apps for smart phones available that have similar behaviour like displaying star constellations when the device is pointing into the real direction of the constellation.

The main reason why augmented reality is different to virtual reality is, because it enhances reality rather than replace reality by a simulated en- vironment.

4 Theoretical Framework

In order to understand a potential diffusion of virtual reality and how the technology will enter mass markets it is necessary and helpful to have a focus on some established models of innovation diffusion processes and the general theory of adoption of innovations. During this chapter also relevant key therminologies will be explained.

Diffusion processes arise because potential adopters does not take over the innovation in the moment of the product launch.(Hensel/Wirsam 2008, p. 4) It is a process depending on time and influenced by external and internal determinants.

The chapter will introduce the Bass diffusion model as a mathematical approach to predict market chances for innovations. There are several diffusion models e.g. the semi-logistic- or the Gomperz diffusion model. These models are also capable to predict diffusion curves. In order to reveal the difficulties of a diffusion analyis of virtual reality, the Bass model should be sufficient for the purpose.

Additional relevant theories also will be described in the following subsec- tions. Due to the conceptual model of virtual reality technology described in chapter 5 the knowledge of the characteristics of network industries and the properties of network commodities are important to figure out the de- terminants of a positive diffusion scenario. Thus, it is part of this theory chapter.

4 Theoretical Framework

4.1 Innovation Diffusion Processes

The process of innovation and it’s management is beyond the scope of this thesis. So the analysis concentrate on the diffusion of innovation.

4.1.1 Innovation

Innovation means new idea. The term orignates from church latin and was shaped by the Saint Augustin (400 A.D.¹ ), who used the term when he spoked about renewals. The term in economical usage is mainly shaped by Schumpeter (1939): Planning and implementation by entrepeneurs who are creative, strong-willed, charismatic and willing to take risks (Trommsdorf/ Steinhoff 2007, p. 26)

The term has to be differentiated from the term invention, which means the technical realisation of a problem solution out of research and development activities. So invention is the prestage of innovation. (Hensel/Wirsam 2008, p. 9)

4.1.2 Adoption

The term adoption discribes the decission of potential customer or demander to take over an innovation in the form of a purchase of a specific product or the moment of implementation of a specific process. The object of the theory of adoption is the determination of factors which leads to an adoption or a rejection of an innovation at the individual level. (Schmalen/ Xander 2000, pp. 411-440) The figure 4.1 visualizes the adoption process in considaration of external influencing factors.

As shown in 4.1 the adoption process is a complex mental process which every individual or other decision-making unit passes thru starting with the first remark of the innovation up to the final decision to adopt and use or to reject the innovation.

The process includes the following five phases:

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Figure 4.1: The schematic representation of the adoption process

Awareness

The individual demander noticed the existence of a new offer.

Interest

A possibility of use comes into the individual’s mind. Regarding to the pending problem of decision further information must be collected.

Evaluation

The pros and cons of an adoption decision are weighed by the individual followed by an assessment about the utility.

Trial

With the first trail the individual comes to the conclusion that the innovation fits the requirements.

Decision

The decision takes place when an individual (or other decision-making unit) engages in activities that lead to a choice to adopt or reject the innovation.

The act of purchase is equal to the moment of adoption in the classical theory of adoption (see Hensel/Wirsam 2008, p.22). However, the adoption can also take place without an additional monetary trans- action.

In figure 4.1 the technological, economical, social environment are high- lighted as a grey border with arrows pointing at the inner box. The border represents exogenious derterminats. These determinants outside of the so- cial system can change their degree along the course of time. (Wimmer/ Roth 1994)

4.2 Additional Terms

The term technology means the knowledge about scientific response rela- tionships aimed to find solutions for practical problems.(Specht/Beckmann 1996, p. 13)

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Figure 4.2: Diffusion progress as a function of time

Source: http://player.slideplayer.org/1/669630/data/images/img5.jpg

Technique is the actually utilized element of a technology or rather the direct usage of the technology within products or production. (Brockhoff 1999, p. 27) The title of the thesis is Diffusion of Virtual Reality Techniques in Communication and Markets. So technique can be a specific product. The usage of specific products for entertainment or communication pro- poses is more comprehensive to a customer rather than the understanding of a whole technology.

4.2.1 Diffusion Theory by Rogers

In 1962, Everett Rogers put forth the famous theory of diffusion of innovations. According to Rogers’ theory, an innovation goes through a process of diffusion in the population over time. This process will proceed in phases as the five types of consumers adopt the product.

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¹ Head-mounted Display

¹ Virtual Reality

¹ Silicon Graphics, Inc. was an American manufacturer of high-performance computing solutions, including computer hardware and software, which was founded in 1982 by Jim Clark, a former student of Ivan E. Sutherland.

² Kickstarter is a global crowdfunding platform based in the United States.

³ software development kit

⁴ Unity is a platform for game development. For more information see https://unity3d.com/

⁵ http://www.priovr.com

⁶ https://www.gloveonevr.com

⁷ own definition

⁸ augmented reality

¹ Anno Domino - Years are designated as after the Christ’s birth