Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

The race is on to get consumers excited about the latest generation of virtual reality headsets. Unfortunately, they're unavoidably tied to an expensive product that consumers just don't want.

HTC announced this week that it's taking orders for its Vive VR gaming kit for May delivery. The struggling Taiwanese smartphone maker is part of a growing crowd that includes Facebook's Oculus and Samsung Electronics. Sony will join the fray later this year with its Project Morpheus.

``This is Real,'' is the headline for HTC's pitch, which touts the product's ``breakthrough technology'' and ``best in VR content.'' Oculus, meanwhile, assures video gamers that ``seeing is believing.''

HTC's offering is priced at $829 ($799 plus $30 shipping), for which buyers get the headset, controllers, base stations and various accessories, including some free games. The Oculus package, announced in January at $629 ($599 plus shipping), includes similar accouterments for its Rift headset, which will ship this month.

What's tucked away at the bottom of the slick Oculus presentation, and is not at all clear on HTC's page, is the costly truth about simulating a swim with whales, a jam on stage  or futuristic space combat: The PC isn't included.

In fact, the VR kit is the least pricey gadget in the whole experience. When Sony and Microsoft release their gaming consoles, consumers don't expect to pay more just to run the fancy controllers. Even high-end gaming PCs -- which can fetch $3,900 -- come with all the hardware needed to dive right in.

Sticker Shock
Headsets from Oculus, HTC require expensive PCs
Source: HTC, BestBuy, HP, Alienware, Oculus
*Price for headset only, excludes PC

The bad news for virtual reality consumers -- who've just put down at least $600 for a pair of goggles -- is that they then need to shell out a further $1,300 or so for the top-end hardware required to process the VR software.

It's even worse news for HTC and Oculus, which are spending millions to develop the hardware and software, only to rely on a product category that's already fallen out of favor with consumers, and which will still take most of the revenue from those who are interested.

This could be good news for Sony because it already makes a powerful and popular gaming computer for the lounge room called a PlayStation.

We already know that PCs are unpopular. Global desktop computer shipments slumped for a fifth year in 2015 to hit 113 million units, and only 39 million of those were consumer purchases, according to IDC analyst Bryan Ma. Overall average desktop prices also fell, to about $540.

Drilling down further, the data is even more discouraging. Less than 5 percent of all consumer desktops sold last year were priced above $1,300, less than 3 percent at more than $1,500, and a mere 1 percent at more than $1,900, says Ma. That means two things: First, 95 percent of all PCs sold last year are unlikely to be able to run VR without some kind of upgrade; second, the number of consumers willing to shell out as much as $1,900 to play games is extremely small.

It hardly bodes well when your shiny new product requires a device that 95 percent of consumers don't want to pay for.  

Oculus has tackled the problem by teaming up with PC makers to offer headset and PC bundles, but at discounts of $100 to $200 these are unlikely to move the needle much.

Bulls will point out that VR could be the killer app that spurs new PC growth. But the technology is neither word processing nor the Internet, the two major drivers of uptake in the past 20 years.

They also say that that VR is about more than just gaming, with possible commercial applications from medical training to bomb disposal. Yet there's a PC on almost every office desk in the developed world, and look at how the industry is doing. 

Virtual Boost
HTC shares are up almost 80% in six months
Source: Bloomberg data

VR may cause a short-term uptick in average selling prices as the few computers that do get sold require higher specs. We've seen this before in the PC and smartphone markets where technology development temporarily lags demand for more powerful gadgets. Eventually, hardware makers churn out better devices and prices fall again.

HTC's entry has helped spur an 80 percent rally in the stock over the past six months as speculators bet that Vive will revive the company. That's optimistic for a gadget that will depend both on gaming content and computing power provided by others.

Glossy marketing aside, there's little to distinguish the fundamental hardware of HTC and Oculus, dooming their headsets to become another commodity gadget forced toward a price war. That's the harsh reality.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net