Virtual Reality Bites

A 3-D goggle maker is scrambling to find customers

With its sleek wraparound visors that can plug into a computer and give gamers the illusion of doing battle on a giant three-dimensional movie screen, three-year-old Seattle-based Virtual i-O Inc. thinks it has a hot product. The question is, does Virtual i-O have a market?

The answer is, just barely. The optical technology in Virtual i-O's top-of-the-line glasses gives users the feel of moving amid 3-D objects--a simple form of virtual reality. But the tantalizingly rich market of game-playing teenagers and young adults remains just out of reach. The technology is still too revolutionary for most of us, especially at $600 for the basic equipment. And even though virtual reality has gotten a boost from such movies as Lawnmower Man and Johnny Mnemonic, technophiles who try Virtual i-O's "i-glasses!," are apt to be disappointed. Today's technology can't match Hollywood's wizardry.

All of which leaves this tiny technology startup in a bind. With its main product still not ready for prime time, Virtual i-O has had to scramble to create a customer base--while driving costs down. "Our strategy is to create extremely versatile products early while selling into the fledgling consumer market," says C. Gregory Amadon, chief executive and co-founder. Determined to stay ahead of the pack, i-O is already working on a prototype that would allow its glasses to act as display screens for palm-size computers.

In the meantime, Amadon, 42, and co-founder Linden Rhoads, 30, have to survive in the nitty-gritty here and now. To do so, they created a lower-priced video version of their glasses that plugs into a TV but lacks 3-D capability. Then they scoured the landscape for new uses and new customers. Two years ago, after talking with a friend who sold dental equipment, Rhoads packed up some samples and went to a dentists' convention in Anaheim, Calif., where she hawked the video glasses as a way to keep patients diverted while they underwent root canal. She managed to find a distributor, and last year, sales to dentists contributed more than $1 million of Virtual i-O's estimated $5 million in revenues. "They're fun and durable," says Ken R. Burnett, a Bellevue (Wash.) dentist. "Sometimes I have a hard time getting the patient out of the chair if the movie is not finished. But they have made my job easier."

WEAR AND TEAR. Virtual i-O also identified several other niches for its glasses. Real estate agents use them to give prospective buyers "tours" of potential properties. Some corporations use them to show training films because employees are less likely to get distracted when they wear them. Law enforcement groups wire them to camcorders that can be maneuvered into hard-to-reach crime scenes. With a long wire, the viewer can survey the scene from a safe distance.

Together, these niches now make up 40% of i-O's revenues. But the company has also worked to make its product more attractive to the home user. When video and software chains complained that the virtual-reality glasses were too expensive and uncomfortable, i-O responded with the $400 video-only version that gives TV viewers the illusion of watching their favorite shows on giant-screen TV. "Moving the price point really helped us in dealing with Virtual i-O," says John Chin, video and games buyer for The Good Guys, a Palo Alto (Calif.) electronics chain that started carrying the glasses in April.

And when a big Blockbuster franchise on the West Coast complained that the glasses weren't up to the wear and tear of rentals, Virtual i-O came back with a sturdier product that could take abuse, says Keith Leopard, product manager for the franchise. In May, the chain started renting the products in 16 stores at $14.92 for two nights.

Research showed the biggest barrier to sales was just getting consumers to try the product. So i-O developed an in-store display with a pair of sample glasses for shoppers to try. It also made the computer-compatible glasses easier to plug in and began packaging them with CD-ROM games. Earlier this year, it beefed up customer service with a toll-free number that operates some evening and weekend hours. And it started running ads in trade publications to let retailers know they were out there. So far, CompUSA, Egghead, and Future Shop, as well as Blockbuster and The Good Guys, carry the i-glasses!

But Virtual i-O still has a ways to go before its i-glasses! are as common as PCs. The company will never capture a mass market until it lowers the price point even further, contends Kathy Klotz, multimedia analyst with Dataquest Inc. "Consumers will not spend more than $200" for this kind of product, says Klotz.

SCARCE SOFTWARE. The company is also hurt by a lack of compatible software. Until recently, PCs weren't powerful enough to generate the rich graphics that make i-glasses! worthwhile. As a result, there's still a dearth of 3-D content on the Internet and on computer-store game racks. But as games appear, Virtual i-O is working with software companies to display its logo on the packages.

Of course, all this marketing effort takes money. Virtual i-O, which has yet to earn any substantial profits, has hooked up with some powerful equity investors, including cable giant Tele-Communications, mouse maker Logitech International, and France's Thomson CSF. Together, they provided $19 million in financing last November and own more than 40% of the company.

Those partners have helped the embryonic company buy some time while the consumer market builds. Even so, i-O faces an onslaught this year from competitors such as VictorMaxx and Forte Technologies Inc. And being first is no guarantee of survival. Seattle-based Virtual Vision filed for bankruptcy two years ago, despite backing from technology magnate Paul Allen. Company leaders say Virtual i-O can avoid a similar fate by keeping its technology cutting-edge, listening to the market, and connecting with partners who can give it marketing muscle. They have a clear vision of the market they want to serve. Trouble is, so far it's just a mirage.

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