As technology has evolved over the past decades, the internet has become an inseparable extension of our daily lives. We are able to communicate, collaborate, and entertain without leaving our homes. It is often easy to take this for granted, but it truly is a remarkable shift in human behavior.
While this trend no longer feels special (or new), our reliance on technology was undoubtedly accelerated by the COVID-19 pandemic. Even as concerns around the pandemic have largely subsided, this period in recent human history led to accelerated technological leaps for our day-to-day lives. For example, 59% of U.S. workers whose jobs can mainly be done remotely are working from home all or most of the time (up from 23% pre-pandemic). Additionally, there has been a growing conversation around whether or not internet access should be a basic human right (OpenGlobalRights).
The pandemic represents an unusual period where consumer technology adoption was driven by immediate universal necessity (hard times force rapid change). Technological progress has enabled higher connectivity in a more physically distributed society. However, more than a year of forced digital interaction resulted in pent-up demand for in-person experiences that human society will always desperately crave (and need).
Location-Based Entertainment: Gaming (while primarily digital) is not fully immune to the desire for in-person experiences. Since lockdowns were lifted, we have seen founders’ renewed interest in merging physical event spaces with the power of virtual reality (VR). This bounceback is illustrated by Sandbox VR, a location-based full-body VR startup. The company raised $79m in Series A funding over the course of 2019 before being pushed into bankruptcy during the pandemic. Despite this setback, management was able to capture another $37m in November 2021 to launch 12 new locations (TechCrunch).
The thesis around this market is that enterprise-grade hardware enabling highly immersive digital experiences (often leveraging popular IPs) will encourage users to visit physical entertainment centers. This may seem like a stretch given the continuous improvement of consumer hardware, but this would mirror what we have seen in the film industry. Between 1995 and 2019, the annual number of movie tickets sold and inflation adjusted box office revenue remained relatively flat (see below chart, The Numbers). Advancements in consumer televisions at home did not materially deter movie watchers from traveling to the theater for an enhanced experience.
Additionally (looking at another example of this theme playing itself out), while e-commerce has made the shopping mall model virtually obsolete, these structures are being reinvented through the implementation of entertainment experiences (bowling alleys, indoor skydiving, escape rooms, etc). Novel activities such as location-based virtual reality centers are logical candidates to help fill out this real estate and attract foot traffic.
Despite these tailwinds, the consumer demand for location-based virtual reality is still generally unproven at scale. The key question is: will this market ultimately be able to prove itself as a meaningful distribution channel (i.e. revenue) for digital experiences?
In short, we do not believe that location based VR entertainment centers are a viable market in the long-term. There are three core reasons driving this takeaway:
Takeaway: Despite growing consumer demand for in-person events and experiences, we do not believe that location-based virtual reality will be a sustainable distribution channel for digital experiences. The gameplay lacks a sufficiently compelling purpose for players being in the same physical space, and the costs of operating a given center will be challenging to maintain due to volume limitations. At best, we think that these centers will provide exposure to virtual reality technology that acts as a driver of consumer adoption.