In this post, I’ll discuss why consumers’ increasing access to virtual reality experiences in coming years is likely to lead to a much tougher competitive environment for many businesses.

To begin with, let’s consider the hypothetical owner of a beachside resort.  This resort owner doesn’t see virtual reality technologies as a big deal today, because being able to walk on a beach and swim up to a pool bar aren’t close to being replicated in virtual reality environments yet.

Instead of thinking about things this way, however, the resort owner should be wondering, “How soon will my customer base have access to virtual reality experiences that are so compelling that they prefer them over coming to my resort?” [1]  This question shows that the resort may face serious competition from virtual reality experiences long before a vacation there can be completely replicated!

As a giant wave of competition from virtual reality experiences begins to materialize over the next few years, many real world businesses will likely react by A) offering virtual reality experiences of their own, B) adding augmented reality features to the real world experiences they offer or C) reducing their prices to stay competitive.

As I’ll discuss below, all of these methods are going to reinforce the effects of the virtual reality spiral [2], a process that is likely to result in many existing jobs, activities and business models going obsolete.

 

Method A:  Real world businesses offer virtual reality experiences of their own

Example A-1:  The Supermarket

Some real world businesses will find that offering virtual reality experiences of their own leads them to adopt more efficient business models.

For example, imagine a supermarket that offers a virtual reality experience that simulates the experience of walking through its aisles with a shopping cart and choosing grocery items from its shelves. [3]  The supermarket then delivers the groceries to their customers’ homes at mutually agreed on times.

By offering this immersive shopping experience, the supermarket would be providing a useful service to people who may prefer to shop without a shopping list and make final decisions at the store, choose each item from a limited number of available brands, browse the aisles of a store with a known layout, etc.

If this style of grocery shopping gains increasing traction, the supermarket’s floors would get emptier and emptier over time, likely prompting them to close their traditional stores and relocate their inventory to automated warehouses after a while.  In turn, the cost savings they realize would enable them to offer better prices than competitors who are doing things the old fashioned way.  As their competitors adjust their business models to compete, many supermarket jobs would become obsolete, reinforcing the effects of the virtual reality spiral. [4]

Example A-2:  The Museum

Other real world businesses may decide to offer virtual reality experiences to consumers in attempts to enhance their brand and/or increase their total sales.  Although they may succeed in achieving this in the short run, any advantage this brings them is likely to be very vulnerable, as this example illustrates.

Imagine an art museum that decides to enhance their brand and increase their total sales by selling $5 passes to a virtual reality tour of their collection.  For a short while, this strategy may provide the museum with additional revenue that they wouldn’t have had otherwise.  Before long, however, serious competition from other free or low cost virtual reality experiences will likely pressure the museum to a) upgrade the quality of their virtual reality tour, b) add augmented reality features to their real world exhibits, or c) lower their real world ticket prices.  This follows logically as we examine the situation in more detail.

As it becomes easier for the public to generate and share their own virtual reality content, a huge number of free or very low cost virtual reality experiences are likely to become available online. [5]  These widely varying virtual reality experiences will provide the museum’s traditional customer base with numerous ways to spend their time other than the museum’s virtual reality tour. Thus, even if the museum’s owners significantly improve the quality of their virtual reality tour over time, it’s very unlikely that they will be able to maintain a $5 price for it, as competition from other virtual reality experiences will pressure them to lower their prices.

More importantly though, time spent by consumers participating in the museum’s virtual reality tour will be time not spent participating in real world activities.  Inevitably, situations like this will lead to diversion of some consumers’ time away from real world businesses, and will also increase consumer expectations about what real world experiences need to be like in order to be worth their time and money.  All of this will lead to increased competition among real world businesses that further reinforces the virtual reality spiral.

Ultimately, many real world businesses that offer virtual reality experiences to increase their total sales are unlikely to derive much of a long term benefit from doing so, unless these experiences result in a new and more efficient business model for them (as in the supermarket example above).  Real world businesses that offer new virtual reality experiences are also likely to find that this only differentiates them from their industry competitors for a short period of time, similar to what happened with corporate websites.

 

Method B:  Real world businesses add augmented reality features to the experiences they offer

Example B-1:  The Museum, Revisited

Let’s think next about the real world experience that the museum in the above example offers (i.e. their “bread and butter” product).  It’s clear that the museum’s owners are going to face an uphill battle if they want their real world offering to compete with an increasing number of virtual reality experiences for their customers’ time, money and attention.  What happens if they decide to compete by making improvements to their product?

If the museum’s owners choose to compete by upgrading its real world features, they would be embarking on a costly path with a very uncertain outcome (given the increasing number of alternatives that consumers would be getting access to).  As a result, they are more likely to upgrade the real world museum experience by adding augmented reality features to it, which would be faster and cheaper to adjust than real world features. [6] As I will show, this avenue is also unlikely to provide them with relief for very long.

To understand why, let’s imagine the case of an impressionist art museum that suddenly finds itself in the following situation.  A group of impressionist art enthusiasts have created a FREE virtual reality experience that is diverting some of their customers’ attention.  This virtual reality experience enables multiple participants to spend some time with simulated impressionist masters as they paint and lecture in their studios, and then virtually tour the locations where they painted some of their best known works. Furthermore, people can participate in this experience even while the real world museum is closed. How should the museum respond to this competition?

If the museum’s owners decide to enhance their exhibits with augmented reality features, customers will quickly come to expect these features as a given.  If the museum’s owners refuse to add augmented reality features but some of their competitors do, then they may soon have to lower their ticket prices because their offering isn’t as high tech as the competition.

In a competitive environment like this, how long would it take before the museum’s augmented reality enhancements largely eclipse the works of art that are supposed to be the main draws to the museum in the first place?  Yet, if these augmented reality enhancements largely eclipse the actual art in the museum itself (which can be simulated in virtual reality anyway), then the real world museum experience would basically resemble a virtual reality experience that requires people to travel to the museum to experience it.

If the real world museum experience ends up resembling a virtual reality experience after a while (due to all the extra augmented reality features), this would reduce the incentive for people to travel to it, as the bulk of what the museum offers (excluding the authenticity of the art) could be experienced in virtual reality without people having to make the trip.

This doesn’t mean at all that viewing original works of art in a museum wouldn’t still be a special experience.  However, it is likely to be much less of a priority for people as the universe of available virtual reality experiences continues to grow, and they have more and more alternative ways to spend their time.  Clearly, if the museum is unable to outshine either the quality, price or convenience of the virtual reality experiences that its customer base has access to, at some point it may not even be worthwhile for someone who lives right next door to it to pay the ticket price they are asking!  The virtual reality spiral is thus likely to affect the museum’s real world business as well.

 

Method C:  Real world businesses reduce their prices to stay competitive

Example C-1:  The Dine-In Restaurant

It’s tempting to think that a nice dine-in restaurant would be completely insulated from the effects of the virtual reality spiral, but the following example illustrates why this is unlikely to be the case.

Let’s imagine a typical dine-in restaurant customer faced with the following choice one evening.  The customer can choose to EITHER have dinner at the dine-in restaurant, OR to stay home, order pizza and participate in an engaging virtual reality adventure with family members located in different cities.  It’s easy to see that if several of the dine-in restaurant’s typical customers suddenly have lots of alternate ways like this to spend their time, the restaurant will have to make a renewed effort to retain their business.

Many restaurants are likely to find that the only way they can compete in an environment like this is by lowering their prices and making their operations as efficient as possible.  To do so may unfortunately involve layoffs and the automation of various processes. [7]

Workers that are laid off as situations like this unfold in multiple industries are likely to spend their money frugally as they try to find real world jobs in a shrinking real world job market. [8]  This should reduce their demand for nonessential real world products and services and increase their demand for virtual reality experiences and resource sharing technologies.  Real world businesses would then have to cut costs even more to stay competitive, illustrating that the virtual reality spiral is unavoidable in this example as well.

Example C-2:  The Bowling Alley

To understand the above more intuitively, let’s imagine that a bowling alley is the only commercial recreational option in a small town.  One year, the residents of that town suddenly gain access to ten new virtual reality experiences that can be shared with others around the globe (e.g. sports simulations, space adventures, museum tours, etc.).  The next year, the residents gain access to another hundred (better and cheaper) virtual reality experiences.  The year after that, they gain access to another thousand (much better and much cheaper) virtual reality experiences.

At what point will the bowling alley’s business begin to suffer?  And how low will they be able to drop their prices to win customers back before they go out of business?  These rhetorical questions illustrate that the virtual reality spiral is likely to raise the competitiveness of the business environment to previously unprecedented levels.

 

Conclusion

In the long run, consumers around the globe should benefit tremendously from the “abundance of choices” that virtual reality makes instantly accessible to them.  However, in the short run, many businesses will struggle to compete with the unprecedented number of experiences that their customers are gaining access to.

As consumers increasingly prioritize virtual reality activities over real world activities, many real world jobs, activities and business models will likely go obsolete.  Nevertheless, I expect that a new class of virtual reality oriented jobs will eventually replace obsolete real world jobs.  See my posts “The Jobs of Tomorrow: Part 2 of 2” and “All the World’s A Stage” for further discussions on this topic.

 

References and Additional Notes

[1]  I’ve recently read some of the brilliant work of Dr. Edward Castronova, which has been very helpful in honing my thoughts about the virtual reality spiral.  In particular, Dr. Castronova has written a lot about how massively multiplayer online role playing games have been increasingly competing with real world experiences for people’s time and attention because of the fun experiences they provide.  As some examples of his work, see his book Exodus to the Virtual World (St. Martin’s Griffin, 2008), and this April 2006 Wired magazine article.

[2]  The virtual reality spiral is the idea that, as virtual reality experiences become better (and cheaper) substitutes for purely real world experiences over time, public demand for virtual reality experiences is going to increase, and public demand for purely real world experiences is going to decrease.  In turn, real world companies will be pressured to cut costs to stay competitive, which they are likely to accomplish via layoffs, automation and the use of other efficiency enhancing technologies.  As consumers tighten their spending in response to layoffs, this will result in more substitution of virtual reality experiences for real world experiences and more use of resource sharing technologies, placing additional downward pressure on the revenues of real world companies and driving them to cut costs further.  I expect the resulting “spiral” process to eventually lead to many of the real world jobs and activities of today going obsolete, as the public spends higher and higher percentages of their time participating in virtual reality activities.

[3]  I came across some virtual supermarket concept videos online while preparing this post.  For example, see this “Tesco Pele” video, and this video by developer William Powell.  I thought it would be instructive to walk through the implications of virtual supermarket experiences becoming more popular in this post.

[4]  Even if this style of grocery shopping doesn’t gain traction in the short run, it is likely that either the supermarket or its competitors would feel the need to add increasing numbers of augmented reality features to their real world stores over time to stay competitive.  This would eventually make their real world store experience closely resemble a virtual reality experience, making it much easier for consumers to accept a virtual reality substitute for it.  The Method B discussion illustrates this point with a different example.

[5]  Kevin Kelly suggested in a May 2016 Wired magazine article that virtual reality technologies are leading towards an “internet of experiences,” a viewpoint that I completely agree with.  As I’d written in this post, “Experiences trump reality for most human beings,” which is precisely why I expect the abundance of choices provided by virtual reality technologies to have significant socioeconomic effects.

[6]  Even now, many museums offer people the opportunity to rent portable audio devices that provide information about particular works of art when the relevant codes are keyed in.  Augmented reality tours seem to be a logical step for future enhancements, and if one museum is successful with them, other museums will be likely to follow suit.

[7] Very prestigious restaurants may well be able to avoid some of these effects for longer periods of time than less prestigious restaurants.  However, the example should highlight that such restaurants likely to be more of the exception than the rule.  Furthermore, it highlights that automation is likely to be closely linked to virtual reality in coming years, rather than a separate phenomenon.

[8]  Note also that while virtual reality technologies will expose many businesses to non-local competition for their customers’ time (leading to downward pressure on prices), they will also expose many workers to non-local competition for their jobs (leading to downward pressure on wages).