These slides use ideas from my class to develop a business model for Oculus Rift’s headset. This headset creates the perception among users that they are in a different reality as they play video games. It has much higher resolution and faster response time than do previous headsets. Although Oculus hopes to develop its own console, these slides recommend that Oculus partner with a console maker such as Sony, Microsoft, or Nintendo in order to reduce development cost and gain access to existing users and game software. Hopefully it can receive a portion of hardware and game software revenues as its headset enables console makers to increase their market share and charge more for game software.

1. VIRTUAL REALITY GAMING
OCULUS RIFT
BUSINESS MODEL
Chua Ping Shiuan
Priscilla Mariani
William Suryadiputra
Yeo Kiat Hwee

2. AGENDA
1. Introduction to Oculus
2. Gaming ecosystem
3. Value proposition
4. Customer selection
5. Value capture
6. Scope of activities
7. Strategic control
8. Future Possibilities
2/
42

3. INTRODUCTION
TO OCULUS

4. THE TECHNOLOGY:
VIRTUAL REALITY
Virtual reality

Use of computer modelling and simulation to enable a person
to interact with an artificial three-dimensional visual or
other sensory environment.

The illusion of being in the created environment
(telepresence) is accomplished by motion sensors that pick
up user’s movements... usually in real time.
INTRODUCTION TO OCULUS
4/
42

5. CONVENTIONAL GAMING
INTRODUCTION TO OCULUS
5/
42

6. VIRTUAL REALITY GAMING

7. THE PRODUCT: OCULUS RIFT

VR head-mounted display

Fast head tracking

Large Field of View

HD screen and 3D vision

Adjustable focus

Price: 300 USD
INTRODUCTION TO OCULUS
7/
42

8. GAMING ECOSYSTEM

9. GAMING ECOSYSTEM
10 /
42

10. CURRENT ECOSYSTEM
Product
Oculus
Rift
End users
Revenue
Dev. Kit
Revenue from
Dev. Kit Sales
+ % Revenue
from Game
Sales in
Oculus Share
Games
Revenue from
Game Sales in
Oculus Share
Game
Developers
Game Console
Manufacturers
(Sony, Nintendo,
Microsoft)
GAMING ECOSYSTEM
11 /
42

11. MARKET SITUATION

Current Competitors


Sony Playstation


Microsoft Xbox
Nintendo Wii
Rising competitors

Sony VR Headset

Zeiss Cinemizer OLED
GAMING ECOSYSTEM
12 /
42

12. FLAWS IN CURRENT DIRECTION ?
●
Difficult to compete
No suitable control consoles and the market has stiff competition
between three large game console makers (Sony Playstation,
Nintendo Wii, Microsoft Xbox)
●
Technology can be easily copied
Sony is in the process of developing its own VR kit
●
Still limited games can be played using Oculus
Will get even harder to attract game developers with the existing
“incomplete” console
GAMING ECOSYSTEM
13 /
42

13. A BETTER ECOSYSTEM?
Hardware
licensing
Product
Console Makers
Revenue
Oculus
Rift
Sale Revenue
% Game
Sales
Console
Development
Kit
Oculus SDK
Game
Developers
% Game
Sales
GAMING ECOSYSTEM
End users
Games
Sale Revenue
14 /
42

14. VALUE
PROPOSITION

15. VIRTUAL REALITY

Immersive gaming

Allow new possibilities of gaming
VALUE PROPOSITION
16 /
42

16. STRATEGY CANVAS
PC Gaming
Console Gaming
Motion Gaming
VR Gaming
Graphics
Number of games
VALUE PROPOSITION
Intuitiveness
Interactivity
Immersiveness
17 /
42

17. IMMERSIVE GAMING

18. OCULUS RIFT
“The magic that sets the Rift apart is
immersive stereoscopic 3D rendering, a
massive field of view, and ultra low
latency head tracking.”
- Palmer Luckey, Founder of Oculus
VALUE PROPOSITION
19 /
42

19. OCULUS RIFT

20. THE OCULUS RIFT
ADVANTAGE

Better gaming experience whereby visual display is
instinctive


Gamers can orientate their perspective base on head motion
Create the impression of an immense environment
within a small physical space

Large field of view

Oculus offers low latency, fast head-tracking
performance

Head movement tracking without motion sickness

Adjustable focus for near- or far-sighted gamers
VALUE PROPOSITION
21 /
42

21. FOR CONSOLE MAKERS

Attract more gamers because of more immersive gaming
experience

Charge higher price for VR games

Large hype and demand in the market



There is already much hype from developers, media
$2,437,429 pledged of $250,000 goal in Kickstarter shows
demand
Guaranteed reputation



People in the company are experts in their field
Oculus as a leader in the VR game industry
Save time and money from R&D
VALUE PROPOSITION
22 /
42

22. TECHNICAL
DISADVANTAGES

Lack of compatible games

Not enough content
VALUE PROPOSITION
23 /
42

23. CUSTOMER
SELECTION

24. TARGET SEGMENTS

Early adopters of novel game technologies

Have the latest games and consoles

Doesn’t mind lack of support

Age group 20-30 years old

Gamers who frequent gaming conventions

Mostly males

People with willingness and ability to spend on game, consoles and
accessories.

Adventurous

Explore new gaming experiences

Loves to explore game worlds
CUSTOMER SELECTION
25 /
42

25. TARGET SEGMENTS

Gamers who enjoy first-person games

Racing

Shooting

Horror

Sandbox
CUSTOMER SELECTION
26 /
42

26. CONSOLE MAKERS
Sony
Microsoft
 More exclusive games
 Game developer itself
(Sony Computer
Entertainment)
 More support for indie
game developers
 Better online experience –  Complements the motionmore players
based games and motion
controls
 Complements the Kinect
motion gaming
 Offline multiplayer
experience generate more
 More first-person games
demand of Oculus Rift
(Halo, Gears of War – Xbox
exclusive)
 More interactive games
-
Developing its own VR
Headset
Conflict with Sony’s TV
business
CUSTOMER SELECTION
-
Less exclusive games
Nintendo
- Different customer
segment
27 /
42

27. CONSOLE MAKERS
Sony
Microsoft
 More exclusive games
 Game developer itself
(Sony Computer
Entertainment)
 More support for indie
game developers
 Better online experience –  Complements the motionmore players
based games and motion
controls
 Complements the Kinect
motion gaming
 Offline multiplayer
experience generate more
 More first-person games
demand of Oculus Rift
(Halo, Gears of War – Xbox
exclusive)
 More interactive games
-
Developing its own VR
Headset
Conflict with Sony’s TV
business
CUSTOMER SELECTION
-
Less exclusive games
Nintendo
- Different customer
segment
28 /
42

28. WHY NOT ON THE PC
PLATFORM

Native PC controllers are not suitable for VR

Less game developers on PC

Less gamers on PC

Difficult to have exclusive contract in PC
market
CUSTOMER SELECTION
29 /
42

29. VALUE CAPTURE

30. NEW VALUE CAPTURE
Hardware
licensing
Product
Console Makers
Revenue
Oculus
Rift
Sale Revenue
% Game
Sales
Console
Development
Kit
Oculus SDK
Game
Developers
% Game
Sales
VALUE CAPTURE
End users
Games
Sale Revenue
31 /
42

31. VALUE CAPTURE
METHODS

Sources of revenue can be through the

Licensing of hardware to other game
console makers

Percentage game sales from game
developers
VALUE CAPTURE
32 /
42

32. SCOPE OF
ACTIVITIES

33. SCOPE OF ACTIVITIES

Partnership with console makers


Distribution of Oculus SDK to game developers


Hardware license
Provide SDK updates and support
R&D In-house VR technology

Hardware

Software
SCOPE OF ACTIVITIES
34 /
42

34. PROCESS FLOW
Console Makers
Hardware
License
DESIGN
PRODUCTION
MARKETING
SALES
DISTRIBUTION
END
USERS
R&D
OCULUS
Oculus
SDK
(GAMERS)
CONCEPTUALISATION
DEVELOPMENT
TESTING
MARKETING
DISTRIBUTION
Game Developers
SCOPE OF ACTIVITIES
35 /
42

35. STRATEGIC
CONTROL

36. STRATEGIC CONTROL

Exclusive contract with game console
companies



Don’t allow partnership with other VR-related
companies
Continued usage of Oculus brand name
Intellectual Property Rights

Patent

Trademark
STRATEGIC CONTROL
37 /
42

37. STRATEGIC CONTROL

Leverage on network effect



More game developers on Oculus platform ⇔ More Oculus gamers
Create more community and online games
Continuous in-house R&D


ensure leadership in VR
HR management



Non-disclosure agreements (NDA)
Non-competition contracts
Work with complementary assets

Improving the game experience
STRATEGIC CONTROL
38 /
42

38. COMPLEMENTARY ASSETS

39. FUTURE
POSSIBILITIES

40. FUTURE POSSIBILITIES

Locked-in to one console manufacturer

Diversify into other markets


Theme parks: interactive cinemas, simulations and digital games

Training camps: military training, olympic training, pilot training, etc.

Schools: immersive learning experience

Property agents and interior designers: immersive design visualization


Cinemas: immersive movie experience
Many others
Further R&D

Full coverage of human vision span (i.e. peripheral vision)
FUTURE POSSIBILITIES
41 /
42

41. CONCLUSION
Strategic
Control
Scope of
activities
Value
Capture
Customer
selection
Value
Proposition
42 /
42

43. INDEX

Introduction to Oculus

Customer selection

Console Wars


Target Segments (1)

Revenue Model

Conventional Gaming

Target Segments (2)

Fourth Console

Virtual Reality Gaming <[ ]>

The Product

Console Makers

License Hardware Design


The Technology
The Company

Why Not PC?

Acquisition

Microsoft
Gaming ecosystem

Value capture

New Value Capture

Exclusive Games

Value Capture Methods

Backup Plan

Why Gaming

Latest Development


Current Situation

Market Situation

Flaws in Current Direction

Activities


Ocean
Better Ecosystem

Material Flow
Value proposition

Quote

Scope of activities
Strategic control
Immersive Gaming <[ ]>


Virtual Reality



Strategic Control (1)

Strategic Control (2)
Latency Demonstration <[ ]>

Complementary Assets

The Oculus Rift Advantage

Compl. Assets <[ ]>

For Console Makers

Future Possibilities

Technical Disadvantages

Conclusion

44. CONSOLE WARS

Currently at 8th Generation

Infamously led to death of SEGA as console maker


SEGA tried to compete graphics with Sony PS2
Long-time players Nintendo and Sony



Since 1990s after American Video Game Crash 1983
Microsoft is the only successful late entrant
Tug-of-war to get Game Developers

Aim to strike exclusive deals with developers
Appendix A

45. REVENUE MODEL
Profitability
Stable
Continuous
Revenue
For Large Game
Companies
For
Independent
Developers
One-off
Subscription
% Game
Sales
Appendix B

46. FOURTH CONSOLE

Sony developing their VR headset


Easily copied technology
Competitive console market



Competing for games
Timing is utmost importance
Difficult to create network effect



Game developers need to learn to develop for a new
console
Consumer switching cost
No suitable control system
Appendix C

47. HARDWARE DESIGN
LICENSE

Retain operating software

Prevent console maker from imitating the
full product
Appendix D

48. ACQUISITION
NO

Free to penetrate other markets

Can still push for own console

Other markets potentially more profitable

High capital markets – Medical and Military

Large user base – Cinema and Theme Parks
Appendix E

49. WHY MICROSOFT NEEDS
OCULUS

Competition with Sony


Graphics battle goes to the next level on VR
Losing the exclusive games battle to Sony



Oculus Rift will attract game developers to build on VR
Microsoft needs to dive into VR earlier than Sony to win
Realise the importance of first-mover in gaming industry
Appendix F

50. XBOX One
Below - Capybara Games
Cobalt - Mojang
D4: Dark Dreams Don't Die - Access Games
Fable Legends - Lionhead Studios
Fantasia: Music Evolved
Halo 5 - 343 Industries
Halo: Spartan Assault - Vanguard Entertainment / 343
Industries
Kinect Sports Rivals - Rare
LocoCycle
Max: The Curse of Brotherhood
Peggle 2
Plants vs. Zombies: Garden Warfare
Project Spark - Team Dakota
Quantum Break - Remedy Entertainment
Sunset Overdrive - Insomniac Games
Titanfall - Respawn Entertainment
Xbox Fitness - Microsoft Studios
Zoo Tycoon
EXCLUSI
VE
GAMES
XBOX
ONE
vs PS4
PLAYSTATION 4
Assault Android Cactus - Witch Beam
Octodad: Dadliest Catch - Young Horses, Inc
Basement Crawl - Bloober Team
Onigiri - Cyberstep (free-to-play)
Blast 'Em Bunnies - Nnooo
Outlast - Red Barrels Studio
Cosmic Star Heroine - Zeboyd Games
Pavillion - Visiontrick Media
CounterSpy - Dynamighty
Phantom Breaker: Battle Grounds Overdrive - 5pb
Daylight - Zombie Studios
PlanetSide 2 - Sony Online Entertainment
Deep Down - Capcom
Pool Nation Extreme/FX - Cherry Pop Games
Divekick - Iron Galaxy
Primal Carnage: Genesis - Lukewarm Media
Doki-Doki Universe - HumaNature Studios
Project Phoenix - Creative Intelligence Arts
Don't Starve - Klei Entertainment
Project: Heart and Soul - Reach Game Studios
Dragon's Prophet - Sony Online Entertainment (free-to-play)
Putty Squad - System 3
Dream Club: Host Girls on Stage - Tamsoft
QuickDraw - Greenfly Studios
DriveClub - Evolution Studios
Ray's the Dead - Ragtag Studios
DUST 514 - CCP (free-to-play)
Rime - Tequila Works
Dynasty Warriors 8 w/ Xtreme Legends Bundle - Tecmo Koei
Road Not Taken - Spry Fox
Earth Defense Force
Rocketbirds 2: Evolution - Ratloop
Escape Plan - Fun Bits Interactive
Rogue Legacy - Cellar Door Games
Everquest Next - Sony Online Entertainment (free-to-play)
Samurai Gunn - Maxistentialism
Everybody's Gone to the Rapture - The Chinese Room / Sony
Secret Ponchos - Switchblade Monkeys
Santa Monica
Fez - Polytron Corporation
Shadow of the Beast - Heavy Spectrum
Final Fantasy XIV: A Realm Reborn - Square Enix
Sherlock Holmes: Crimes and Punishments - Frogwares
Final Horizon - Eiconic Games
SOMA - Frictional Games
flOw - Thatgamecompany
Sportsfriends - Die Gute Fabrik
Galak-Z: The Dimensional 17-BIT
Starbound - Chucklefish
GlowTag - Greenfly Studios
Super Exploding Zoo - Honeyslug
Guns of Icarus Online - Muse Games
Switch Galaxy Ultra - Atomicom
H-Hour: World's Elite - SOF Studios
The Binding of Isaac: Rebirth - Nicalis
Helldivers - Arrowhead Studios
The Idolm@ster - Namco Bandai Games
Hohokum - Honeyslug
The Order: 1886 - Ready at Dawn / Sony Santa Monica
Hotline Miami 2: Wrong Number - Dennaton Games
The Playroom - Sony
Hyper Light Drifter - Heart Machine
The Witness - Jonathan Blow
Joysound Drive 2 - Xing Entertainment
Tiny Brains - Spearhead Games
Lily Bergamo - Grasshopper Manufacture
Tottemo E Mahjong Plus - Arc System Works
Mercenary Kings - Tribute Games
Transistor - Supergiant Games
MLB 14: The Show - Sony San Diego
Velocity 2X - FuturLab
Mobile Suit Gundam - Namco Bandai Games
Volume - Mike Bithell Games
N++ - Metanet Software
War Thunder - Gaijin Entertainment (free-to-play)
Natural Doctrine - Kadokawa Games
Wasteland Kings - Vlambeer
Nikoli no Puzzle 4: Sudoku - Hamster
Yakuza Ishin - Sega
Nuclear Throne - Vlambeer
Source: http://www.neowin.net/news/list-of-xbox-one-and-playstation-4-exclusive-games
Appendix G

51. BACKUP PLAN

Develop own game console

Approach as many game developers as possible



A chance to create a new gaming experience
Preferably first-person game developers
Strike partnership with vital accessories



Razer Hydra – motion controller perfect for shooter games
Virtuix Omni Treadmill
Intensive marketing effort
Appendix H

52. WHY GAMING

Virtuality is something gamers have been wanting

More adapters of new tech

E.g. motion gaming caught on within less than a year
(2011)

Large pool of tech enthusiasts


Large portion of adventurous individuals
But, there is a danger of price buyers
Appendix H

53. Nov 11, 2013
Source:
http://www.techradar.com/news/gaming/oc
ulus-rift-creator-xbox-one-and-ps4-are-fartoo-limited-for-what-we-re-planning1198420
LATEST DEVELOPMENT
Appendix I

54. Nov 11, 2013
Source:
http://www.techradar.com/news/gaming/oc
ulus-rift-creator-xbox-one-and-ps4-are-fartoo-limited-for-what-we-re-planning1198420
LATEST DEVELOPMENT
"Consoles are too limited for what we want to do," he says. "We're
trying to make the best virtual reality device in the world and we want to
continue to innovate and upgrade every year - continue making
progress internally - and whenever we make big jumps we want to push
that to the public.”
- Palmer Luckey, founder of Oculus
Appendix I

55. WHY OCULUS IS PUSHING

Dislikes the long life cycle of consoles



Prevent them from continuously improving
Graphical performance bound by graphics processors
(hardware)
Eager to disrupt the video game business



Shorter life cycle of consoles
Full-fledged VR gaming
On the lookout for Valve

Steam Box and SteamOS
Appendix I