The 7 Ways Extended Reality Will Drive Record-Breaking Profits
So, you’re excited for the inevitable explosion of extended reality. And all of the profits that will come with that explosion. We get it. We’re excited too.
But there’s something you should know… When reporters and journalists talk about this exciting future, they all seem to get one major thing wrong.
They all seem to think hardware sales are the only thing that matters.
This might be true to a degree right now, but the truth is that hardware will only be a small cut of the XR pie in the coming years.
Here are the 7 major ways that extended reality will make money:
#1 Hardware & Accessory Sales
You wouldn’t have software sales, in-game purchases, and all of the other monetization models we see on the internet today without the hardware. Without the computer, the console, or the phone—nothing happens!
Whether you fall into team Mac, team PC, or somewhere on the fringes, you can’t deny that the modern computer has come a long way from the original Commodore machines. And you also can’t deny that the sales of iMacs and iPhones were a big part of why Apple inevitably hit the trillion dollar mark in August 2018.
If a company can gain a large, vertically-integrated market share of XR in the same way Apple did with 2D phones and computers, they will probably shoot to the moon.
#2 Arcade, Theme Park, and Theater Admission
Because the costs of VR hardware will be high at the beginning, there might not be enough demand in the Business-to-Consumer model initially.
That being said, the “average joe” cannot afford a roller-coaster. Yet, there are roller-coasters all over the place!
Much like roller coasters, you will see large companies front the large fixed cost in order to entertain a base of customers with XR. This includes extended reality arcades, theme parks, and theaters.
We expect a large number of XR experience locations to crop up in the very near future. In fact, there are already several.
#3 Software & Subscription Sales
While many apps in the world today are based on a freemium model, many still charge a base price for their software. Most video games and SaaS platforms are great examples.
Especially near the beginning of the VR revolution (right now), developers will likely charge an upfront fee to cover the large development costs and risks associated with developing XR content.
While greater profits will likely be driven be ads, affiliate deals, and upsells (as proven by companies like Facebook) the profits from software sales won’t be anything to scoff at.
However, if the rise in freemium in apps is any indication, as VR progresses we will probably see more free software emerge in favor of this model.
#4 Freemium Upsells & In-App Purchases
While this model is all the rage in smartphone applications right now, there is no reason why this model will not be applied to the future of XR.
“In-game fashion” is already a source of profits for some companies. As games like League of Legends have demonstrated, in-app purchase models can drive profits.
As Extended Reality becomes more of a social experience, people will likely treat their virtual appearance and actions with greater care. Someday, people may value “game skins” (the way their Avatar appears to others) in the same way fashion is valued today.
That being said, there are literally hundreds of other ways that companies will probably restrict functionality and charge users to upgrade.
#5 Affiliate, Referrals, and Sponsorship Revenue
When a company or creator is able to capture a large following, they will be able to profit with affiliate models.
We see a future where virtual reality creators and influencers will earn a commission when they promote other products, services, and softwares. This is how the startup Inkhunter promises to drive sales in the future. Tattoo parlors will be willing to pay them a cut for client referrals.
Creators will likely also be able to land sponsorships with larger companies—companies hoping to promote their brand. Just as there are twitch streamers making a career on sponsorships now, there may be a whole slew of XR influencers who will promote new products in exchange for money.
Think about it. Companies spend billions of dollars every year on advertising. Some of the biggest companies in the world right now—Google and Facebook—primarily make their money from advertising.
And there’s reason to believe that virtual reality, in particular, will be the best advertising platform to date.
Just as companies purchase background space in movies and TV shows now—the magic of “product placement”—companies will pay a premium to have their products represented in a virtual setting. You’re going to put on your headset, be transported to your vacation home in the Bahamas, and there’s going to be an ad on the bar’s TV about cleaning products.
#7 Information & Education Sales
Information and education will be a big part of extended reality’s future. Imagine being able to conference with your favorite teacher when you’re on the other side of the planet!
As Internet speeds increase and virtual reality capabilities expand, teachers and schools will be able to give something similar to a “one-on-one” experience to hundreds—or even thousands—of people at the same time. Online masterclasses and courses will never be the same, in a good way.
Whether it’s a music lesson, a sports broadcast, or an “Intro to Finance” seminar, augmented and virtual reality almost certainly have a place in the future of education.