The virtual reality craze
Social Media and other digital platforms such as gaming sites are changing and growing so fast in their attempt to give users a creative and near-real-life experience in their online interactions. From olden day chatrooms with plain texts we now have options of voice and video calling online, and so much more than plain texts is being exchanged now- emoticons, gifs, stickers, images and videos. Emoticons (“emojis”) have even become animated now. The gaming universe has evolved similarly, now with 3D graphics and simulations that are becoming more sophisticated and advanced every day. And all this is to give us a more immersive and interactive experience in the digital world.
Virtual Reality (or VR for short) is the next big step (leap, rather!) towards giving users an online experience that closely imitates real sensations. It consists of a virtual or simulated 3D environment which may either resemble reality or be a fictional universe, where users can interact with the environment and go about doing certain actions. Unlike a traditional interface where the user views things from a distance or from “outside”, here a user is placed “inside” the experience.
Users typically require some special gear (sensor-fitted headsets, helmets, or gloves) to enter and interact with the VR environment. The head-mounted display (HMD) is the most signature virtual reality gear. The biggest trademarks in HMD technology are HTC Vive, PlayStation VR and Oculus Rift, to name some.
Naturally, with the concept of VR becoming so popular and loved by the online gaming and social media community, companies developing this technology are making really good money.
What is VRChat and why is it so popular?
VRChat is a free, multiplayer, online VR game or social platform founded in 2014 and released first in 2017 by creators Graham Gaylor and Jesse Joudrey. The website address is www.vrchat.com and it is completely free for anyone to play. On this VR platform, users can create their unique 3D characters and interact with other characters or avatars. It is compatible with Oculus Rift, the HTC Vive series, Valve Index, and Windows Mixed Reality headsets. Other features of the platform include:
- Audio lip syncing, eye tracking/blinking, and it is even supported for full-body tracking (although this is completely optional). Full-body tracking is done through trackers for the hips as well as feet. A user could purchase a so-called tracking “puck” for the hips and one for each foot, or they could make do with only one for the hips as that can also satisfactorily track feet movement.
- 3D spatialized audio, meaning you could hear people talking nearby just like in reality!
- You can do hand gestures and use emoticons to express
- Support for more hardware like keyboards and gamepads
- Different worlds for exploration, and the ability to create custom worlds
- Creating your custom avatar
- Chat, interact and make friends with people from all over the world
- Draw, sculpt, watch videos, or play games with other people. Games include Bowling, Capture the Flag and Battle Discs and other pre-existing games, or you could even make custom games!
- Weekly events for more fun and interaction
The source of VRChat’s popularity is streaming by YouTube and Twitch users (Twitch live streaming especially played a huge role during the initial months after its release). Now VRChat has over 1 million followers on Twitch. Along with that some viral memes also contributed to the sudden rise to fame, especially one called “Ugandan Knuckles”. It actually became quite notorious for this and other memes.
Although its initial popular phase has now quieted down a bit, it spiked again with the quarantine and lockdown situation that came with the Corona virus. Users are finding it a great way to escape during this time of uncertainty and mental stress (and also boredom, with all that free time on their hands)!
Why was VRChat loved by gamers?
VRChat attracted a large audience owing to the following reasons:
- It is completely free, in fact there is no in-game monetization AT ALL!
- You can even play without special VR equipment- all you need is a desktop computer. Although the experience will not be as immersive without a headset or allow you to experience all the features but you can still play.
“It is a very common story for people to join VRChat without a VR headset, have a memorable adventure, and immediately seek out virtual reality hardware to upgrade their experience.”
Jesse Joudrey, CTO
- VRChat’s SDK (software development kit) which is built on Unity, allows users to create custom avatars, games and worlds. With users able to contribute and add creatively to the game, the game has almost never-ending new things to explore.
“In-game” Monetization- how does VRChat make money?
Actually, it doesn’t. VR-Chat doesn’t have any in-game monetization at all. There is no way, as of now, that VRChat owners are making money through the actual game or platform itself.
However, recently in mid-2019, VRChat announced that it was heading towards monetization. It was planning to create a virtual economy. In a job opening for a Virtual Economy Manager they said:
“We’re looking for someone to lead the development of VRChat’s virtual economy, currency and marketplace. VRChat is a “live” platform that’s constantly updated and evolving, so you’ll see your work have an immediate impact to our massive global community of users.
At VRChat, we’ve got ideas about how we’d like to move forward with our economy, but we’re looking for someone with experience to help guide and lead the effort. As our Virtual Economy Manager, you’ll be responsible for the oversight, development, release and management of VRChat’s virtual economy, currency and marketplace. If you’re interested in creating a whole new virtual economy and help the community make a living in the VRChat universe, then this role could be right up your alley.”
Moreover, in the list of responsibilities they again clearly specify that they are looking to find and implement a good monetization model:
- Work with design and production to plan, document, fully design, implement, and manage a marketplace for virtual goods.
- Work with various teams to implement, QA and release various monetization models
Whatever they are planning, so far it must be still on paper only as no monetization model has actually been implemented in the game so far.
But that being said, how does VRChat run without any in-game monetization? Where do the finances and major capital that they are investing in building the platform actually come from?
VRChat’s main source of money or financing is actually venture capital.
Challenges to Monetization
VRChat is held on the shoulders of its active player base, who are willing to sink hours into the game and create new content. So, it comes at no surprise that VRChat is looking into ways to reward its dedicated players and keep them invested in the online service.
However, VRChat can’t simply flip the switch and allow users to monetize their creations. The game’s open nature gives players the freedom to use copyright-protected content and assets in their created worlds, avatars, and mini-games. This makes monetization trickier than anticipated, and the game needs fundamental regulations before it’s even possible.
In order to find a way around such a challenge, VRChat developers have to impose new limitations and tweak the game’s structure to allow monetization of user-generated content. In the process, the game experience might change too much and lose its identity. There is no straightforward way to tackle such an issue, and we’ll have to wait and see how this plays out.
VRChat’s financing: venture capital- backed
VRChat is a privately owned company but with backing- which means that it is financially backed by private investors or “angel” or “seed” investors. (VRChat barely generates any revenue on its own. Owler.com only tells us that its estimated annual revenue is less than $1M.)
This type of backing is called venture capital. Venture capital firms or companies are extremely well-off, large institutions that invest in startups that have high potential for growth, usually in return for a limited equity in the company. What VCs invest is just a very small percentage of their total funds, and they invest it (at the cost of a certain risk) into startups where they see long-term potential and growth. In reality, they are only strategically thinking about their own benefit. They would never invest in a company where they don’t expect higher returns than what was invested.
VRChat’s funding over the years
VRChat also relies on venture capitalists for funding. It has had 8 total investors including major corporations like HTC and GREE and venture capital investment firms like Makers Fund, GFR Fund and Brightstone Venture Capital, GVR Fund and Rothenberg Ventures.
Since it was founded in 2014, VRChat has taken part in 4 major rounds of funding. In total, it has been able to collect $15.2 million till now, and the size of investments they are able to secure is growing.
The following are the rounds of funding, when they were held, how much money was generated, and which firms invested in them:
- Equity: In Jan 2015, VRChat had $25k.
- Seed: In the seed funding round in Oct 2016, they raised $1.2M. Investors were HTC, Brightstone Venture Capital, GVR Fund and Rothenberg Ventures.
- Series A: In this round they secured $4M in Sep 2017. Investors were again HTC, Brightstone Venture Capital, GVR Fund and Rothenberg Ventures.
- Series C: In the latest round of Sep 2019, VRChat obtained funding of $10M! HTC was again the leading investor, along with Makers Fund joining in as a new investor and some more old investors: Brightstone Venture Capital and GFR Fund.
Two sources, Pitchbook and the Owler both give us the same figures on VRChat’s funding and investors.
In a post on Medium, VRChat itself talks about its latest investment round and what it plans to do with the help of those funds. They also welcomed Makers Fund as their newest investor:
“Our goal is to connect people and enable them to interact as if they were in the same room. Any kind of social experience you could want should exist, and if it doesn’t, somebody should be able to create it. Makers Fund has deep experience with these types of platforms and will help VRChat move towards its goal.”
-Graham Gaylor, CEO
HTC, which has been a constant investor and partner for VRChat, also declared how positive and excited they were:
“VRChat has cracked the code of creating engaging social experiences in VR. We are excited to continue working closely with VRChat as they help people connect with each other and the communities they love the most in VR.”
– Rikard Steiber, President Viveport and SVP VR at HTC
It is no wonder though that HTC has been a constant partner to VRChat. More VRChat users directly means more purchases of HTC’s VR equipment like the HTC Vive series headsets. Without a doubt, HTC much be making huge returns on their investments in VRChat!
In their post on Medium, VRChat declared that it was going to use the series C funding to expand their team (hire more people) and introduce more tools for users to create and play in the VRChat universe. They also said that they were working on their own development kit called “Udon” which they expect to be a “big deal”.
Further speculations by the VRChat user community on how VRChat makes money
Other than direct capital obtained from funding rounds, VRChat may also be making money through its partnerships by getting a share of the profit from sales of VR equipment and custom avatars. The VRChat community has been found discussing this topic on online forums.
We are not sure if and how much exactly VRChat is earning through its partnerships with companies like HTC and also the game development platform Unity. People expect that with VRChat users leading to a huge number of direct sales of the HTC Vive series, VRChat probably has a share in the sales.
Moreover, VRChat is built using the Unity game engine. When creators build custom content like avatars, games and new worlds for VRChat users, they would be using the Unity Asset Store which has some paid assets and plugins too. VRChat said that they have collaborated with Unity to build new assets that creators can use. So it is not wrong to guess that VRChat may also be earning a share of profit from the Unity Asset Store sales.
The external VRChat economy!
As we have seen, VRChat does not have an in-game economy or monetization. However, outside the company, many creators are earning hundreds or thousands of dollars creating custom content for VRChat!
As a major example, a group called VRC Traders is actually running a business by designing custom avatars for VRChat users. Vrroom.buzz featured an interview with “Ghoster”, the person who founded and operates VRC Traders, where he expresses how he has high hopes for this becoming a big marketplace in the future.
“As far as the industry of 3D avatars and world creation goes, I see this type of business becoming a viable marketplace and job for many users… as more games, especially sandbox-style games, come into the community, you want to have something you can call yours and no one else’s. [This] will only grow as more and more people turn to the internet and gaming to relax and have fun. For VRC Traders, I would love to see direct integration with the VRChat service, where you can go in-game on to the server and request something.”
With a lot of job listings, VRChat is looking to expand its team and scope. You can expect to see more robust creation tools coming to the game by the end of the year. VRChat promises to release its dedicated development toolkit called Udon, allowing players to create entire games from scratch within VRChat.
The game is also planning to capitalize on its social aspects by implementing better audio chatting tools, players’ invitation system, and more.
Though all such extra tools are coming as a free update, there is room to offer premium subscription-based versions down the line. Furthermore, VRChat doesn’t dismiss the idea of allowing advertisers to pay for in-game billboards.
Also, with the continued popularity of the game, it can land deals with blockbuster movies, songs, and other entertainment media to host special events advertising their upcoming releases within VRChat.
There is always the possibility of adding an in-game store where players can buy avatars and other premium in-game items. VRChat has to deliver a balanced experience if they choose to take such a route and limit the purchasable items to just cosmetics.
In summary, VRChat is a venture capital- backed company with no in-game monetization as of now. It earns funding through partnerships with companies who have related interests in the VR arena and, for future, is also developing plans for an in-game economy.