How Microsoft turned AltspaceVR into the Cinderella story of the year / by Stephanie Llamas

I first heard about AltspaceVR almost two years ago, when the number of VR users was barely the size of Montana's population. I was pretty skeptical considering VR's tiny addressable audience at the time and that this platform required enough users to build an interpersonal experience. Fast forward to 2017 and VR has begun to really show its potential, with headset shipments approaching 16M units and the social VR space on track to earn $3.1B by 2020.

Courtesy: SuperData, 2017

Courtesy: SuperData, 2017

As a long-time advocate for the industry I never doubted social VR would succeed -- I just thought AltspaceVR might have been jumping in a little too soon. After meeting some folks from their talented team it occurred to me they had something other platforms, even Facebook, are so desperately trying to find: a connection with a dedicated fan base that doesn't just love the experience, but the company itself. 

Why is AltspaceVR so special?

AltspaceVR has a reputation of really listening to their fans, trying endlessly to create a non-hostile safe space for people to hang out and do the things they wish they could in real-life with others who are far away. And when I first tried it, I was genuinely shocked by how amazingly friendly and welcoming the users were. One even saw I was struggling and gave me a tour, showing me how to get from place to place and even taking me to a great vantage point to view their favorite virtual landscape.

So when I heard in July that the platform was to be shut down, I was deeply saddened. The reason behind this seemingly unexpected decision was, according to AltspaceVR, the fall-through of an investment round and "the general slowness of VR market growth [which] made most of our investors reluctant to fund us further." 

The V-ROI dilemma

This is not a new story. Dozens, if not hundreds, of VR studios have come to a close after lack of funding once investors caught on to the fact that no, VR is not going to pay dividends on their investments in the next year or two. As SuperData, and others, have said many times before, the market is going to show slow exponential growth, and its inflection point is anywhere from two to four years out. 

But then AltspaceVR managed to reemerge following an outpouring of fan support, donations and public declarations of love for the platform (after all, they did host a virtual wedding). Less than a month later the company was able to go into "deep discussions with others who are passionate about AltspaceVR [and] who want to guarantee that our virtual oasis stays open."

And today we found out just who those discussions were with: Microsoft. This is quite possibly the biggest industry partnership with a small development team since Job Simulator creator Owlchemy was acquired by Google this past May.

So what does all this mean for the future of VR?

It's no secret investors are looking for a quick return on their investments, and over the last couple years the VR market was flooded with funding after Facebook acquired a little-known headset maker called Oculus for $2B. But because the market was so new, many didn't really know what they were investing and, therefore, how long it would take to see returns. After three years and less than $5B in revenue since 2014, this VR thing wasn't looking so promising anymore.

Big players have stayed heavily involved, with the likes of Google, HTC, Samsung and now Microsoft very heavily investing into a long-term commitment; the last time we saw this kind of push from so many heavy-hitters was with smart devices. But it often looks like these goliaths may push the smaller guys out. For example, Facebook revealed its social VR platform Spaces earlier this year and certainly struck some fear into the hearts of many groundroots developers out their - including AltspaceVR.

Microsoft, however, wants to compete with the big guns already entrenched in the industry, so who better to partner with than a company with so much fan loyalty their users literally revived the dying platform (almost) by themselves?

Microsoft will continue to allow AltspaceVR to run on other devices as it has up until now. Like HTC VIVE, Microsoft wants to forward this industrty as a whole knowing that is the only way they themselves can succeed. So I don't foresee them trying to completely close off their ecosystem in the way we have seen with Oculus. And that's good news for everyone in VR.

This is how investors are going to once again understand the potential of this industry even after learning a valuable lesson when it comes to long-term commitments. Expect this to be the beginning of VR's next wave of major funding -- fuinding that could finally get us the shovel we need to dig VR out of this trough everyone has been dwelling on so much.