If you’ve looked at any list aiming to predict technology trends that will dominate the marketplace over the last few years, you will know that virtual reality is not a new phenomenon. It is the only technology to come through the Gartner’s hype cycle’s ‘Trough of Disillusionment’, to reach the ‘Slope of Enlightenment’, and now it is well on its way to the ‘Plateau of Productivity’. Despite these nauseating category titles, the point remains clear: VR has officially arrived. This edition of ExchangeWire’s Now & Next looks at what this means for marketers, and whether the product can force its way into the mainstream.

VR can do virtually anything

It’s easy to see why the hype around VR is so strong – its possible application is vast. In 2016, UK adults listed tourism without the travel as the most exciting application, but the uses didn’t stop here. A third (36%) wanted movie content; 27% wanted to view major events, such as fireworks or live concerts; and even 9% admitted to wanting adult content in a VR format.

Revenue is growing too. In 2016, the UK market value of virtual reality was £46m. By 2020, this is projected to reach £354m – a growth of 390%. With progressively more content being consumed through VR devices, marketers are looking for a way to monetise this opportunity.

Get into the mountains

Outdoor apparel brand Merrell is one example of a business trying to get to grips with this immersive technology. Their TrailScape virtual hike took consumers on a mountainous journey, to showcase the capabilities of their kit in extreme scenarios, including rope walkways, shaking wooden planks, and a landslide. This was the first commercial use of an in-motion Oculus Rift experience.

Nike has also dipped their toe into VR advertising, allowing you to feel what it’s like to play football as Barcelona and Brazil star, Neymar. They’ve even added in a touchline streaker, to make the experience all the more realistic.

It is clear why these brands are making the investment into VR. With consumers of all ages becoming more tech-savvy than ever before, if brands can show that they share these values for innovation, more brand loyalty will naturally follow. If only it were so easy.

The reality

In an August 2016 survey by Accenture and eMarketer, ranking the top 15 factors influencing brand loyalty in the US, engagement through virtual reality (33%) ranks 13th. It seems that, while consumers want to consume content through VR, they don’t want to be advertised to in this format. This attitude from consumers is causing slow uptake of VR from marketers.

Only 8% of marketers are currently using VR in their advertising, with a further 21% saying that they were interested in implementing it in the future. This at least explains why the marketers who do implement VR into their advertising strategy are getting such widespread coverage. However, while VR ads make for good headlines, their ability to build loyalty and drive purchases is, at present, limited.

Reach & cost are holding VR back

So, what’s the hold up? Well, it doesn’t seem to be an inability to deliver compelling content. Nearly half (48%) of consumers say that VR ads were “very compelling”. This compares to 43%, who would say this of AR ads, 26% for video ads, and only 2% for display ads. However, uptake is still faltering, a fact which can be traced to:

A lack of reach: As of Q1 2017, only 6% of the population owned VR devices. Although this is a higher adoption than both tablets (3%) and wearables (4%) at this stage of their lifecycles, the majority of this adoption is driven by cheaper devices, such as Samsung Gear (22% of devices, and on the market for £60/USD$78) and Google Cardboard (21% of devices, and on the market for £15/USD$19). This low reach means that video or display ads, while less compelling, allow marketers to reach a far greater percentage of their audience.

Cost of production: In terms of money and time, producing a VR ad is expensive. This might be worth it for the entertainment industry (the ‘Game of Thrones – Castle Black Experience’ has been seen by 83,000 people) marketers will think twice about investing in an ad which only a fraction of their audience will experience. It is estimated that stitching the video together alone can cost USD$10,000 (£8,000) per finished minute of video. Time also has to be a factor, and it will take far longer to piece together a VR ad than a display ad.

What next?

But there is light at the end of the tunnel for VR, as it looks to earn its place in advertising strategy. The compelling content, combined with the fact that the experience is so immersive, are leading to a ‘Gaze-Through Rate’ of 81%. If reach were to increase, those marketers making steps and investing in the resources to advertise through VR now will be best-placed to take advantage of these impressive engagement rates. And reach looks like it will increase. Research suggests that 171 million people will be using VR by 2018 – a rise of 397% from 2016 levels.

To prepare for more marketers dipping their toe into VR, the next few years will see standardisation in VR advertising formats. The IAB is already working on helping publishers and advertisers prepare for 360 and other video formats, to assist marketers in understanding how best to harness VR. Once education and understanding increases, so will the amount of the advertising budget spent on VR.

Expect the first steps to be small. Marketers will look to expand their VR capabilities without huge investments, meaning the main focus will be on creating ads that can be viewed through mobile devices and low-cost headsets, such as Google Cardboard. If these formats earn their spurs, the creation of VR apps and 360 videos will follow quickly. The largest investment will obviously come from the biggest brands and agencies – VR ads are not a luxury that most can afford. However, as formats become standardised and processes more efficient, expect this to change. Virtual reality will eventually shape the reality of all.