Sony promoted new PlayStation VR (PSVR) games at PlayStation Experience over the weekend, among a number of other exciting announcements. However, that doesn’t overcome how SuperData Research singled out VR as the “biggest loser” of this year’s holiday season and downgraded its forecast for 2016. The PlayStation VR saw the most significant reduction, as SuperData now expects less than 750,000 (down from 2.6 million) of them to sell this year. While estimates for the Oculus Rift, HTC Vive and Samsung Gear VR remain unchanged at 450,000, 355,000 and 2.3 million, respectively, Google Daydream is expected to sell 261,000 units (down from 450,000).

Although the PSVR still has the strongest potential to be broadly adopted by consumers, reaching that potential is taking longer than expected. With an installed base of over 48 million and a relatively low price point compared to the Oculus Rift and HTC Vive, the PSVR seemed like it would make for the perfect conclusion to VR’s first year on the market. Stephanie Llamas, director of research and insights at SuperData, has stated that she believes that Sony was in the best position to take advantage of the holiday season and could have sold over 2 million PlayStation VRs, except “supply inconsistencies and lack of marketing have put them behind their potential.”

Not only did the PSVR have a relatively quiet launch, but there were no first-party deals, restock bundles or special deals for the device over the Black Friday weekend. Instead, Sony put marketing focus on its consoles, particularly the PlayStation 4 Pro, and consumers were aware that the Pro offered a performance increase for the PSVR over the standard PlayStation 4 and Slim models. According to Llamas, the message was clear for most gamers: “Get the Pro now, then the PSVR later.”

When asked how PSVR sales from Black Friday compared to its launch week, Llamas told [a]listdaily that “PSVR has had slow and steady sales since launch. Sales will continue to rise gradually into 2017 rather than riding a seasonal wave. We expect Sony to soon increase its effort behind rolling out bundled hardware, which so far have all sold out.”

Llamas also suggests that Sony’s moves are deliberate, and it may be sticking to a quiet release and limiting units until it has the “killer app” needed to truly demonstrate the PSVR’s capabilities. Plus, Sony can afford to take things slow, since it has no competitor in the console VR space.

“As the only provider of virtual reality in the console market, it does not have to rush to market and overpromise,” said Llamas. “It is clear now that Sony is taking a more prudent approach, choosing to market the PSVR under the PlayStation family brand as opposed to an independent piece of hardware. In the absence of competitors, it makes sense for Sony to provide enough units to prove the case for mainstream consumer VR, while gradually building up its third-party support and a larger title inventory.”

For comparison, we asked Llamas how well the PS4 Pro sold in comparison to the PSVR, considering how the console requires a 4K television to take advantage of its features. She stated that the “PS4 Pro has and will surpass PSVR sales this year. The console is a substantial upgrade from the standard PS4, and consumers without a 4K TV who plan to buy one later still benefit from purchasing the Pro now. Consumers are also aware of what using the console is like and the differences they’ll see from the standard version. This is a challenge that VR in general still has to overcome—providing experiences to new users. As opposed to the PSVR, it’s much easier for a parent to buy their child a Pro because they know what it is and why their kids want it.”

Furthermore, when asked how important Black Friday sales were to the overall health of the VR industry, Llamas said: “Not that important since first adopters have mostly already bought in. They weren’t waiting for holiday sales to opt-in, so right now those headsets are mostly reaching out to borderline enthusiasts and expanding awareness to the general consumer base. Adoption will grow linearly and is not likely to ride a significant seasonal wave this year.”

That’s good news for the industry, but it still leaves it with many of the same problems it started with. Llamas has also observed how Oculus took a risk this year by releasing the headset by itself first and the Touch controllers months later, potentially splitting its user base. As a result, developers had to choose between creating content for Touch and non-Touch users. The HTC Vive, which comes bundled with motion controllers, has outsold Oculus despite having a significantly higher price point. “The HTC Vive has consistently outsold the Oculus Rift due to both their controllers and room-scale capabilities,” said Llamas. “They are estimated to ship 420,000 shipments by the end of the year, versus Oculus at 355,000.”

That gap may continue, since Oculus no longer has a price advantage when Touch controllers are factored in. The controllers alone are a $200 expense on top of a $600 purchase (not including VR-capable computers), and the bundled set ($798) offers an insignificant discount, which puts the Rift at the same price as the HTC Vive. Furthermore, Oculus’ decision to offer purchasers a $100 credit for the Oculus Store instead of taking $100 off the device may have further put consumers off.

“Unsurprisingly, this has been tricky for Oculus to navigate,” Llamas explained. “If they had not released the headset when they did, they may have been too late to the market and been completely overrun by the HTC Vive. However, the problem they now face is the fragmentation this creates among consumers and developers. Consumers who purchased the headset when it was coupled with $1,500 PCs now have to spend another $200. Meanwhile, PC costs have gone down, so newer users are benefitting from an all-in-one deal that is cheaper than the headset and PC combo was for early adopters. Also, developers now have to decide if they want to address only those with Touch controllers, create games that only use regular controllers, or invest in developing for both types of users. Ideally, they would have released functional Touch controllers with the headset, even if they weren’t as refined as they are now.”

Although pricing is an issue that may resolve itself in the coming year, there are bigger hurdles ahead for marketing VR. Llamas said that “the challenge right now is awareness, and marketing is only half the battle. VR is not like a TV—you can’t browse through the VR aisle at Best Buy and compare devices passively. You need to have access to a VR experience and have an interest in it in order to try it. You need to try it to know what it really is, which is why headset makers are increasingly pushing demos into stores. Furthermore, when newcomers do try it for the first time, the people giving the demos need to be able to offer a premium experience, and that kind of quality control can be difficult to monitor. If consumers don’t start with a good experience, they are going to be even harder to win back later on.”

Despite these challenges, Llamas stands by SuperData’s estimate that virtual reality will reach $30.5 billion in revenue over the next five years. “This year has strengthened our faith in VR as we see now more non-gaming companies throwing their hats into the ring. Consumer content will account for only part of revenues—enterprise, marketing, productivity, etc. all have a lot of potential to provide innovation to the market that will expand its reach.”

SuperData’s current worldwide VR revenue estimates are:

  • 2016: $2.7 billion
  • 2017: $5.3 billion
  • 2018: $10.2 billion
  • 2019: $17.8 billion
  • 2020: $30.5 billion