According to Clint Wheelock, founder and managing director of Tractica, the Oculus price point of $600, and especially the need for many consumers to purchase a new gaming PC to use the headset, will be a limiting factor in 2016. 

“We expect adoption to be limited to a relatively small group of hardcore gamers—essentially the same segment that has traditionally purchased gaming PCs,” Wheelock says. “The launch will certainly help in terms of creating an early wave of consumer awareness for VR, which should be beneficial for growth of the overall market, but most consumers will wait until 2017 and beyond before making a purchase, by which time they will have more competing options to consider.”

As is the case with all gaming and PC hardware, the entry cost for virtual reality will become cheaper. Wheelock expects subsequent versions of Oculus headsets to include steady reductions in the price point.

“We are generally assuming that the average selling price for HMDs will decline by approximately 15% per year over the next several years,” Wheelock says.

Wheelock believes HTC Vive, which has impressive technical capabilities, will have a slightly lower price point than Oculus Rift.

“The big unknown for Vive is how the early content selection will stack up against Oculus Rift and, later, PlayStation VR,” Wheelock says. “Valve clearly has significant contributions to make when it comes to content, however the lack of details at this point leaves a question mark hanging over the launch.”

Some of those details are expected to be revealed at Valve’s HTC Vive Content Showcase in Seattle Jan. 27.

Sony has said its PlayStation VR will cost as much as a new console. PlayStation 4 currently retails for $350. Wheelock says this pricing is slightly higher than Tractica estimated in its forecasts, but in the same general ballpark.

“Within this general price range, we do not expect significant elasticity of demand among early adopter consumers,” Wheelock says. “We do expect some steady reduction of price points over the next five years, which together with increased consumer awareness and expanded content selection should keep the VR market on a rapid growth trajectory.”

Sony has an install base of over 36 million PS4s worldwide. The plug-and-play nature of the console, which won’t require consumers to purchase a new, more powerful PC like Oculus Rift and HTC Vive demand, gives Sony an edge.

“The ability to use PlayStation VR with existing consoles should be a very compelling value proposition for many consumers, and provides Sony with some strong advantages versus its PC-based competitors,” Wheelock says. “While the number of PlayStation VR purchasers will naturally be a subset of the addressable base of PS4 owners, we believe the VR option will be attractive to a sizable segment of perhaps 10-15% of the base.”

Thanks to its $99 price point, Samsung Gear VR Consumer Edition sold out at retail last fall. Wheelock believes the solid demand for this low-priced and powerful headset should serve as a proof of concept for Samsung.

“We expect Samsung to commit more strongly to the VR market based on this positive early experience,” Wheelock says. “We feel that, with consistent execution, Samsung should be able to sustain a 20-25% share of the total mobile VR market even as that market grows significantly in the coming years.”

Google Cardboard and other Android virtual reality devices will get a leg up on Samsung beginning late this quarter with the launch of the Qualcomm 820 chipset, which adds head tracking to smartphones and improves the virtual reality experience.

Tractica expects mobile VR to be the largest segment of the consumer HMD market. The firm forecasts a global total of 96.4 million mobile virtual reality devices will ship between 2014 and 2020. Wheelock says demand for mobile virtual reality will be driven by the large addressable base of smartphone users, attractive price points, and robust content libraries—all of which will make mobile HMDs a strong proposition for more casual users.

Gaming will also be a key driver for virtual reality across mobile, PC, and console platforms. Tractica forecasts that, in the near term, gaming will generate approximately 92% of the virtual reality content revenue mix. By 2020, gaming will still represent about 84% of the total revenue, even as it faces more competition.

“Over time, VR applications and use cases will diversify to include media consumption, social VR, tourism, and sports and fitness, but these will be secondary to gaming,” Wheelock says. “We expect the next two largest content categories to be Social VR and Television, Movies, and Music—both of which will be roughly equal in size.”