From Computer Business Review, a sister publication.
Since the late 1980s, the UK, widely considered a technology backwater, has been home to three of the leading vendors in one of the most glamorous sectors of the computer industry – virtual reality. Virtuality Group Plc, Superscape Virtual Reality Plc and Division Group Plc were the first virtual reality firms to go public and did so when the technology was still in its infancy. Virtuality and Division both listed in 1993, Superscape’s initial public offering took place the following year. In revenue terms, they have also been among the largest of the virtual reality pioneers – until 1996, when all three hit problems. The most spectacular nose-dive has come from the largest of the three companies, Virtuality. In February, the company called in administrators Arthur Andersen, and trading in its shares was suspended. The administrators are still seeking a buyer for the company, and although the former chief technologist and founder of the company, John Waldern, is planning a management buyout of part of the business, no decision has been taken as yet. Arthur Andersen has already warned potential takers that significant investment will be required in order to achieve the substantial royalty income and sales growth projected for the company. Division and Superscape have been keen to distance themselves from the collapse of Virtuality, insisting that it is a reflection more on the type of application it developed rather than the state of the market as a whole.
By Jessica Twentyman
But neither Division nor Superscape has had an easy ride over the last 12 months, and neither is, as yet, profitable. In April, Superscape reported a net loss of 3.1m pounds or $5m for the six months to January 31, up from a loss of 897,000 pounds or $1.5m for the corresponding period of the previous year. Less than a week later, the company slashed its workforce from 101 to 61. Division also released disappointing results for its fiscal 1996, which ended on 31 October. Although the company considerably reduced its net loss for the year to 1.7m pounds – $2.8m, from 3.9m pounds or $6.3m in 1995, revenues grew by a paltry 1.4%. Furthermore, the company was forced to sell off its PFX high-end graphics technologies for 6m pounds or $9.7m to partner Hewlett- Packard Co in June. Both companies insist that uneven growth is a regrettable but inevitable fact of life when operating in a new sector. You’re not going to see linear progression with new technology companies, insists John Chiplin, chief executive of Superscape. It’s always stop-and-start, as far as we’re concerned, this is business as usual. Since most other virtual reality companies are privately-owned and do not release financial results, it is hard to tell if the problems experienced by British virtual reality software vendors have also affected other firms worldwide. Growth has been slower than expected, a fact which vendors and analysts readily admit. Jean Leston, consultant with research firm Ovum, firmly believes that the problems extend throughout the industry: It’s a new technology with an extended take-off period, she says. These are high- tech, high-risk companies with huge cash requirements. It’s difficult for anyone to keep going. As pioneers of the technology, there was a distinct time lapse between the setting up of companies such as Virtuality, Superscape and Division, and the shipment of products, which seriously hindered their financial growth. We picked up on a new technology quite early in its evolution, says Charles Grimsdale, chief executive of Division. We were research-based and had few end-user applications at first, but we’re now applying the technology to solve real problems. Both Superscape and Division claim to have benefited from focusing on virtual reality applications for the corporate market, rather than on the volatile entertainment sector chosen by Virtuality. The business area is far more stable, claims Grimsdale. The entertainment market took off more quickly, but a lot of players were here today, gone tomorrow. That was certainly the case for Virtuality. Despite a promising start, the company was hit badly by a slowdown in the arcade game industry. The cheapest virtual reality arcade machines cost around three times as much as other games machines. Having overestimated demand, Virtuality was left with stock sitting unsold in warehouses. In late 1996, the company switched its focus to more promising home-user headset game technology. But despite an order from Phillips Electronics NV for 100,000 headsets early in 1997, the company was already in serious trouble. After predicting enormous losses for fiscal 1996, Virtuality’s stock price plummeted, and the company slid into administration. To boost business, Division and Superscape have undergone minor, but significant, repositioning.
The killer application
Superscape has chosen to focus on the internet, which it proclaims the killer application for virtual reality. Its VRT tool allows users to build interactive, real-time 3D Web sites and professional virtual reality applications. Division, meanwhile, has chosen to style itself as an engineering software company that also happens to know an awful lot about virtual reality. Using its tools, says Division, users can build virtual prototypes for engineering products which are cheaper to build than physical prototypes and are more flexible for simulation and training. Furthermore, there are signs that the market for virtual reality products is picking up. Grimsdale of Division, says the company is seeing a heightened awareness of the business benefits of virtual reality, and says this is backed up by case studies from high-profile names such as Ford Motor Co, Rolls Royce Plc and British Aerospace Plc. At the same time, the VRML Consortium, formed in December 1996 and boasting the likes of Apple Computer Inc, Intel Corp, IBM Corp, Netscape Communications Corp, Oracle Corp and Microsoft Corp among its members, is promoting the VRML 2.0 specification, an open standard for creating three-dimensional images on the internet. The involvement of such giants is likely to raise the profile of virtual reality, but analysts warn that they may squeeze the smaller pioneering players. It is too early to predict the future of Division and Superscape. Both hope to achieve profitability during 1997, but admit that they can make no guarantees. As with many new technologies, virtual reality has proved to be big on promises but slow on results. 1997 could be the year that virtual reality comes of age, but whether its pioneers reach the pinnacle remains in the balance.