Moving to the Mainstream.

There's good news and bad news in the visual simulation/virtual reality (VizSim/VR) industry these days. The good news is that there are many signs of a growing maturity and acceptance of VizSim/VR technology in mainstream business. The bad news is that the economic downturn has taken its toll on the market.

Consider the following financial indicators: While the number of systems sold in 2000 climbed nearly 20 percent over the previous year (from about 150,000 units to 175,000), the average cost of those systems fell nearly 35 percent (from about $140,000 to $92,000) during the same period.

These numbers contribute to a 17 percent decline in total sales and service revenue, from $27 billion in 2000 to $22 billion in 2001. But compared to the rest of the high-tech market, this slowdown is relatively modest, and we expect VizSim/VR to surge again when the rest of the economy recovers.

Technology Driver

One of the technologies that will drive future growth in this market, just as it has in other business sectors, is the Internet. We have surveyed users of VizSim/VR systems for the past several years about their use of the Internet. And we found that those respondents who were selling and using the least expensive systems relied the most on the Internet to distribute programs and content.

But in 2001, we see that many more of the Internet-enabled systems are in the mid- to high-price range. Given the fallout of low-budget startups in the past few years, it is not surprising to see that larger, more expensive systems, built and used by larger, more mature companies, have survived to take advantage of Internet connectivity these days.

Indeed, the VizSim/VR systems most commonly using the Internet for content delivery are in the $50,000 to $100,000 price range, while the systems using the Internet least often cost less than $10,000. What's more, we find that low-cost systems are 50 percent less likely to use the Internet in 2001 than in 2000, while VizSim/VR systems that cost between $250,000 and $500,000 are more than twice as likely to be connected to the Internet than they were last year.