Popcorn carts and the economics of HMDs

The Sensics YouTube channel received a comment noting that for the price of an HMD, "I might as well build a 30' theater room onto my house with stadium seating and a popcorn cart. Please explain how that price is justified, I'd love to hear it.". 


So, at the risk of being a bit wonkish, here are some insights on how the price is determined.


First, professional HMDs are currently made in small quantities. Let's try to figure how many:

• A company making professional HMDs was recently listed in Inc magazine. Inc. reported their 2010 revenue as $4.8M. If the average price of an HMD they sell is $20K, and even if we assume that they sell nothing but HMDs, this company made 240 HMDs in 2010. Maybe my price assumptions are too high and they made 300 HMDs. Hundreds, not hundreds of thousands.
• A small public company that sells consumer-type goggles released their second quarter financials. They sold approximately $720K of consumer goggles in the second quarter. If all of these sales were goggles, and these goggles were sold for an average price of $250, then they sold just under 3,000 units in the quarter. Thousands, not hundreds of thousands.

In contrast, there were approximately 10 million 3D televisions made last year. With quantities, come economies of scale: you can get parts cheaper, you can invest in manufacturing technologies to make cost lower, you can assemble HMDs at low-wage areas and so forth.

Aside from quantities, one needs to consider the cost of the components that go into making an HMD. Have you ever been with a friend at a restaurant only to hear why the components of the $15 salad probably cost $2.34? It's pretty annoying, but I'm going to do this a little bit for HMDs now.

Historically, the key difference between professional HMDs and consumer goggles was the resolution of the display and the width of the field of view. Professional HMDs had higher resolution and wider field of view. Many professional vendors, Sensics included, use 1280x1024 OLED microdisplays from another small public companies. We use these microdisplays because they are high brightness, low power, high contrast and have rich colors. However, they are expensive. On the open market, these displays (and other like them) could cost approximately $2500 each, so approximately $5000 per system. Yes, manufacturers like Sensics do get quantity discounts, but in my opinion the displays drive the cost of the product into a cost that is in line with a professional market. Once prices are in the range of a professional market, vendors perform their own price/quantity optimization. If you priced a hypothetical product at $20,000 apiece, you could sell a certain quantity. If you priced it at $18,000 apiece, you could probably sell slightly larger quantity, but not dramatically larger. On the other hand, you just lost $2000 of profit. Now, if you could price the product at $995 you would sell many, many more, but then you'd be selling it at a significant loss.

Of course, a direct relationship between cost to make and price to sell is not required. Does a basketball shoe suddenly become much so more expensive to make when an 'Air Jordan' sticker is placed on it? Not necessarily. It is just deemed to be worth more. Sensics is  profitable, and the Sensics team would like to keep it this way. In fact, though customers clearly appreciate a discount when they can get one, customers are probably also interested in diversity and choice among HMD companies, so it's good to keep more of them around.


What to do? Priority one is to find a lower-cost solution to placing these dynamic images in front of your eyes. This could come from various places:

• Find some lower-cost display. Imagine if TI started making displays just like they make DLP components. Imagine if Samsung, or Sharp, or Micron started to sell high-resolution OLEDs to HMD vendors. Then, prices could significantly come down.
• Find some alternative display configuration that is not micro-displays. 
• Place one display in front of both eyes, though this could reduce the refresh rate that each eye sees.
• The passage of time. Just like Moore's laws with CPUs, time brings higher resolution displays at a lower price point.

Last, but not least, what you can do with a 30' theater room and a popcorn cart does not fully overlap with what you can do with a professional HMD. Try carrying the room around from place to place. Try training a soldier with the popcorn cart. But, I am on board. Let's hear it for lower-cost displays that will enable making lower-cost HMDs.