In 2018 virtual reality hit the trough of disillusionment. Home use hadn’t proven itself in terms of payback for most of the developers despite a few well-received releases like Beat Saber. But this wasn’t a bad thing — dumb money stopped being invested in the industry. The VR market seen its niches stabilize: VR training in the enterprise sector, and location-based arcades in entertainment.

The location-based entertainment (LBE) market has been the main source of money for VR game developers in the last few years. Unity CEO John Riccitiello warned developers that they need to focus on surviving — and home use isn’t a good plan for that. Oculus Quest promising to make VR more casual, and we’ll see if that succeeds — but LBE is about actually going somewhere with friends. We want that, right?

The business situation could change this year after Andreessen Horowitz invested $65 million in SandboxVR. It’s the first big investment in VR in a while, and it could be the sign for the second breath of LBE VR. Andreessen himself has said that VR will be bigger than AR.

Now is the best time to invest in location-based VR. But how should you do it right?

Choose a business model

One can compare different models by space needed, content provided, or technology used, but I won’t pick just one parameter and rather describe the three main clusters which differ in a few ways.

The three are: VR arcades, free-roaming VR, and VR escape rooms.

A VR arcade is a kind of a cyber-cafe. It’s space-efficient and easy to start, like renting a PlayStation or Oculus and making it available to guests at your bar. It uses games and experiences available for home use. That means there is a lot of single-player content and a few multiplayer experiences with no precise duration. Most of these assume you’ve played games before, which means they aren’t good fits for corporate parties and family holidays.

Free-roam VR is sometimes called warehouse-scale VR because it needs a lot of space. It’s also quite expensive. It probably requires an arena that’s 100-to-200 square meters for multiple players wearing backpacks and guns — like a high-tech paintball. That means more equipment and other costs for owners. As for content, the games are decent — they are LBE-exclusive and designed to be played by groups. This is a form dominated by zombie shooters, like Zero Latency’s Zombie Outbreak, which are limited in mass appeal. There are others: SandboxVR offers a pirate adventure, and Zero Latency has more adventure-like games. But when we’re talking about warehouse-scale VR it’s about shooting zombies mostly.

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Finally, VR escape games are room-scale, so they don’t need much space. They are LBE-exclusive and designed to be played by groups. And they target the mass audience just like their ancestors, real-life escape games, do. These games pass the Grandma test so anyone can play. My company, Avatarico creates games requiring only 25-to-30 square meters (270-to-320 square feet), and aimed to be cooperative and easy enough to be played by families and corporate parties. Ubisoft entered the market recently with visually amazing titles, although perhaps too oriented toward the PC gaming audience.

Choosing what business model you will use consider the following points.

1. What audience should you target?

The mass audience is nothing like a niche one. For general audiences, the games should be easy to grasp, packed with actions and not so hard to complete. The themes should be familiar.

Back in 2014, we opened a real-life (non-VR) escape game chain with 10 games in different genres. The first room we opened was cyberpunk. We aimed at the geek audience itching for tech and difficult puzzles. But once we opened a second escape room with the fairy tale setting, everything changed. The bookings grew. The more people came, the more we realized that difficult puzzles aren’t the draw — an action-packed game with a low barrier for entry is a must. Tech meant nothing to our audience — they didn’t care how we made it. They didn’t like dark settings. They wanted to enter a fantasy, a fairy tale.

Best business model: VR escape rooms. Others tend to be more geek-oriented.

2. Is LBE VR best as an event management business?

Operating a real-life escape business, we quickly started to get requests for parties, birthdays, and corporate parties. We learned corporate parties and holidays are the main points of growth and realized that we’re an entertainment facility. We host events in a specific place and time, making us closer to a stadium than an arcade.

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Best business model: Any of them. But VR escape rooms and free-roaming VR usually are better for event management, since the content is better adapted to it. 

3. What LB VR is most space-efficient?

Your main financial goal as an entertainment facility is to raise revenue per square feet/meter. That means you more activities you can have at the same space the better.

Best business model: VR escape and VR arcade since they need less space. 

4. How many games and rooms do I need?

When we opened just a single room, we had a tough time. Everything changed when we opened a second room. We always recommend opening with a minimum of two rooms. The flexibility to offer choice to your guests and hosting two sessions at once raise the bookings.

It’s even better to start with three rooms and three games.

Best business model: You can place four rooms with VR escape games or a single room for free-roam VR in the same amount of space. So VR escape or VR arcade are the winners. 

5. What is the best capacity?

Another important point to consider — how many players do you want to accommodate? When we opened, the traditional escape room was for two-to-four players. But rivals in our city pushed this to six players. This model won, and the initially stronger competitor with four players lost. But when we opened a room for 10 players, it was one of the most popular in the city, just because there was no similar place to go for a group this big.

There was an objection we heard a lot: “Such big groups don’t come to our place!” But don’t confuse cause with effect. They don’t come because there is no such option. Make games for more people, and it will change. And when the requests for 40 people and more started to fall into our mailbox, we had already had 10 rooms in the city, so we could host these events.

As you host events, you will learn the limitations of the number of people playing at the same time. In the meanwhile guests’ appetites will grow. What’s the natural limit for a corporate party? One hundred? One thousand? Obviously, it’s bigger than you can afford at the start.

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So if capacity is a limitation for you:

  • Decide how much game stations you can place at your venue. Do you want to expand? At the same building or not?
  • Decide can you make events on the client’s site or not. Do you want to be mobile?

Best business model: VR escape center can accommodate more people and its configuration is good as up to six people could play. Free-roam VR has the configuration of eight players max but a center as a whole will accommodate fewer people. 

Conclusion

Whatever business model you choose, revenue from corporate parties will be the biggest part of your income. Offer additional services, like images from a professional photographer, showing your guests in beautiful interiors of your venue, are important for marketing your facility. Offer refreshments, or food from a catering service. You can also offer performances with actors, clowns, or MCs hosting quiz games.

Create additional value for your product — raise the price and then do it again. Make turnkey, boxed solutions. Put more and more things into that box. Build a pricing ladder: basic, advanced, and VIP packages. Think wider than just a VR center.

Overall, picking an LBE VR model depends on your need and your scale. For example, if you have a big amusement park, and you don’t care about the profitability of exact attraction but you do care about the image of a center, and you add different experiences, so the warehouse-scale VR could be a good fit.

Or you can build a VR park from scratch. And you have enough budget to have different models, so you add warehouse-scale VR and VR escape. Or maybe you want to start a lifestyle business, some kind of a corner-shop. Then it would be enough to have VR arcade games. Finally, VR escape offers a variety of different appealing games, without taking up too much space.

Anton Zaitsev is CEO at Avatarico, a leading VR escape game developer having sold its games to more than 100 location-based entertainment locations across the globe.



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