Is virtual reality finally set for a major breakthrough?

If you're interested in technology, you'll know that one of the biggest events of the year is the Consumer Electronics Show (CES) in early January.

This is where all the big technology and consumer companies showcase products that they are either working on, or about to sell.

Many of the best-known, most successful consumer technologies made their debut at CES. The CD player in 1981; the DVD in 1996; the first batch of tablets in 2010.

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Of course, many products end up being duds, but if you want to see what the tech world is thinking about there's no better place to do so.

This year everyone was talking about a technology that was first wildly hyped in the 1990s. It flopped back then. Now it's back. And some of the biggest names in consumer electronics are getting very excited about it.

Has virtual reality's time finally arrived?

Virtual reality's false start

During the mid-1990s there was a lot of talk about virtual reality (VR). The idea was that special headsets would beam computer-generated images directly into people's eyes, doing away with the need for a screen. At the same time, the headsets would track your head movements, so you wouldn't have to use a keyboard, mouse or controller.

VR would make games much more immersive and entertaining. Indeed, some science-fiction writers thought that in time the technology would become so good that people would be unable to distinguish VR from real-life (as in The Matrix).

But VR never really took off. The technology wasn't really good enough. The headsets were bulky and uncomfortable. Limitations on processing speeds meant there was an appreciable lag between head movements and changes in the computer images. And computer graphics weren't good enough to make it worthwhile.

Now, two decades on, advances in technology mean that these barriers have largely been overcome. As a result, gaming companies have ramped up investment in the area.

For now, most attention is focused on Sony, makers of the PlayStation consoles. Sony claims that its VR headset, PlayStation VR, will have a lag of only 0.018 seconds and will be able to deliver high-quality graphics refreshed at a rate of 120Hz. In other words, people will be able to use the headsets without suffering from motion sickness (the major side-effect of the lag between your head moving and your visual world following suit).

Sony hopes that the system will be released later this year. And it's not the only company betting big on VR. In 2014, Facebook made headlines when it spent $2bn to buy Oculus VR, a hardware company developing VR headsets. At the time it was seen as a distraction from Facebook's core business. However, the Oculus Rift' system is now expected to launch at the end of March.

A third system, HTC Vive a joint venture between smartphone developer HTC and games developer Valve should also be released in April.

The trade press has praised all three systems. While they are priced aggressively, at an expected $399 for PlayStation VR and $599 for Oculus Rift (and a whopping $1,500 for HTC Vive) the price should fall as the technology advances.

It's not just gaming VR has serious applications too

High-end gaming (to the point where people are willing to splash out thousands on this sort of hardware) is of course, still a niche form of entertainment. However, VR could have a big knock-on effect on other sectors.

For example, it could transform the film industry, allowing people to "step into the shoes" of the character. Both Oculus and HTC are developing documentaries and short films for users to watch.

VR could also disrupt business travel. While video conferencing is now mainstream, it still has many drawbacks, especially compared with face-to-face meetings. Mark Zuckerberg cited this as one of the reasons why Facebook acquired Oculus.

Medical education could also be changed by VR. At the moment, medical students hone their skills by either practising on live patients (under strict supervision) or on dummies. Both methods have drawbacks, and can be expensive (dental schools spend thousands of pounds on plastic teeth alone).

In contrast, VR could allow trainee medics to hone their techniques without any long-term consequences. This is already starting to happen. King's College London, the largest dental school in the UK, has been using specially adapted systems, which provide instrument feedback, for over five years.

Overall, the sector looks set to experience exponential growth. Indeed, market research firm TrendForce expects combined sales of VR-related software and hardware to rise from $6.7bn to over ten times that amount by 2020.

The best way to discover similar technologies and profit from them

VR is certainly an impressive technology, and one we will be covering in MoneyWeek magazine as part of a wider look at the gaming industry in the near future. However, the fall and rise of VR shows that technologies do not always develop in a simple way.

One model that is particularly useful is the hype cycle' model developed by research firm Gartner. In the first stage we have the peak of inflated expectations'. An expert makes a discovery or comes up with an idea. Hungry investors pour billions into the area.

In many cases these predictions turn out to be too optimistic, or the technology takes a lot longer to develop than expected. Investors get cold feet and pull out. This is despair'.

But eventually the investment results in new products that rekindle interest. And finally, the technology matures, to the point where it will change people's lives rebirth'.

Obviously, the best time to make money is between stages two (despair') and three (rebirth') of the cycle. While VR falls into this category, it's not the only one at this point. In fact there are a whole host of innovations which are starting to deliver results, but which are still undervalued by the market.