When RocketWerkz Ltd. released one of the first videogames for virtual reality last spring, developers at the New Zealand studio were hopeful it could break even—maybe even turn a profit.
Neither happened. Its $20 strategy game, “Out of Ammo,” has recouped only about 60% of the roughly $650,000 spent creating the game, according to Dean Hall , the company’s chief executive. For now, RocketWerkz is going back to making traditional computer games.
Proponents have heralded virtual reality, or VR, as the next big step in computing. But while VR goggles that rely on smartphones have sold well, sales of costlier headsets that tether to powerful computers or videogame machines haven’t lived up to the hype.
That has prompted some developers to reconsider VR.
“The future of virtual reality is very bright, but in the short term it’s not where we see ourselves,” Mr. Hall said. “The return on investment is not enough for us.”
Voyager Capital in 2015 invested $100,000 in Envelop VR, whose software lets users in VR interact with traditional desktop apps. The startup closed its doors in January despite raising more than $5 million, according to Erik Benson , a partner at Voyager.
Startups committed to riding out VR’s bumpy start likely face a more challenging journey than they envisioned, Mr. Benson said.
Envelop VR’s CEO declined to comment.
Research firm IDC put 2016 sales of higher-end headsets such as Sony Corp.’s PlayStation VR, Facebook Inc.’s Oculus Rift and HTC Corp.’s Vive at 2.2 million units generating roughly $1.4 billion. The estimated results were short of IDC’s projections, and the firm nudged down its 2017 forecast to 6.4 million units for $3.2 billion in sales.
Other research firms reported even wider shortfalls. SuperData Research had expected 3.7 million units would be sold last year, but its final tally was 1.4 million. SuperData said Sony’s PlayStation VR led with about 745,000 units sold last year. Facebook sold about 243,000 Rift headsets, while HTC sold about 420,000 units of its Vive.
“All the enthusiasm from VR manufacturers and developers just hasn’t been met with the same volume from the consumer market,” said Shauna Heller, founder of advisory firm Clay Park VR and a former developer-relations specialist at Facebook’s Oculus VR.
Supporters are convinced VR will succeed. Nearly 10% of people playing “Resident Evil 7: Biohazard” on PlayStation 4 do so in VR, according to Capcom/quotes/zigman/200796/delayed JP:9697 +0.52% Co., which made the game.
One barrier to wider use is that casual observers can’t experience what makes VR special simply by watching ads or someone else don a headset. “This is a hard product to communicate,” said Eric Lempel , head of marketing for Sony’s PlayStation division. “You have to put a headset on and experience it.”
Headset makers are organizing demonstrations at more public places, such as malls, college campuses and festivals. They are also working to make VR more user-friendly, such as by pursuing higher-end headsets that don’t require a PC.
Meantime, Facebook and HTC are supporting developers with hundreds of millions of dollars in assistance. They are bundling some software with headsets. That has helped some developers get off to a promising start, such as Owlchemy Labs Inc. of Austin, Texas.
Its “Job Simulator” was temporarily packaged with the Vive. The game is now profitable with more than $3 million in revenue, mostly from people downloading a copy for about $30, Owlchemy CEO Alex Schwartz said.
For other software companies, attracting many users has been challenging. RocketWerkz, for example, didn’t receive financial assistance or have its game bundled.
Seattle startup Perilous Orbit Inc. and its U.K. partner Cherry Pop Games have had modest success with “SportsBar VR,” a $20 app in which users play darts and other parlor games. The app is profitable but sales have fallen dramatically since launch, CEO Richard Kidd said.
“The market is growing slower than we expected,” he said. “We can’t grow the company at will.”
Headset makers acknowledge it may take longer for developers to generate a return on VR. “There is a cost to learning,” said Jason Rubin , head of content at Facebook’s Oculus unit.