Virtual reality advertising is a form of marketing communication applied to virtual reality technologies. As of 2017, this form of advertising is still in the early stages, with different companies experimenting with new strategies to bring marketing content to virtual reality (VR) due to the potential this technology holds for VR ads.
While there is still not much information regarding the efficacy of VR advertising, there is a general acknowledgment of the immersive potential of VR ads and their impact on the consumers. Results presented in a study by Ericsson ConsumerLab show that e-commerce - mainly being able to see items in real size and form when shopping - is one of the reasons consumers are interested in VR. 
Some companies have already been using virtual reality technologies for VR advertising and offering VR experiences to users. Cadillac, for example, offers virtual dealerships and Mercedes provides a VR experience for its SL model. 
The ability of virtual reality to provide an immersive experience to the users, creating an emotional connection with them, entertaining them, or sharing a message or vision is a powerful marketing tool, thereby enticing companies to invest in this new medium. 
However, skeptics of VR advertising say that the biggest challenge will be to increase the consumers’ uptake of VR technology. Nevertheless, those who predict that VR will become ubiquitous are already positioning themselves to drive advertising strategies for the digital landscape of the future. 
Virtual reality advertising
Modern digital marketing techniques are considered to be intrusive, manipulative, and misleading, with banner ads, prevideos, and scroll-throughs increasing user frustration. Indeed, there has been an increase in the use of ad blockers - 30% in 2016 - that has negatively affected the advertising industry. Some analysts suggest that current digital marketing strategies will not survive the next decade, with the advent of virtual reality and augmented reality (AR) also contributing to this outcome. 
Another factor that adversely affects the current digital ad model is that it repels Generation Y and Z, its target audience. These two generations exhibit different traits, but they also have things in common such as valuing community, conversation, authenticity, and a dislike of undeserved impositions on their time and attention. 
The decline of present digital marketing strategies means that new strategies like VR advertising campaigns will become more relevant as companies invest in a more immersive advertising designed for these new digital infrastructures that are expected to become more popular with the general audience. 
Surge of interest in virtual reality
While some analyst still question if VR will have a global adoption rate, it is nevertheless a technology that has left the realm of science fiction and entered reality. A contributing factor to the raising awareness of VR is the ubiquity and quality of mobile devices that allow turning smartphones into VR head-mounted displays (HMDs). This is allowing people to get their first experiences of virtual reality without needing specific equipment. Indeed, global search interest for VR on Google has increased. 
Since any medium can become an advertising medium, the marketing industry is taking note of this surge of interest in VR and investigating the potential of VR advertising. 
The potential of VR advertising
An enticing characteristic of VR for marketing purposes is that it permits companies to connect with customers on an experiential level. Brands have experimented with 360-degree virtual reality videos, immersion-style test drives, and brand-related product experiences. For example, BMW used VR video technology to create an ad featuring a 360-degree car race and AT&T simulated a car crash to warn against the dangers of driving while using the phone.  
VR and 360-degree video are both compelling tools to create empathy and a greater sense of immersion that can increase the impact of the messages conveyed. However, a deeper level of interaction can be achieved with a true VR experience, something that even a 360-degree cannot provide - where the user is merely the observer. Unity, a VR development company, has experimented with creating specific VR experiences as a form of advertising. They have launched ‘Virtual Room’ which is a sort of ad network that allows brands to place ads across VR apps, and partnered with Lionsgate to create a VR experience for the studio’s movie ‘Jigsaw.’ In the experience, players interact with objects and try to figure out how to avoid being killed.   
Agatha Bochenek, Unity’s head of VR/AR and mobile ad sales, referring to their VR ad for ‘Jigsaw’ said that what they are trying to play with “is doubling down on the things that can be entertainment. So, Jigsaw being a great example—it’s [not just] an ad: It’s a piece of entertainment in-and-of itself. The ad shouldn’t be boring. It shouldn’t just throw, ‘Buy Tickets’ in your face the whole time; it should make you feel what the movie feels like.” Another member of Unity, Julie Shumaker, Vice-president of advertiser solutions, explained that the company likes “to talk about the medium of VR advertising as a responsive storytelling ad. Instead of sitting and passively seeing a display or watching a video for a few seconds, this is a completely immersive and interactive experience, and we're able to value [things like] how does the user actually touch the ad unit itself and, ultimately, how much time did they spend with the brand."  
Virtual rooms as VR advertising campaigns differ from other virtual reality advertising such as a 360-degree immersive video; the user can interact with the content whenever inside the VR experience. This means that companies can create unique VR sandbox applications, telling interactive stories that can engage and build a relationship with the customer. An evaluation of the users’ response to the Jigsaw’s interactive VR content found that they experienced a higher elevated heart rate, sweating, and muscle activation associated with smiling when compared to those who only watcher the trailer in VR. This means that the interactive aspect of the VR ad contributed to an increase inthe emotional and physical response of the users. 
Selling ad space in VR app
While virtual rooms are an impressive development in virtual reality advertising, they are limited to big companies that can afford to create a full VR experience - at least for the moment.
Another option for VR advertising could be placing VR ads within games or other types of VR content. Some have suggested that advertising space could be sold and charged per impression using gaze-tracking data. This model could provide publishers with the opportunity to create VR content with ads that don’t disturb the user’s experience, blending VR ads within the environment. 
Google VR advertising
Google is also working on VR ads. On June 2017, they announced that they began experimenting with advertising formats suitable for VR experiences. This program is being run by a team at Area 120, Google’s internal workshop for experimental ideas, as a response to developers that are looking to generate revenue to fund their VR applications.  
The first idea shared by the company for a potential format of VR advertising is to present a small floating cube to users which can then choose to engage with it or not. Tapping the cube or gazing at it for a few seconds will open a video player where the user can watch the ad. According to Google, the company wants to create useful and non-intrusive solutions that avoid user and application disruption. The company also intends to focus on some other key principles such as VR ad formats being easy for developers to implement, native to VR, and flexible enough to customize.  
This is Google’s first venture into virtual reality advertising, leveraging existing ad formats like a flat video. By doing this, no additional ad budget is needed to create a new format. The company plans to test its VR advertising format on Google Cardboard, Daydream, and Gear VR platforms. 
Besides Google, other companies have started research to develop virtual reality advertising techniques such as Team One, an ad agency in California. 
Considerations before investing in VR technology
Aaron Luber, writing for Think with Google, proposed four questions that brands should consider before investing in VR technology. The following is reproduced from his article, ‘What virtual reality will mean for advertising.” 
- Will VR give viewers an experience that they otherwise couldn't have? The subject matter should truly take advantage of the medium—transport people to a place, immerse them in a world, and compel them to explore.
- Could virtual reality ads give shoppers a better feel for your product? According to a study from Ericsson ConsumerLab, shopping was the top reason worldwide smartphone users were interested in VR, with "seeing items in real size and form when shopping online" cited by 64% of respondents. This doesn't just apply to retail brands. Cadillac is already using VR to create virtual dealerships. - Will your recording environment be rich with things to see? If you're shooting in a simple white room with nothing on the walls, probably not. If you're at a sports event or a music festival, there's likely plenty to see.
- Will viewers want to continue watching beyond the initial "That's cool" moment? It can be a challenge to get viewers to stick around after a minute or so. Make sure you have a compelling hook that will keep them engaged.
Problems with virtual reality advertising
Although there is great potential in VR advertising, there are still problems that need to be addressed. Firstly, VR ads require specialized knowledge or specialized outside vendors; secondly, the VR ad campaigns need further research regarding their success and impact on consumers; and finally, many advertisers do not know how best to use the technology. 
The cost of producing a VR ad is another difficulty. For a high-quality VR experience, a brand might need to spend $500,000 while a 360-degree video might only cost between $10,000 and $100,000. 
The final problem with investing in virtual reality advertising is related to the adoption of VR technology. While interest in VR has increased, a big percentage of adults in the U.S. have not heard of VR headsets, an indication that widespread adoption is still some years off. However, some projections point to 154 million mobile VR users by 2020. With improvements in VR technology and mass adoption by the general public, brands will inevitably invest in the VR advertising market. 
- Johnson, T. (2017). What can we expect from virtual reality advertising. Retrieved from http://www.cpcstrategy.com/blog/2017/07/virtual-reality-advertising/
- D’Angelo, M. (2017). How virtual reality is impacting the ad industry. Retrieved from https://www.business.com/articles/virtual-reality-advertising-augmented/
- Damiani, J. (2017). VR and AR will be the death of pop-up ads and pre-roll videos. Retrieved from https://qz.com/1089554/virtual-reality-and-augmented-reality-are-the-future-of-digital-advertising/
- Luber, A. (2016). What virtual reality will mean for advertising. Retrieved from https://www.thinkwithgoogle.com/marketing-resources/virtual-reality-advertising/
- Pathak, S. (2017). Virtual reality ads are still more hype than reality. Retrieved from https://digiday.com/marketing/virtual-reality-ads-still-hype-reality/
- Google Developers (2017). Experimenting with VR ad formats at Area 120. Retrieved from https://developers.googleblog.com/2017/06/experimenting-with-vr-ad-formats-at.html
- Brennan, D. (2017). Google begins experimenting with VR ads. Retrieved from https://www.roadtovr.com/google-begins-experimenting-vr-ads