AR (cell AR, smartglasses) may strategy three and a half billion put in base and $85 billion to $90 billion income inside 5 years. On the identical time, VR (cell, standalone, console, PC) would possibly ship 50 million to 60 million put in base and $10 billion to $15 billion. That’s a fairly large distinction, and all of it has to do with AR’s ubiquity and VR’s focus. (Notice: Digi-Capital’s base case is that even with 900 million put in base for ARKit/ARCore by the tip of this yr, AR/VR income received’t start to scale till 2019).
To know why the sister markets are shaping up so in another way, we’re going to dig in to AR’s and VR’s put in bases, use instances, app retailer class revenues (IAP/premium), e-commerce class gross sales, adspend by business, enterprise revenues by business and geographic splits. The satan’s within the element, and that is probably the most detailed dive we’ve ever achieved.
All about that base
Cellular AR (Apple ARKit, Google ARCore, Fb Digicam Results, Snap Lens Studio) may hit 900 million put in base by the tip of this yr, strategy three and a half billion by 2022 and dominate AR/VR for the foreseeable future. But whereas VR’s market potential was diminished by the emergence of cell AR as a rival platform final yr, saying “this VR cycle is useless” is likely to be a little bit harsh.
Cellular/standalone VR (Samsung Gear VR, Google Daydream View, Oculus Go) had its potential decreased by cellphone makers and builders shifting their focus extra towards cell AR, and may not high a couple of tens of thousands and thousands put in base long-term. (Notice: -installed base incorporates onerous knowledge on machine gross sales, and machine attrition.)
Standalone premium VR (neither PC nor cell tethered, like HTC Vive Focus and Oculus Santa Cruz prototype) may start to speed up in 2019/2020 as /software program develops and costs come down, however would possibly solely ship round half of cell/standalone VR’s put in base by 2022. Console/PC VR (HTC Vive, Oculus Rift, Microsoft Home windows Blended Actuality, Sony PlayStation VR) may develop from as we speak’s low single-digit thousands and thousands, however would possibly solely be within the excessive single-digit thousands and thousands in 5 years’ time.
Smartglasses (Magic Leap, Microsoft HoloLens, ODG, Meta, Vuzix) stay the long-term way forward for AR/VR. If Apple launches smartphone tethered smartglasses in 2020, the smartglasses market may develop from a couple of hundred thousand enterprise customers final yr to a number of tens of thousands and thousands of mass-consumers by 2022. All informed, the mixed AR/VR headset market may attain an put in base within the excessive tens of thousands and thousands to greater than 100 million by 2022 (or round three p.c of cell AR).
Present me the cash
Cellular AR apps of their first few months have been largely ports from current platforms, however AR’s coming scale, flexibility, mobility and ubiquity are driving an explosion of latest use instances and enterprise fashions. E-commerce gross sales (items & providers, not IAP) may turn out to be the biggest income driver for AR, the place Houzz has confirmed cell AR can improve gross sales conversion charges by 11x, and Alibaba has partnered with Starbucks for the world’s largest AR enabled Starbucks Roastery in Shanghai (Alibaba is a main investor in Magic Leap for a cause).
If and when Apple launches smartphone-tethered smartglasses, gross sales may turn out to be AR’s second largest income stream. Adspend pushed by cell AR’s scale comes subsequent, adopted by app retailer revenues from a range of latest non-games’ IAP/premium revenues and extra acquainted video games’ enterprise fashions. Enterprise AR could possibly be vital for each future developments of as we speak’s enterprise-focused smartglasses and cell AR. Lastly, location-based AR leisure may ship long-term.
VR’s smaller put in base, decrease mobility and unique immersion (i.e. restricted plurality) focuses it on leisure use instances and income streams. Leisure (video games, location-based leisure and video) may take two-thirds of all VR sector income long-term, with taking simply over 1 / 4 on account of restricted unit gross sales and worth competitors. There can be enterprise use-cases, however VR’s comparatively decrease put in base and kind issue may see a lot decrease company spending than equal enterprise cell AR and smartglasses. VR e-commerce and promoting revenues may develop, however the scale and fragmentation of VR’s person base restrict their significance for now.
Our range is our power
The variations between the 2 markets turn out to be clearer when trying on the 23 app retailer income (IAP/premium) classes.
Whereas AR video games may take greater than two-thirds of AR app retailer income this yr (no different class taking quite a lot of p.c), a Cambrian explosion of creativity by builders and funding by VCs may see 20-plus non-games sectors drive over half of AR app retailer income by 2022. Video games ought to stay vital, however the biggest innovation and progress may come from sectors from social to navigation and past. Completely new use instances may give rise to new enterprise fashions, disrupting sectors each outdated and new.
In distinction, video games would possibly take the majority of VR app retailer revenues long-term. VR seems to be most like a subset of the video video games market, the place it has been closely marketed towards a gamer person base.
As above, rising AR e-commerce has already confirmed its price to market leaders. However the potential extends far past way of life retailers like Houzz. The largest AR e-commerce gross sales may come from clothes, shopper electronics, automotive, furnishings, well being/private care, toys/interest, workplace tools, meals/drink and media classes. Whereas new gamers will emerge to leverage e-commerce’s AR potential, present e-commerce giants like Amazon, eBay and Alibaba may see the best profit from extra immersive AR gross sales methods.
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The large put in base coming for cell AR could possibly be a boon for Fb (Messenger, WhatsApp, Instagram), Snap (Snapchat, Bitmoji), Tencent (WeChat, QQ) and different social/messaging platforms. Snap’s Dancing Hotdog pointed to the place the corporate is heading by way of promoting, and cell promoting’s 88 p.c of complete adspend on Fb meant that Mark Zuckerberg’s Digicam Results platform was all the time going to occur.
Main manufacturers may take a while to completely perceive cell AR’s potential, however after they do, anticipate to see vital adspend from retail, automotive, monetary providers, telecom, CPG/shopper merchandise, journey, shopper electronics, media, leisure and healthcare/pharma advertisers.
The enterprise of enterprise
Smartglasses have been enterprise-focused thus far, as company customers’ ROI from price financial savings permits them to put money into pilot tasks. Firms like Microsoft, ODG, Meta and Vuzix are seeing early enterprise traction, though the enterprise smartglasses market stays early-stage.
Cellular AR’s ubiquity and low price may additionally assist enterprise AR adoption from this yr. Along with new generations of smartglasses, enterprise AR may see regular progress till it hits an inflection level round 2021 throughout manufacturing/assets, TMT, authorities (together with navy), retail, development/actual property, healthcare, schooling, transportation, monetary providers and utilities industries.
The Asian century
With cell AR’s geographic distribution broadly just like present smartphone/pill distribution, and VR’s distribution broadly just like present video games’ market distribution, AR/VR income could possibly be dominated by Asia (notably China, Japan and South Korea). This might see Asia roughly equal in dimension to North America and Europe, mixed. As smartglasses’ early shopper income may come from cell tethered smartglasses, its revenues would possibly observe an analogous geographic sample.
If VR is for video games, AR is for all the pieces
Since 2015 we’ve stated that Apple may personal your augmented future, and Tim Cook dinner appears to agree, “AR [is] profound. Not as we speak, not the app you’ll see on the App Retailer as we speak, however what it will likely be, what it may be…the true magnificence is that [it] is mainstream and…Apple is the one firm that might have introduced this as a result of it requires /software program integration…that is very very similar to in 2008 once we fired the gun within the App Retailer. That’s what it feels wish to me, and I believe it should simply get greater from right here.”
We’ve additionally stated that AR/VR is the fourth wave of shopper expertise, and that AR could possibly be greater than VR. That appears like how issues would possibly pan out, however we’re nonetheless solely at first of what that wave may turn out to be — 2018 isn’t the “yr of AR/VR” but. Whereas fellow surfers know that selecting (and driving) massive waves isn’t with out threat, whenever you get it proper, there’s little higher. So for the affected person and courageous, it’s going to be a wild journey.
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