Virtual reality could be big soon. Augmented reality could be bigger, but might take longer to get there. How big and how soon? Letâ€™s look atÂ what we learned in the last yearÂ and how that changes the mix and timing of AR/VR forecasts.
Timing is everything
At theÂ start of last yearÂ it looked like consumer AR could launch in 2016. AR now appears largely focused on enterprise users this year, with most consumer AR expected to launch around 2017 (although wild cards like Magic Leap could change that). This effectively pushes AR consumer market revenue back by 12 months, with AR now forecast to hit $90 billion by 2020. VRâ€™s topline remains largely unchanged, with $30 billion forecast by the end of the decade. The timing change also moves the tipping point for AR passing VR from 2018 to 2019. So where our internal numbers hit similar revenue to last yearâ€™s forecasts, they now do so a year later.
We now know that the CPU/GPU requirements for high-end VR come at a premium. Sony Playstation VR and mobile VR (from Samsung and others) are expected to be theÂ initial consumer VR market drivers, changing installed base forecasts in favor of mobile VR. There isnâ€™t a material impact on topline VR revenue forecasts, but the revenue mix looks a bit different by sector. VR largely remains an entertainment market driven by hardware, games, video and theme parks, with non-entertainment apps driving a meaningful minority of revenue by 2020 as the market develops.Â (See original VR sector approachÂ here)
Changes to consumer market launch timing had a significant impact on topline AR forecasts, but the sector mix looks broadly similar to last yearâ€™s numbers. AR hardware revenue will drive the market, followed by augmented commerce, data, voice, video, enterprise, theme park, advertising, apps and games revenues.Â (See original AR sector approachÂ here)
Go east, young man
The weight of innovation for AR and VR is in America today, with an unsurprising bias towards the West Coast. There are significant concentrations of development in Asia, with the Chinese market in particular giving rise to many home grown competitors. Where higher than average AR/VR revenue per user is likely to come from North America, Western Europe, Japan and South Korea, installed base is generally the ultimate driver of long term revenue. Combining our forecasts by sector and country/region indicates that Asia (China, Japan, South Korea, others) could drive AR/VR revenue by 2020, followed by Europe and North America. This geographic potential has not escaped the notice of entrepreneurs and investors, as everyone tries to figure out where to place their bets.
Plus Ă§a change, plus câ€™est la mĂŞme chose
What does this mean for established players and startups? The short version is that everything has changed and nothing has changed. Despite Apple buying Metaio, it might take 18 to 24 months for a consumer market large enough for it to enter. Facebook, HTC/Valve, Sony and others will push forward with PC/console VR, as Facebook now explores AR in parallel. Samsung (with Facebook) and dozens of competitors will drive mobile VR. Googleâ€™s friends Magic Leap will do what theyâ€™re going to do, asÂ Microsoft, ODG and others focus on Enterprise AR in 2016 ahead of consumer AR next year. Mobile VR will see hardware prices fall driven by Chinese competitors like Letv, and everyone hopes Mooreâ€™s Law brings high-end VR within reach of the average consumer.
The direction remains the same, itâ€™s just a question of timing. Weâ€™ll keep updating as hard market data becomes available this year.
You can find out more about AR/VR sector and geographic revenue forecasts in Digi-Capitalâ€™s newÂ Augmented/Virtual Reality Report 2016