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Virtual reality (VR) could be big soon, says a Digi-Capital study. And augmented reality (AR) could be bigger, but might take longer to get there.
At the start of last year 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. VR’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 year’s forecasts, they now do so a year later.
Digi-Capital says that 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 the initial consumer VR market drivers, changing installed base forecasts in favour of mobile VR. There isn’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.
Changes to consumer market launch timing had a significant impact on topline AR forecasts, but the sector mix looks broadly similar to last year’s numbers. AR hardware revenue will drive the market, followed by augmented commerce, data, voice, video, enterprise, theme park, advertising, apps and games revenues.
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.
What does this mean for established players and start-ups? 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. Google’s friends Magic Leap will do what they’re going to do, as 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 Moore’s Law brings high-end VR within reach of the average consumer.
The direction remains the same, it’s just a question of timing.