Report: For AR/VR 2.0 to live, 1.0 must die

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AR/VR 1.0 kicked off in earnest when Facebook bought Oculus back in 2014. This inspired a generation of entrepreneurs, corporates and VCs to build early stage AR/VR. Despite significant technical progress, even industry insiders admit this hasn’t produced a mass market yet.

Mobile AR delivered 2 per cent higher revenue than we forecast for 2018 at over $3 billion globally, driven by appstore revenues (primarily Pokémon Go), adspend (e.g. from mobile AR features in messaging apps) and eCommerce sales (e.g. Houzz delivering 11x sales uplift). Mobile AR installed base (i.e. configured devices) grew more slowly than anticipated to over 850 million globally (note: this isn’t active users, which is a much lower number). As anticipated, there weren’t any standalone breakout mobile AR apps last year. Developers are still figuring out what does and doesn’t work for mobile AR.

Smartglasses had a mixed 2018, with Microsoft HoloLens winning a $480 million US military contract, Magic Leap launching more of a dev kit than a consumer product, and other early smartglasses pioneers reported to be selling assets or furloughing staff. Smartglasses revenue (mainly hardware and enterprise solutions/services) was in the hundreds of millions of dollars, which together with mobile AR delivered total AR market revenue 3 per cent lower than anticipated. So as in the last 3 years, AR revenue was broadly in line with Digi-Capital forecasts.

For VR, at the start of last year Digi-Capital didn’t anticipate phone makers largely abandoning mobile phone preorder headset bundles (negatively impacting mobile VR sales/installed base significantly), and got timing wrong for Oculus Quest launching in holiday 2018 (announced late last year as Spring 2019). The mid-year launch of Oculus Go and our accurate forecasts of PSVR sales helped, but together with attrition rates the VR market was down year-on-year for 2018 in terms of unit sales, installed bases and revenue at less than $3 billion (rather than the modest growth we forecast).

Digi-Capital forecasts AR (mobile AR, smartglasses) to top two and a half billion installed base and $70 billion to $75 billion revenue by 2023. VR (mobile, standalone, console, PC) might deliver over 30 million installed base and $10 billion to $15 billion revenue in the same timeframe.


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