The AR/VR market worth more than 80 billion may split before integration?

According to venturebeat, some people in the AR/VR industry believe that AR/VR technology will be integrated into a certain device in the future, but mobile AR, smart glasses and VR technology may diverge in the medium term (at least commercially).

AR (mobile AR, smart glasses) is expected to have an installed base of over $2.5 billion by 2023, with revenues of $70 billion to $75 billion (note: installed base is different from active users). VR (mobile, standalone, console, PC) will have an installed base of over 30 million, with revenues of $10 billion to $15 billion. This difference is driven by installed base, form factor, price, applications, business model, and unit economics, which is huge based on the data alone, so why are they so different?

       Source: Digi-Capita AR/VR Analytics Platform and Augmented/Virtual Reality Report

       Mobile AR is a mass consumer market

       Mobile AR looks like the mid-term mass market for AR/VR, with an installed base of over 850 million at the end of last year, and Digi-Capital predicting over 2.5 billion by 2023 (ARKit, ARCore, Facebook Spark AR, Snapchat Lens Studio, web AR, etc.). It has the natural advantage of being a free software platform on ubiquitous smartphones. (Note: mobile AR installed base is compatible/configured devices, not active users.)

      The challenge for mobile AR is to create key apps that transform the user experience in a way that users care about, and that can’t be achieved by any other means. Pokémon Go, messaging filters, and Google Maps are just a start, but additional key apps are needed.

      E-commerce sales and ad spend could become the primary long-term mobile AR business models. Mobile AR/computer vision in e-commerce/retail is already powering Houzz, Olay Skin Advisor, and Walmart. For adspend, this year’s F8 keynote showcased how Facebook’s adspend-funded messaging platform is leveraging Spark AR — similar to Tencent’s Snap.

      In the long term, mobile AR app store revenue from in-app purchases and premium apps will remain a major driver. Although the current focus is on AR games such as "Pokemon Go", Digi-Capital expects that by 2023, non-game apps will account for more than half of mobile AR app store revenue in more than 20 app categories. Enterprise mobile AR software/services can also be part of the long-term mix.

      Smart glasses are a mid-term hardware/enterprise product

      Smartglasses are largely enterprise-focused, with short-term installed bases ranging from tens of thousands (e.g. Vuzix, Google Glass enterprise edition) to hundreds of thousands (Microsoft HoloLens 2 has a 100,000 unit contract with the US Army). Digi-Capital expects enterprise smartglasses to reach millions of users by 2023, driven by Microsoft, Google and a range of startups. Magic Leap is currently focused on developers and enterprises, with its consumer play having medium-term prospects.

      Digi-Capital first predicted more than three years ago that Apple would launch smartphone-tethered smartglasses in late 2020, but only Tim Cook and his inner circle really know if, when, and what they will look like. If they launch as a premium smartphone peripheral, not everyone will be happy to buy or carry two devices, like the Apple Watch.

      Apple is still likely to sell tens of millions of iPhones to early adopters by 2023, which could also drive enterprise demand for “bring-your-own-device.” Standalone smartglasses appear to have fallen by the wayside as a mass consumer smartphone alternative.

      Mass consumer revenue streams like app stores, e-commerce sales, and adspend require hundreds of millions to billions of users to scale, and the smartglasses market does not appear to have that scale at this point. Therefore, the primary revenue streams for smartglasses will likely remain hardware sales and enterprise software/services.

      VR for early adopters and enterprises

      In 2018, the installed base of VR devices across mobile and console/PC was less than 20 million, with sales of just a few million units and relatively high churn. Facebook’s high-end standalone VR Oculus Quest is on track to sell a million units this year, mostly to early adopters (Quest costs $100-200 more than the competing Nintendo Switch console, and requires two or more headsets to play with friends in VR, unlike the Switch in non-VR mode).

      The inflection point in the market may require the emergence of the second generation of high-end standalone VR devices around 2020/2021, with better performance, better content, and lower prices.

      Most of VR's revenue comes from hardware sales and games/entertainment, with enterprise software/services accounting for an increasing portion of that. While VR is still exploring other applications, this will likely remain the commercial path for VR in three years.

One platform to rule them all

      In the long run, people are expected to build a grand, unified AR/VR platform, but currently there are three completely different platforms (also commercially). But in the early market, such divergence is a good thing because it allows time for the next generation of technology giants to emerge.