Hardware

Ubiquitous AR to dominate focused VR by 2022

Comment

Image Credits: Thomas M. Scheer/EyeEm (opens in a new window)

Tim Merel

Contributor

Tim Merel is managing director of Digi-Capital.

More posts from Tim Merel

AR (mobile AR, smartglasses) could approach three and a half billion installed base and $85 billion to $90 billion revenue within five years. At the same time, VR (mobile, standalone, console, PC) might deliver 50 million to 60 million installed base and $10 billion to $15 billion. That’s a pretty big difference, and it all has to do with AR’s ubiquity and VR’s focus. (Note: Digi-Capital’s base case is that even with 900 million installed base for ARKit/ARCore by the end of this year, AR/VR revenue won’t begin to scale until 2019).

To understand why the sister markets are shaping up so differently, we’re going to dig in to AR’s and VR’s installed bases, use cases, app store category revenues (IAP/premium), e-commerce category sales, adspend by industry, enterprise revenues by industry and geographic splits. The devil’s in the detail, and this is the most detailed dive we’ve ever done.

All about that base

Mobile AR (Apple ARKitGoogle ARCoreFacebook Camera EffectsSnap Lens Studio) could hit 900 million installed base by the end of this year, approach three and a half billion by 2022 and dominate AR/VR for the foreseeable future. Yet while VR’s market potential was diminished by the emergence of mobile AR as a rival platform last year, saying “this VR cycle is dead” might be a little harsh.

Mobile/standalone VR (Samsung Gear VRGoogle Daydream ViewOculus Go) had its potential reduced by phone makers and developers shifting their focus more toward mobile AR, and might not top a few tens of millions installed base long-term. (Note: Hardware-installed base incorporates hard data on device sales, and device attrition.)

(Note: scales on both charts are not the same)

Standalone premium VR (neither PC nor mobile tethered, like HTC Vive Focus and Oculus Santa Cruz prototype) could begin to accelerate in 2019/2020 as hardware/software develops and prices come down, but might only deliver around half of mobile/standalone VR’s installed base by 2022. Console/PC VR (HTC ViveOculus RiftMicrosoft Windows Mixed RealitySony PlayStation VR) could grow from today’s low single-digit millions, but might only be in the high single-digit millions in five years’ time.

Smartglasses (Magic LeapMicrosoft HoloLensODGMetaVuzix) remain the long-term future of AR/VR. If Apple launches smartphone tethered smartglasses in 2020, the smartglasses market could grow from a few hundred thousand enterprise users last year to several tens of millions of mass-consumers by 2022. All told, the combined AR/VR headset market could reach an installed base in the high tens of millions to more than 100 million by 2022 (or around 3 percent of mobile AR).

Show me the money

Mobile AR apps in their first few months were largely ports from existing platforms, but AR’s coming scale, flexibility, mobility and ubiquity are driving an explosion of new use cases and business models. E-commerce sales (goods & services, not IAP) could become the largest revenue driver for AR, where Houzz has proven mobile AR can increase sales conversion rates by 11x, and Alibaba has partnered with Starbucks for the world’s largest AR enabled Starbucks Roastery in Shanghai (Alibaba is a leading investor in Magic Leap for a reason).

If and when Apple launches smartphone-tethered smartglasses, hardware sales could become AR’s second largest revenue stream. Adspend driven by mobile AR’s scale comes next, followed by app store revenues from a diversity of new non-games’ IAP/premium revenues and more familiar games’ business models. Enterprise AR could be significant for both future developments of today’s enterprise-focused smartglasses and mobile AR. Lastly, location-based AR entertainment could deliver long-term.

(Note: scales on both charts are not the same)

VR’s smaller installed base, lower mobility and exclusive immersion (i.e. limited plurality) focuses it on entertainment use cases and revenue streams. Entertainment (games, location-based entertainment and video) could take two-thirds of all VR sector revenue long-term, with hardware taking just over a quarter due to limited unit sales and price competition. There will be enterprise use-cases, but VR’s relatively lower installed base and form factor could see much lower corporate spending than equivalent enterprise mobile AR and smartglasses. VR e-commerce and advertising revenues could develop, but the scale and fragmentation of VR’s user base limit their significance for now.

Our diversity is our strength

The differences between the two markets become clearer when looking at the 23 app store revenue (IAP/premium) categories.

(Note: scales on both charts are not the same)

While AR games could take more than two-thirds of AR app store revenue this year (no other category taking more than a few percent), a Cambrian explosion of creativity by developers and investment by VCs could see 20-plus non-games sectors drive over half of AR app store revenue by 2022. Games should remain significant, but the greatest innovation and growth could come from sectors from social to navigation and beyond. Totally new use cases could give rise to new business models, disrupting sectors both old and new.

In contrast, games might take the bulk of VR app store revenues long-term. VR looks most like a subset of the video games market, where it has been heavily marketed toward a gamer user base.

Buy! Sell!

As above, emerging AR e-commerce has already proven its worth to market leaders. But the potential extends far beyond lifestyle retailers like Houzz. The biggest AR e-commerce sales could come from clothing, consumer electronics, automotive, furniture, health/personal care, toys/hobby, office equipment, food/drink and media categories. While new players will emerge to leverage e-commerce’s AR potential, current e-commerce giants like Amazon, eBay and Alibaba could see the greatest benefit from more immersive AR sales techniques.

This reality brought to you by [insert advertiser here]

The massive installed base coming for mobile AR could be a boon for Facebook (MessengerWhatsAppInstagram), Snap (SnapchatBitmoji), Tencent (WeChatQQ) and other social/messaging platforms. Snap’s Dancing Hotdog pointed to where the company is heading in terms of advertising, and mobile advertising’s 88 percent of total adspend on Facebook meant that Mark Zuckerberg’s Camera Effects platform was always going to happen.

Major brands could take a little time to fully understand mobile AR’s potential, but when they do, expect to see significant adspend from retail, automotive, financial services, telecom, CPG/consumer products, travel, consumer electronics, media, entertainment and healthcare/pharma advertisers.

The business of business

Smartglasses have been enterprise-focused to date, as corporate users’ ROI from cost savings allows them to invest in pilot projects. Companies like Microsoft, ODG, Meta and Vuzix are seeing early enterprise traction, although the enterprise smartglasses market remains early-stage.

Mobile AR’s ubiquity and low cost could also help enterprise AR adoption from this year. Together with new generations of smartglasses, enterprise AR could see steady growth until it hits an inflection point around 2021 across manufacturing/resources, TMT, government (including military), retail, construction/real estate, healthcare, education, transportation, financial services and utilities industries.

The Asian century

With mobile AR’s geographic distribution broadly similar to current smartphone/tablet distribution, and VR’s distribution broadly similar to current games’ market distribution, AR/VR revenue could be dominated by Asia (particularly China, Japan and South Korea). This could see Asia roughly equal in size to North America and Europe, combined. As smartglasses’ early consumer revenue could come from mobile tethered smartglasses, its revenues might follow a similar geographic pattern.

If VR is for games, AR is for everything

Since 2015 we’ve said that Apple could own your augmented future, and Tim Cook seems to agree, “AR [is] profound. Not today, not the app you’ll see on the App Store today, but what it will be, what it can be…the real beauty is that [it] is mainstream and…Apple is the only company that could have brought this because it requires hardware/software integration…this is very much like in 2008 when we fired the gun in the App Store. That’s what it feels like to me, and I think it will just get bigger from here.”

We’ve also said that AR/VR is the fourth wave of consumer technology, and that AR could be bigger than VR. That looks like how things might pan out, but we’re still only at the start of what that wave could become — 2018 isn’t the “year of AR/VR” yet. While fellow surfers know that picking (and riding) big waves isn’t without risk, when you get it right, there’s little better. So for the patient and brave, it’s going to be a wild ride.

More TechCrunch

Tags

Founder-market fit is one of the most crucial factors in a startup’s success, and operators (someone involved in the day-to-day operations of a startup) turned founders have an almost unfair advantage…

OpenseedVC, which backs operators in Africa and Europe starting their companies, reaches first close of $10M fund

A Singapore High Court has effectively approved Pine Labs’ request to shift its operations to India.

Pine Labs gets Singapore court approval to shift base to India

The AI Safety Institute, a U.K. body that aims to assess and address risks in AI platforms, has said it will open a second location in San Francisco. 

UK opens office in San Francisco to tackle AI risk

Companies are always looking for an edge, and searching for ways to encourage their employees to innovate. One way to do that is by running an internal hackathon around a…

Why companies are turning to internal hackathons

Featured Article

I’m rooting for Melinda French Gates to fix tech’s broken ‘brilliant jerk’ culture

Women in tech still face a shocking level of mistreatment at work. Melinda French Gates is one of the few working to change that.

17 hours ago
I’m rooting for Melinda French Gates to fix tech’s  broken ‘brilliant jerk’ culture

Blue Origin has successfully completed its NS-25 mission, resuming crewed flights for the first time in nearly two years. The mission brought six tourist crew members to the edge of…

Blue Origin successfully launches its first crewed mission since 2022

Creative Artists Agency (CAA), one of the top entertainment and sports talent agencies, is hoping to be at the forefront of AI protection services for celebrities in Hollywood. With many…

Hollywood agency CAA aims to help stars manage their own AI likenesses

Expedia says Rathi Murthy and Sreenivas Rachamadugu, respectively its CTO and senior vice president of core services product & engineering, are no longer employed at the travel booking company. In…

Expedia says two execs dismissed after ‘violation of company policy’

Welcome back to TechCrunch’s Week in Review. This week had two major events from OpenAI and Google. OpenAI’s spring update event saw the reveal of its new model, GPT-4o, which…

OpenAI and Google lay out their competing AI visions

When Jeffrey Wang posted to X asking if anyone wanted to go in on an order of fancy-but-affordable office nap pods, he didn’t expect the post to go viral.

With AI startups booming, nap pods and Silicon Valley hustle culture are back

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

A new crop of early-stage startups — along with some recent VC investments — illustrates a niche emerging in the autonomous vehicle technology sector. Unlike the companies bringing robotaxis to…

VCs and the military are fueling self-driving startups that don’t need roads

When the founders of Sagetap, Sahil Khanna and Kevin Hughes, started working at early-stage enterprise software startups, they were surprised to find that the companies they worked at were trying…

Deal Dive: Sagetap looks to bring enterprise software sales into the 21st century

Keeping up with an industry as fast-moving as AI is a tall order. So until an AI can do it for you, here’s a handy roundup of recent stories in the world…

This Week in AI: OpenAI moves away from safety

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

3 days ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

3 days ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies