What's Driving Facebook's VR Play? (New Report)

This post is adapted from ARtillry's latest Intelligence Briefing, AR Business Models: The Top of the Food Chain. To receive the report and access the full XR intelligence library, subscribe here (VRARA members receive a discount).

How does VR play into Facebook’s master plan? Starting with Oculus Go, it could be a boon for Facebook/Oculus and for the larger VR industry’s consumer penetration. As we and others have written, Go could jolt VR adoption, given its highly-competitive pricing that hits a consumer sweet spot, and its frictionless user experience.

As background, Oculus Go is priced at $199 to bring higher-end VR to a greater swath of the mainstream public, and to better seed a VR marketplace. Oculus has the luxury (Facebook) of treating VR hardware as a loss leader to build market share and a longer-term platform strategy.

But that approach comes at a cost: to sacrifice margins for market share. The latter is motivated by the fact that platform wars are won through momentum set in early days to attract users. Then there’s a virtuous cycle of developer interest, incentive, content creation… and more users.

Put another way, it’s all about attracting users by any means to seed a marketplace and establish an installed base. That economically attracts developers who create content, which attracts more users. Those users in turn attract more developers… and the virtuous cycle commences.

Meanwhile, consumers win by receiving a strong value on hardware from Oculus. But not everyone wins: companies reliant on short-term hardware margins (Samsung, HTC, etc.), find it harder to compete with such pricing. HTC Focus already delayed U.S. distribution plans.

Overall, it’s a lesson in loss-leader economics, and strategic positioning in early days of platform wars. We saw the same thing in the smartphone OS wars. And like then, consumers benefit most. Prices should continue to drop, along with an arms race for VR quality and content libraries.

Content is King

Speaking of content, it's where Oculus Go holds another key advantage. This helps overcome chicken and egg challenges and fragmentation that have dampened VR adoption. There are 1000 games and apps available for Go, thanks to the Oculus-compatible library from Gear VR.

Doubling down on this advantage, Facebook invested in content creation and user experiences such as lean-back entertainment (Oculus TV), social interaction (Rooms) and live sports (Venues). The latter is interesting in that live sports are a key differentiator for broadcasters.

To do this, Facebook is working with prominent content partners like Hulu, Netflix and NextVR (for live events). This makes sense, given that Oculus Go’s lower-end specs make it optimized for lean-back entertainment and casual games, as opposed to graphics-intensive gaming.

But the real endgame for Facebook’s VR initiatives is to lead and own the next generation of hardware where highly immersive social interaction happens. And like Apple, if it owns the hardware – and thus the user touch point – It gains vertical integration to better control its destiny.

This is something Facebook missed by not launching a smartphone as a direct consumer touch point. It instead has to reach consumers through apps that operate on devices that Google and Apple control. It therefore lacks vertical integration and the ability to optimize and tune hardware.

Given Mark Zuckerberg’s vision of a VR future, that’s not a barrier he wants to face again. Though smartphones are highly conducive to social engagement and connectivity, Facebook sees VR as an even greater bedfellow for the future of digital social interaction… but it could take a while.

Noble Quest

Meanwhile, Oculus’ latest move is to launch the Quest headset at its OC5 event. This is its attempt for a mass-market tier-1 headset. It features high-end VR specs such as hand presence and full (six degrees of freedom) positional tracking, but in an untethered package like Oculus Go.

All of this comes at a $399 price tag. At $200 more than Oculus Go, there’s a big enough delta to avoid cannibalization, but strong enough value in feature upgrades. Those include most notably inside-out positional tracking for headset and hand controllers, unlocking Rift-like gaming.

And like Oculus Go, the price is strategically set at a margin-neutral or loss-leader approach to seed a market and longer-term platform play. But the question remains if it’s too high above the “magic price” of $200 that’s we've pinpointed as an inflection point for consumer demand.

Panning back to the full product line, there’s economic optimization around three tiers — Go, Quest & Rift — to capture demand across market segments. This could help inch closer to Zuckerberg’s lofty goal of one billion VR users, though he admits there's still a ways to go.

“From here, we’re going to make some big leaps in both tech and content for the future generations of each of these products,” said Zuckerberg. “It’s still early but this is the basic roadmap. This is what we need to do for VR to succeed, and to get to the future that we all want.”

Subscribe to receive the report and access the full XR intelligence library. VRARA members receive a discount on subscription.

Introducing ARtillry INSIGHTS Premium: Gain an XR Edge

What's driving XR adoption? What are installed bases? Revenue outlook? Usage patterns? ARtillry INSIGHTS answers these questions with an intelligence vault filled with data, insights, multimedia and analyst access. It's all about gaining a knowledge-edge and saving time with a single launch point for XR intelligence.

VRARA Members receive a discount on intelligence subscription

FEATURES

• Original Research: Monthly reports and weekly data briefs examining XR data, opportunities and dynamics
• Curated Research: We hand pick industry data and reports.
• Curated Video: We watch, select and summarize video from XR events.
• Slide Library: Charts for your presentations and knowledge building.
• Slack Channel: We're here to answer your XR questions.
• Analyst Access: Deeper discussions, strategic queries and diligence

What are the top factors driving XR adoption? What are AR & VR installed bases? Revenue outlook? Consumer sentiments? Usage patterns? And what product strategies and business models have the most traction?

Answering these questions is the mission of ARtillry Intelligence. That's because history has taught us that with any transformative technology, the name of the game is detecting openings for business opportunity and gaps in the value chain. And that's all about having a knowledge position.

With that backdrop, we announce ARtillry INSIGHTS, a research and intelligence subscription offered in tandem with the VR/AR Association. Among other things, it includes access to our full intelligence vault, original Intelligence Briefings (monthly), data briefs (weekly), curated reports, slide bank, data concierge and analyst access.

Best of all, VR/AR Association members get an automatic discount to subscribe (pricing and details are here)

The main goal: to equip subscribers in AR and VR sectors — or those entering from other industries — to make informed business decisions. That includes XR startups, investors, enterprises vetting XR opportunities, and marketing or PR firms building narratives for clients.

For these positions and others, ARtillry INSIGHTS provides one jumping-off point for XR knowledge building. And we've built in optionality for various personas: hundreds of individual data slides for those who want to go deep, and a highly curated experience for those with less time.

That includes an organized taxonomy of formats (white papers, data briefs, slides, video) as well as XR topics (AR, VR, market sizing, product strategy, etc.) and sub-topics (gaming, enterprise, retail & commerce, media & advertising, etc.). And we're here to help you find the right content.

The full list of features, editorial calendar, pricing and questions/support form are here. We look forward to being your eyes and ears for XR opportunities that emerge in the coming months.

The Camera is the New Search Box: Advertising in AR (new report)

This post is adapted from ARtillry's latest Intelligence Briefing, The Camera is the New Search Box: Ads in AR. To receive the report and access the full XR intelligence library, subscribe here (VRARA members receive a discount).

One of the many areas projected to be transformed by immersive computing is advertising. The visually-immersive nature of technologies like AR and VR can offer advertisers new ways to spotlight products, and engage prospective customers in deeper ways than 2D media.

For example, advertisers can create AR campaigns that let consumers visually infuse products in the world around them, as captured through their smartphone camera. Brands like Nike, Home Depot and Michael Kors are already experimenting with – and learning from – such campaigns.

Beyond graphical AR overlays, advertisers will soon be able to participate in a related area: visual search. A close cousin of AR, this is represented by tools like Google Lens, which let users point their smartphone cameras at objects around them to contextualize (or purchase) those items.

Altogether, AR ad formats are beginning to map to existing 2D ad formats that advertisers have been using for years. For example, branded graphical AR overlays are analogous to display advertising, while visual search can carry similar dynamics and user intent as search advertising.

But the opportunity is to go much deeper than these legacy formats in both creative capacity and effectiveness. Indeed, brands that have experimented with AR-based promotion already see favorable engagement and conversion metrics, such as 11x increases in product purchases.

The opportunity is further fueled by vested interest of tech giants. Tech’s “four horsemen” – Google, Apple, Facebook and Amazon – are especially keen on AR. Those specifically built on ad revenue (Google and Facebook), will fight to ensure positioning in advertising’s next era.

Resulting competition will accelerate innovation, investment and market timing for AR advertising in general. Indeed, one point of confidence ARtillry Intelligence holds for AR’s overall revenue generation and opportunity is the level of motivation behind these tech giants to make it happen.

But it won’t be without challenges and question marks. Though all of the above stands to reason and quantitative analysis, one wild card is advertiser adoption. They’re a famously laggard constituency of the tech ecosystem, and survey data indicate their AR uncertainty.

There are also practical hurdles. Though mobile AR’s addressable market is 762 million smartphones, the actual market is a subset of that. Active AR users total around 158 million, and session lengths are small, due to factors like arm strain, which diminish ad inventory.

All of these variables converge to drive $2.6 billion in AR ad revenues by 2022. And like the progression of ad formats mentioned above, it will start with display ads before more technically advanced visual search. That requires computer vision, the AR Cloud and other building blocks.

But how will this materialize? What campaign tactics work? And what does it mean for developers, media companies and anyone vetting AR? We dive deep on these questions in the latest report, and will continue to analyze the findings here in the coming weeks.

Subscribe to receive the report and access the full XR intelligence library. VRARA members receive a discount on subscription.

How Do Consumers Feel About VR? (New Survey Data)

This post is adapted from ARtillry’s latest Intelligence Briefing, VR Usage & Consumer Attitudes. It includes some of its data and takeaways, including original market sizing and forecasting. Subscribe to ARtillry Insights for the full report. 

How do consumers feel about VR? Who’s using it? What devices and apps do they prefer? And what do they want to see next? Perhaps more important, what are non-users’ reasons for disinterest? And how can VR software developers and hardware players optimize product strategies accordingly?

These are key questions at VR’s early stages that we set out to answer. Working closely with Thrive Analytics, ARtillry Intelligence wrote questions to be presented to more than 1,900 U.S. adults in Thrive’s consumer survey engine. And we’ve analyzed the results in a narrative report.

This follows last year's first installment of the report. Wave II of the research now emboldens our understanding and brings new insights and trend data to light. There are also notable parallels in these results to our sister report on AR adoption published in April.

So what did we find out? At a high level, eleven percent of consumers surveyed have bought or used a VR headset, up from eight percent in 2017. More importantly, VR users indicate high levels of satisfaction: 65 percent of respondents report moderate or extreme satisfaction.

However, it’s not all good news: Non-VR users report relatively low likelihood of VR adoption – 31 percent, down from 41 percent in 2017 – and explicit lack of interest. This downward trend is concerning for VR but isn’t surprising given the dip in excitement we’ve anecdotally observed.

Moreover, the disparity between current-user satisfaction and non-user disinterest underscores a key challenge for VR: you have to “see it to believe it.” In order to reach high satisfaction levels, VR has to first be tried. This presents marketing and logistical challenges to push that first taste.

Put another way, VR’s highly visual and immersive format is a double-edged sword. It can create strong affinities and high engagement levels. But the visceral nature of its experience can’t be communicated to prospective users with traditional marketing such as ad copy or even video.

The same challenge was evident in our corresponding AR report, but mobile AR’s barriers to adoption are lower. This is nonetheless a common challenge for immersive technologies. It will take time, acclimation and price reductions before they reach more meaningful penetration.

Meanwhile, there are strategies to accelerate that process, and to market VR more effectively. We examine those strategies in the latest ARtillry Intelligence Briefing, through the lens of consumers’ explicit sentiments, actions and desires. There's a lot to unpack, as we'll do in the coming weeks.

Preview more of the report here and subscribe to ARtillry Insights to access the whole thing.

XR's Road To $61 Billion

This post is adapted from ARtillry’s latest Intelligence Briefing, XR Global Revenue Forecast 2017-2022. It includes some of its data and takeaways, including original market sizing and forecasting. Subscribe to ARtillry Insights for the full report. 

Many AR and VR (a.k.a. XR) stakeholders claim that their market sizes will be massive. But how big are they, and how big will they realistically get? ARtillry Intelligence has quantified these sectors and their moving parts in precise terms. The result is our latest XR revenue forecast.

At a high level, we project global XR revenue to grow from $4.2 billion last year to $61 billion by 2022. That consists of AR, VR and the enterprise and consumer segments of each. That includes lots of moving parts, which all come together in an extensive financial model.

One common thread among these sub-sectors is that there will be a tipping point for both adoption and monetization in the 2019-2020 time frame. After that point, growth will accelerate and get over the consumer and enterprise adoption humps that persist today.

Breaking down the sub-sectors and their drivers, enterprise AR will hold the largest share of revenue in the outer years of our forecast. Scale will result from wide applicability across enterprise verticals; and a form factor that supports all-day use and clear ROI.

Adoption is currently dampened by organizational inertia, enterprise risk aversion and sales cycles. These factors will continue to stunt enterprise AR growth but will be outweighed eventually (2020) by the momentum, support and ROI realizations that are currently building.

Consumer AR will be the second largest revenue driver. Near term revenues will be mobile and software-centric (mobile device sales aren’t counted as XR revenue). That includes premium apps and in-app purchases — mostly the latter as validated by Pokemon Go and others.

Consumer VR takes the third spot for revenue in outer years, and be hardware-dominant in the near term as an installed base is established. Over time, software (apps & games) revenue will gain share, built on that installed base and benefiting from faster refresh cycles than hardware.

And the headline within consumer VR is standalone headsets like Oculus Go. At a $199, it hits a sweet spot for quality and affordability, and we project it to reach unit sales of 1.3 million this year. Given a gift-able price point, the 2018 holiday quarter will be a “moment of truth” for Go.

Lastly, enterprise VR takes the final spot among XR sub-sectors. VR will be stronger as a consumer play due to relative shortcomings in the enterprise like isolation, which inhibits industrial job functions. However, it will find value in areas like training and data visualization.

There are lots of other moving parts and inclusions within the above categories, such as XR advertising (included in enterprise AR & VR) and Location Based VR. It’s all broken down in the full report which you can preview here, including details on what’s included and not included.

And we’ll be revisiting excerpts and nuggets from the full report in the coming weeks as we unpack and analyze forecast components. There are lots of individual areas within the XR universe that are ripe for strategic takeaways and value creation. There will be a lot to discuss.

Preview more of the report here and subscribe to ARtillry Insights to access the whole thing.

New Report: AR’s Future Hinges on an ‘Internet of Places’

This post is adapted from ARtillry’s latest Intelligence Briefing, AR Cloud and the ‘Internet of Places.’ It includes some of its data and takeaways, including original survey research. Subscribe to ARtillry Insights for the full report. 

It’s often forgotten that about $3.7 trillion is spent in consumer retail purchases in the U.S.. Of that, $300 billion (8 percent) is spent in e-commerce. This means that offline brick & mortar spending – though often overshadowed by its sexier online counterpart – is where the true scale occurs.

But digital media like mobile search is still impactful. Though spending happens predominantly offline, it’s increasingly influenced online. Specifically $1.7 trillion (46 percent of that $3.7 billion) is driven through online and mobile media. This is known as online-to-offline (O2O) commerce.

O2O is one area where AR will find a home. Just think: is there any better technology to unlock O2O commerce than one that literally melds physical and digital worlds? AR can shorten gaps in time and space that currently separate those interactions (e.g. search) from offline outcomes.

We’re talking contextual information on items you point your phone at. AR overlays could help you decide where to eat, which television to buy, and where to buy the shoes you see worn on the street. This is what ARtillry Intelligence calls “Local AR,” and it will take many forms.

Visual Search

One of the first formats where Local AR will manifest is visual search. If you think about it, AR in some ways is a form of search. But instead of typing or tapping search queries in the traditional way, the search input is your phone’s camera and the search “terms” are physical objects.

This analogy applies to many forms of search, but is particularly fitting to local. Traditional (typed) local search performs best when consumers are out of home, using their smartphones. This is when “buying intent” is highest, and when click-through-rates and other metrics are highest.

Furthermore, proximity-based visual searches through an AR interface could gain traction if our recent consumer survey research is any indication. Among the categories and types of AR apps that consumers want, city guides, in-store retail and commerce apps showed strong demand.

These proximity-based searches are conducive to AR because the phone is near the subject (think: a restaurant you walk by), and can therefore derive information and context after mapping it visually. This really just makes it an evolution of a search query… but done with the camera.

“A lot of the future of search is going to be about pictures instead of keywords,” Pinterest CEO Ben Silberman said recently. His claim triangulates several trends: millennials’ heavy camera use, mobile hardware evolution, and AR software (such as ARkit) that further empowers that hardware.

The Internet of Places

These are some reasons why Google is keen on AR. As is common to its XR initiatives, Google’s AR efforts are driven to advance its core business. In other words, to continue dominating and deriving revenue from search, it must establish a place in this next visual iteration of the medium.

“Think of the things that are core to Google, like search and maps,” said Google XR Partnership Lead Aaron Luber. “These are core things we are monetizing today and see added ways we can use [AR]. All the ways we monetize today will be ways that we think about monetizing with AR.”

For example, a key search metric is query volume (along with cost-per-click, click-through-rate and fill rates). Visual search lets Google capture more “queries” when consumers want info. And these out-of-home moments, again, are “high intent” when monetization potential is greatest.

These aspirations will manifest initially in Google Lens. Using Google’s vast image database and knowledge graph, Lens will identify and provide information about objects you point your phone at. For example, point your phone at a store or restaurant to get business details overlaid graphically.

This can all be thought of as an extension to Google’s mission statement to “organize the world’s information.” But instead of a search index and typed queries, local AR delivers information “in situ” (where an item is). And instead of a web index, this works towards an “Internet of places.”

But before we get too carried away in blue-sky visions – as is often done in XR industry rhetoric, trade shows and YouTube clips – it’s important to acknowledge realistic challenges. There are several interlocking pieces including hardware, software and most importantly… the AR Cloud.

Subscribe to ARtillry Insights to access the full report.

How Do Consumers Feel About Mobile AR? (new report)

This post is adapted from the latest report from ARtillry Insights, Mobile AR Usage & Consumer Attitudes. Preview more of the report or subscribe through VRARA. 

How do consumers feel about mobile AR? Who’s using it? How often? And what do they want to see next? Perhaps more importantly, what are non-users’ reasons for disinterest? And how can app developers and anyone building mobile AR optimize product strategies accordingly?

These are the questions we set out to answer. Working closely with Thrive Analytics, ARtillry Intelligence wrote questions to be presented to more than 2000 U.S. adults in Thrive’s established consumer survey engine. And we’ve analyzed the findings in a narrative report.

This follows last month’s ARtillry Intelligence Briefing, which examined mobile AR app strategies and business models. Now, a deeper view into real consumer usage and attitudes  provides new dimension on mobile AR strategy development and opportunity spotting.

Specifically, one third of consumers surveyed have used a mobile AR app. And those consumers appear active, with more than half reporting that they use mobile AR apps at least weekly. The top app category by far is gaming, which we attribute mostly to Pokémon Go.

Mobile AR users are also engaged, with 73 percent reporting satisfaction or high satisfaction. But beyond these and a few other positive signals, there are areas for improvement. For example, non-mobile AR users report low likelihood of adopting soon, and explicit disinterest.

The disparity between current-user satisfaction and non-user disinterest underscores a key challenge for XR: you have to “see it to believe it.” To reach high satisfaction levels, apps have to first be tried. This presents marketing and logistical challenges to push that first taste.

Put another way, AR’s highly visual and immersive format is a double-edged sword. It can create strong affinities and engagement levels. But the visceral nature of its experience can’t be communicated to prospective users with traditional marketing like ad copy or even video.

The same challenge was uncovered in our corresponding VR report last August (we’ll publish the second wave in Q3). This makes it a common challenge with immersive tech. It will take time and cost reductions before they reach a more meaningful share of the consumer public.

Meanwhile, there are strategies to accelerate that process, and to build AR apps that are compelling to consumers’ current standards. For example, social features can boost AR stickiness and network effect, which will be accelerated with multi-player support in ARkit.

There is of course a lot more to it, which we break down in the report. Meanwhile, this will continue to be a moving target and require lots of strategic precision and an informed position. Stay tuned for lots tidbits and survey results we’ll unpack in the coming weeks.

Preview more of the report or subscribe here. 

Mobile AR Strategies and Business Models Materialize (new report)

To read the full report, subscribe to ARtillry Insights

Augmented Reality (AR) comes in various forms, such as smartphones and smart glasses. Those are further segmented into consumer and enterprise uses. But the point along that spectrum that’s gained the most traction is consumer-geared mobile AR, utilizing the smartphones we all carry.

Apple’s ARkit and Google’s ARCore have democratized mobile AR with app-building tools, while Pokémon Go and Snapchat put it on the map with mainstream-friendly AR features. Though these apps aren’t “true AR,” it doesn’t matter: they’ve done AR a favor by supplying its gateway drug.

These early AR apps have also done the industry a favor by beginning to validate product and revenue models. What AR features do consumers want to use? And what will they pay for? Pokémon Go and Snapchat have already begun to answer these and other strategic questions.

Pokémon Go for example drove almost $1 billion in revenue in the second half of 2016 alone. It did this through in-app purchases and brand-collaborations to drive local offline commerce. These are a just a few potential business models that will develop and drive mobile AR revenues.

Full year-by-year detail and category segmentation available in full report.

Meanwhile, giants like Amazon, IKEA and BMW are pursuing AR strategies and likewise teaching us important lessons. For example, should AR live within standalone apps or be incubated as a feature within already-established apps? And what should AR features be called to attract mainstream users?

In terms of market size, ARtillry Intelligence projects consumer AR revenues to grow from $975 million in 2016 to $14.02 billion in 2021. Until 2021, most of that revenue will come from mobile AR apps, as smart glasses aren’t yet viable for consumer markets due to cost and style.

But how will this revenue materialize and what product and revenue models will be best positioned? In addition to industry giants and early movers mentioned above, the ecosystem contains developers, startups, media companies and brands. How will they deliver content and build value with mobile AR?

The best way to answer these questions is to examine today’s best practices, historical lessons and market trajectory. This report sets out to do that by surveying the landscape, and uncovering product and revenue strategies for anyone interested in tapping the mobile AR opportunity.

To read the full report and a library of XR research, subscribe to ARtillry Insights

Enterprise XR: The Road to $39 Billion (New Report)

This post is adapted from ARtillry's latest Intelligence Briefing: Enterprise XR: Impacting the Bottom Line. It includes some of its data and key takeaways. Subscribe to ARtillry Insights to access the full report.

XR Revenue Outlook (year-by-year detail provided in full report)

The past year was volatile for XR. After an exuberant 2016, the sector’s temperature cooled when consumer hardware penetration – a key leading indicator of industry health – fell short of expectations. So attention shifted to areas of nearer-term scale: mobile and enterprise.

For enterprise (mobile is covered in a separate report) , its nearer-term opportunity is due to a greater addressable market. There are more receptive buyers in enterprise environments, due to measurable time and efficiency gains in AR-assisted job roles. This creates a clear ROI narrative.

To quantify, companies like Intel and Coca-Cola demonstrate 15-45 percent efficiency gains today. This includes time saved in assembly, sorting and maintenance functions. Given that enterprise process management generally strives for single-digit efficiency gains, this XR impact is notable.

And unlike consumer markets, where mobile devices are the near-term play, head-worn XR devices are already penetrating the enterprise. This is due to one big variable: style. AR glasses don’t yet pass consumer markets’ stylistic requirements, but that’s not an issue in the enterprise.

For all of these reasons, ARtillry Intelligence projects enterprise XR to grow from $554 million in 2016 to $39 billion by 2021, with an inflection point in 2019. Near-term revenue will be hardware- dominant as an installed base paves the way for recurring software revenue in later years.

Most of that revenue will be from AR versus VR. Though VR’s place in the enterprise will be valuable and transformative, AR’s market opportunity is larger. This is due to its breadth of applicability across enterprise functions, and pass-through vision that enables more versatility.

But despite all of these positive dynamics and fertile ground for enterprise XR, there will be challenges. As with any organizational technology adoption, there is red tape, inertia, sales cycles and the complications of system integration. As the saying goes, anything worthwhile isn’t easy.

So how will this all play out? What are enterprise XR’s benefits and proof points? What are enterprises saying and doing to indicate areas of opportunity? Who’s exhibiting best practices? And what are the biggest lessons so far? This report sets out to answer these burning questions.

Key Takeaways

XR has been heralded as the next major technological transformation. This will materialize, but later than expected.
-- Similar to the early-2000’s e-commerce bubble, XR excitement and market sizing isn’t overblown… it’s just early.

Soft consumer hardware sales have shifted attention to near-term scale and opportunity, including mobile and enterprise.

ARtillry Intelligence projects enterprise XR to grow from $554 million in 2016 to $39 billion by 2021.
-- Enterprise AR will grow from $314 million in 2016 to $35.2 billion in 2021, including a 2019 inflection point.
-- Enterprise VR will grow from $240 million in 2016 to $3.8 billion in 2021.

AR’s share results from breadth of applicability for enterprise functions, and pass-through vision that enables versatility.
-- AR will also be widely applicable across verticals including CPG, automotive and aerospace.
-- Enterprises have less stylistic and budgetary restraints than consumers, given today’s bulky and costly smart glasses.

Enterprise XR includes live AR remote assistance (assembly, maintenance), pre-authored AR guidance (sorting, maintenance), and immersive VR collaboration (training, design), among other formats.

Adoption drivers include strong ROI and operational efficiencies (time and error reduction) in functions like manufacturing.
-- Intel, Coca-Cola and others detailed in this report demonstrate 15-45 percent efficiency gains today.
-- Additional cost savings result from remote support and collaboration, which lessen travel and machine downtime.

Beyond micro-economics, enterprise AR has potential to transform workforce management
-- AR’s guided instructions or live remote assistance makes more people qualified for more jobs.
-- This unlocks enterprise efficiencies and employees’ in-house mobility, task variety and morale.
-- AR can enable experienced and valued veterans to work remotely, rather than retire or burn out from field work.

Enterprise XR benefits are counterbalanced by several challenges, most of them due to organizational inertia.
-- Like many technologies, XR will face resistance at organizational and departmental levels.
-- The first and only point of entry is often “innovation centers,” where XR is often well received but then languishes.

Tactics for overcoming hurdles include building on already-adopted systems (e.g. Android), and grassroots support.
-- Greater chance of deployment can result from advocacy within the business units proposed to use XR. Bottom-to-top organizational buy-in can create powerful demand signals that lead to real XR deployments.
-- Value propositions should go beyond bottom-line impact and be spun to address individual (and sometimes selfish) pain points of decision makers and influencers throughout the organization.

Despite challenges, there’s good news.
-- After initial adoption, subsequent XR implementations are easier to achieve, as comfort levels are gained.
-- There is evidence that sales cycles are reducing in length.
Cultural familiarity with XR will inch forward and lessen enterprise resistance – a common process in tech revolutions.
-- We’ll see step functions as companies make investments that fuel advancement, which in turn drives more investment.

Challenges will persist into 2018 but momentum and acclimation are leading towards a 2019 tipping point.
-- Enterprise XR will follow a similar adoption pattern seen in smartphone enterprise integration over the last decade.

Subscribe to access the full report.

VR and AR Revenues to Reach $79 Billion by 2021 (new report)

Subscribe to ARtillry Insights to access the full report.

How big are AR & VR and how big will they realistically get? ARtillry Intelligence ventured to quantify these sectors' revenue opportunity and the result is its latest industry revenue forecast.

And the Verdict? Global AR & VR revenues will grow from $4.1 billion in 2016 to $79 billion by 2021. This includes AR, VR and the enterprise and consumer segments of each. It mostly consists of hardware and software sales (see inclusions and exclusions below).

As for a breakdown of the major sub-sectors of the XR spectrum, consumer VR leads all categories today but will be quickly eclipsed by enterprise AR. Enterprise's leading stake has a lot to do with clear ROI for enterprise buyers, and a form factor that supports all-day use.

See the rest of the breakdowns below, and read about report's methodology here. You can also see our video companion below for additional narrative about revenue drivers and dynamics. To access the full report, subscribe to ARtillry Insights.

Key Takeaways

Global AR & VR revenues will grow from $4.1 billion in 2016 to $79 billion by 2021.

Enterprise AR will grow from $829 million in 2016 to $47.7 billion in 2021. It’s the fastest growing segment of AR & VR revenues and the largest revenue segment in 2021. Scale will result from wide applicability across enterprise verticals; and a form factor that supports all-day use and clear ROI (e.g. manufacturing efficiencies). Near-term revenues will be hardware-dominant as it’s usually the first step in enterprise tech adoption. Hardware growth creates an installed base for software, which will dominate enterprise AR in outer years. Enterprise hardware adoption will also mature as it’s established in the enterprise, with replacement cycles outpaced by software refresh rates.

Consumer AR will grow from $975 million in 2016 to $15.8 billion in 2021. Until the 2020 introduction of Apple’s smart glasses, it will be dominated by the mobile form factor. Revenues will be software-dominant during that time (mobile devices aren’t counted in this forecast), and include app revenues such as in-app purchases. Much of this will evolve from the business model validated by Pokémon Go which drove most of 2016's consumer AR revenues. Niantic will also find success in its follow-up game to Pokémon Go, with architecture and game mechanics re-skinned to a Harry Potter theme. Consumer AR will hit an inflection point – and shift share towards hardware revenue – starting in 2020 as consumer-gear smart glasses finally arrive. Meanwhile, the development work put into mobile AR apps will be a training ground for an eventual glasses-dominant era.

Enterprise VR will grow from $665 million in 2016 to $4.4 billion in 2021. Though strong in its own right (46% CAGR), it will hold the smallest share of AR & VR revenues among the sub-sectors measured in this forecast. VR will be stronger as a consumer play (see below), while AR is stronger in the enterprise (see above). The latter dynamic stems from VR’s inherent isolation, which inhibits some job functions and share of time per working day. Like AR, VR’s near term enterprise revenue will be hardware-dominant as it’s the first step to tech adoption. That installed base will pave the way for enterprise VR software revenues to grow and overtake enterprise VR hardware revenues by 2019.

Consumer VR will grow from $1.6 billion in 2016 to $11.5 billion in 2021. Like enterprise VR, it will be hardware-dominant in early years as its installed base is established. Over time, software (in this case, games and apps) will eclipse hardware revenues with a faster refresh cycle. A greater installed base of hardware will also incentivize VR content creators to invest in long-form content, resulting in more robust VR content libraries and greater software spending per user (ARPU). Price competition among VR headset manufacturers (e.g. Oculus, Sony, Samsung) will also be a big consumer adoption driver. Oculus Go, at a $199 price point, will hit a sweet spot for quality and affordability, and will drive mainstream VR adoption and education starting in 2018. Oculus – with the advantage of Facebook-backing – has the flexibility to apply loss-leader pricing in order to trade margins for market share. That will give it a strong competitive position versus players that are dependent on hardware revenue (i.e. HTC, Samsung).

Subscribe to ARtillry Insights to access the full report.

Investing in VR/AR: What are VCs Saying and Doing? (new report)

Subscribe to Monthly Research Reports here.

Investors are excited about AR and VR, just like most of the tech world is. But they see things through a different lens. Given risk profiles and often-higher stakes than other entities in the AR and VR landscape, they have additional layers of insight and consideration.

So ARtillry Intelligence ventured (excuse the pun) to capture that perspective in a new report. It spent much of the last year talking to investors, and attending industry events where top investors speak. The result is a collection of insights, synthesized into a categorized narrative.

Where do AR and VR investors see the biggest opportunities? What are their investment theses? What factors signal strong financial upside? What do they look for in a pitch? Finally, what can the rest of us take away from those insights in order to choose the right paths in AR and VR sectors?

These questions are tackled throughout the report, and the key takeaways can be seen below. Topics include enterprise versus consumer approaches; high-end AR and VR versus more rudimentary (but scalable) mobile formats; and strategies around content.

Investors we’ve spoken to have lots to say on these topics that will steer the course of AR and VR. Their credibility is stronger than many other industry voices, given not only unique vantage points mentioned above but another key factor: They’re putting money where their mouths are.

Check out the report’s key takeaways below, and subscribe here to get the entire thing. Meanwhile, stay tuned for more excerpts and insights on this topic.

---

Smart Money: Insights From AR & VR Investors

Key Takeaways

AR & VR have elicited considerable investor excitement and projections of smartphone-sized transformation.
— We’ve witnessed a rise in AR and VR-focused investment firms (Presence Capital, The Venture Reality Fund, Super Ventures), and corporate VC firms (Comcast Ventures, Qualcomm Ventures, Intel Capital, Lenovo Capital).

More than $4 billion in venture funding has been invested in AR & VR companies since 2012.
— Magic Leap alone has received $2 billion, which should signal caution, but we believe funding dispersion will even out.
— AR companies have received the most funding, followed by consumer VR, enterprise VR, and VR games.

Underlying tech has received the most funding recently, followed by video content, games and peripherals.
— In this relatively early phase, building blocks hold a large opportunity, including haptics, processing and inputs.
— All parts of AR & VR’s collective spec sheet are underdeveloped, creating opportunities across the board.

Addressable market is a big investment criteria, and is currently diminished by consumer VR’s small base.
— Consumer hardware ubiquity is marked by 100 million units. VR headset penetration is currently 17 million units.
— Until consumer VR reaches ubiquity, enterprise and mobile AR hold nearer-term opportunities for scale.

Mobile AR’s benefits include volume penetration, portability, all-day access and frequency of use.
— ARkit and ARCore create 505 million AR-compatible smartphones today, increasing to 4.3 billion by 2020.
— ARCore is advantaged by a lower-friction web AR approach. ARkit is advantaged by more structured revenue models.

Enterprise AR & VR have more receptive buyers than consumer markets, due to a strong ROI case.
— Enterprise AR & VR can benefit from the unit economics of SaaS pricing/packaging.
— Successful enterprise execution is often found in entrepreneurs with vertical or industrial knowledge.
— Knowledge of enterprise software dynamics and business processes (in addition to VR/AR) is a winning formula.
— Warning signs of enterprise approaches include lack of customer diversification or recurring revenue potential.

AR & VR content companies can be risk prone, and don’t often see venture-sized returns or exits.
— There can be longer-term value and recurring revenue outside of content itself, such as merchandising.
— Broadcast-focused AR & VR companies can tap into the sector’s scale and receptiveness to innovation.

Social is thought by many to be AR & VR’s eventual killer app, especially VR.
— Social functions can make games and apps more multidimensional, with greater appeal for repeat usage.
— Social can also amplify growth potential through viral marketing dynamics and network effect.

After product, market and other aspects of business models are optimized, pitch tactics must equally be refined.
— The art of pitching investors includes proper selection, “networking in,” and streamlined talking points.
— Key tactics are specificity, quantitative-focus (unit economics, market size, etc.) brevity, and humility.

The consumer VR sector is experiencing a shakeout, meaning deceleration of new investments and a funding crunch.
— This will impact existing players who will compete for a finite supply of follow-up investment rounds.
— New entrants should model out spending levels, cash and the macro environment.
— All players should build conservative to aggressive forecasting ranges and operate lean.

ARCore + ARkit = Half a Billion Devices by Year-End (new report)

Subscribe to ARtillry Insights here.

There's been lots of talk about mobile AR's opportunity. And the best way to quantify that is through the installed base of AR-compatible devices in the market. So ARtillry set out to do just that in its latest report, accessible through VRARA's ARtillry Insights subscription. 

The verdict: There will be 505 million AR-compatible smartphones by the end of 2017 and 4.2 billion by 2020. That may seem like steep growth, but is a function of hardware replacement cycles for iOS and Android (2.5 years) which will happen rapidly (methodology below).  

One question is which AR platform is positioned better for growth and market share? It won’t be a winner take all market, just as iOS and Android have coexisted for years. And there is evidence that they’ll have some compatibility, or at least portability of graphical assets.

But they’ll still compete on many levels, and there are signals that indicate competitive differentiation on both sides. Google has greater scale and a technical lead from years invested in Tango. But Apple has more control over the hardware in its classic vertical integration.

In terms of reach, Apple has the short run advantage, based on a more unified hardware and software set that supports wider compatibility with ARkit, But Android will have the longer term scale as compatibility cycles into the much larger android universe.

ARkit and ARCore also carry their parents’ DNA. For Apple, it’s all about apps. For Google, the web. For developers making a platform choice, that means ARCore could reach more users, but ARkit couldbe more monetizable though app revenue models (dowloads, in-app purchases).

There's a lot more to it of course, and you can get a video summary below, and the full report here. Stay tuned for ongoing coverage as ARCore and ARkit continue to evolve and get deployed by mobile AR developers. it will be an exciting time.

Methodology: ARtillry's forecasting involves a unit-penetration model based on cumulative smartphone sales that go back 10 quarters (average replacement cycle), while also factoring in AR compatibility (for example, A9 chips or greater for ARkit, and Android 7.0 for ARCore). 

ARCore & ARkit: The Acceleration of Mobile AR (new report)

Subscribe to ARtillry Insights here.

Mobile AR hit an inflection point in 2017. It started with Facebook's Camera Effects Platform in April, followed by Google's "visual search" and "VPS." Then in June we saw Apple's ARkit, followed by Google's August ARCore launch.

Those last two are perhaps most impactful because of the tools they create for developers to build more advanced AR. Mobile AR can really scale when it's in the hands of developers, and when they're incentivized by an installed base in the hundreds of millions of devices.

We've recently quantified that installed base (ARCore & ARkit), but decided to take it a step further. ARtillry's latest Intelligence Briefing takes a deeper dive on ARCore and ARkit. How do they differ? What happens next? and what does it mean for AR developers?

The report tackles these questions, which you can preview and/or subscribe here. More can be seen below in the report's executive summary. Stay tuned for more analysis in the coming weeks, especially as mobile AR continues to evolve.

Executive Summary

Over the past six months, the tech sector has reined in its initial excitement about glasses-based augmented reality (AR). This includes realigned expectations on the time horizon to consumer ubiquity. But in the meantime, the AR world is keeping busy with another opportunity: mobile AR.

Beyond specs (battery life, field of view, etc.), AR glasses’ detriment is form factor: It needs to be sleek and cheap enough to sway consumers to reconcile a key point of friction: personal style. The bar is set high for anything people are asked to put on their face, as Google Glass taught us.

This concern goes away in enterprise contexts (the topic of another report) but is a sizeable barrier in consumer markets. And we’re a few years from marketable formats. The good news is that the stepping stone — or gateway drug as we like to call it — is mobile AR. And there’s a lot happening.

Going by the numbers, mobile AR’s addressable market isn’t the low-millions of headsets: it’s the 3.2 billion global smartphones today and 4.6 billion by 2020. Those aren’t all AR compatible in terms of optical and processing components, but most will be over the next replacement cycle (2.5 years).

Google’s AR development kit ARCore will become compatible with 3.9 billion global android devices during this time frame, and Apple’s ARkit will reach 673 million iPhones. Both achieve AR through software, utilizing the standard smartphone RGB camera, thus lowering the barrier to “true AR.”

Compared to graphics that simply overlay a scene, true AR infuses graphics that interact with physical objects in dimensionally accurate ways. ARCore and ARKit apply simultaneous localization and mapping (SLAM) through a surface detection approach that doesn’t require advanced optics.

The result is an overall democratization of advanced AR capability. This starts with the massive installed base mentioned above, which in turn incentivizes developers with a larger addressable market. Then the content they create entices more users to engage, enacting a virtuous cycle.

Looking forward, we can expect several AR apps as ARCore and ARKit gain footing. But more impactful will be years of third-party innovation with both SDKs. That could rival in creativity and advancement, the app economy itself, which kicked-off ten years ago with the first iOS SDK.

But several questions remain: How quickly will this happen? What are the pros and cons of each AR toolkit? What will be best practices in building, distributing and marketing AR apps? And what does it all mean from where you sit? These questions are tackled throughout this report.

ARCore Will Reach 3.6 Billion Phones by 2020

For a deeper dive on VR/AR trends & data, subscribe to ARtillry Insights.

Just like Apple’s June ARkit launch, Google’s recent ARCore unveiling has bred lots of interest its addressable market. And just like with ARkit, ARtillry has applied best practices in market sizing and forecasting to pinpoint that figure.

The verdict: There are 26.5 million ARCore-compatible  phones today, growing to 71.5 million by the end of 2017. Based on the size of the Android universe, this will quickly accelerate over the next few years, reaching 3.6 billion units (92 percent Android coverage) by 2020.

How did they arrive on these figures? The starting point is ARCore’s current compatibility, limited to Google Pixel and Samsung Galaxy S8, running Android 7.0 (Nougat) or greater. Looking at cumulative sales figures for both devices, we’re at roughly 26.5 million total units in market.

But that’s the easy part. The hard part is projecting forward. Based largely on the size of the overall Android installed base — 2.9 billion global devices today, growing to 3.8 billion by 2020 — number crunching ensued. One key forecast input is upgrade cycles in the Android Universe.

About 16 percent of Android devices usually run OS versions released in the prior year, while 32 percent run versions older than one year, 29 percent older than two years, 15 percent older than three years, and 8 percent older than four years (hence ARCore’s lack of full coverage in 2020).

There was also a major hint from Google: The company noted in ARCore’ introduction that it’s working towards a goal of 100 million compatible phones — including Huawei, Asus and LG — when the platform launches. It didn’t provide a date but we’re predicting Q1 2018.

Stepping back, one takeaway is that ARkit has a slight advantage in being first to market with a head start in developers’ invested time. But the lifespan of AR will eventually diminish Apple’s three-month head start. Greater developer attraction will ultimately come from platform reach.

Apple also has a near-term lead in the installed base of ARkit-compatible iPhones (380M), but one hardware replacement cycle (2.5 years) will give most smartphones AR-compatible optics and processing. And the Android universe exceeds iOS, by more than two billion units.

Other points of differentiation come down each platform’s approach for delivering AR. Apple’s DNA is an app based framework, while Google’s web-based DNA will be reflected in its use of Web AR. The latter could have less friction (in addition to more scale), as we’ve examined.

There is of course a lot more to these competitive dynamics and addressable market sizes, and they'll be included in ARtillry Insights' latest report, available tomorrow. It will take a deeper dive on ARCore and ARkit, and the strategic implications for everyone. Subscribe here.

---

For a deeper dive on AR & VR insights, subscribe to ARtillry Insights. See ARtillry's market-sizing and forecasting credentials here. 

Uncovering Consumers' VR Behavior & Attitudes (New Report)

To access the full report, subscribe to ARtillry Insights. VRARA members receive a substantial discount. Become a member here.

Who’s using virtual reality (VR) today? What are their motivations? What are the VR use cases and content categories that resonate most? And for those uninterested in VR, what are their reasons?

A lot can be learned about VR’s market opportunity by answering questions like these, and uncovering sentiments of the consumer public. And in VR’s early days, such data is scarce yet critical to positioning strategies.

So ARtillry set out for answers. Working closely with Thrive Analytics, ARtillry authored questions to be fielded through its established survey engine. The result is the first wave of Thrive’s Virtual Reality Monitor™ (VRM).

Tapping a considerable sample of almost 2000 adults, the data returned telling consumer behavior patterns, useful in ongoing VR strategy refinement. That includes content, hardware and other components.

See the key takeaways below and preview the report here. To access the full report, subscribe to ARtillry Insights. 

---

Top findings include:

• VR headset owners showed high satisfaction compared to other categories of consumer tech products. However many non-owners (38%) reported disinterest in VR ownership.
  • VR's immersive experience presents a double-edged sword: It produces highly visceral and satisfactory user responses... but you have to see it to believe it
  • This creates a challenge to scale distribution, given inherent adoption barriers like price and technological invasiveness. Education, retail installations, VR arcades and mobile VR will be the 'gateway drugs' to reduce that friction and cultivate tomorrow's VR owners.

• Among the things that VR users desire, more and better content top the list.
  • This validates that content is king in VR, just like other mediums.
  • Content is currently a gap in VR’s value chain, challenged by a classic "chicken & egg" dilemma, given low overall headset penetration.

• VR affinity correlates to youth and natural technology interest among digital natives.
  • Willingness to spend $400+ on VR equipment shows a reverse correlation to age, with one exception: Ages 25-34 are more willing than ages 18-24, likely due to spending power.

• $400 is a significant price point, validated by Oculus’ recent Rift pricing adjustment.
  • We’ll see more price competition: emerging sectors often trade margins for market share.

• Native thinking is a VR success factor: building specifically for the form factor.
  • Just like with smartphones, VR apps and games that utilize unique aspects (i.e volumetric movement) will outperform those that shoehorn legacy 2D media into a VR experience.

---

Availability

The report is available to preview, and full access can be granted to ARtillry Insights subscribers. In partnership with the VR/AR Association, ARtillry Insights delivers a bundled research package to equip subscribers in AR and VR sectors -- and those entering from other sectors -- to make informed business decisions. Learn more or subscribe here. 

VR/AR Opportunity Spotting is All About Knowledge

AR and VR are poised to become the next transformational platform shifts, reaching nearly all aspects of our lives and work. And that vision holds business opportunities accross several verticals -- everything from gaming to retail.

But the opportunity is counterbalanced by substantial challenges, such as detecting the right gaps in the value chain. As always, it's a matter of optimal timing and go-to-market execution. And that process is all about being empowered through a knowledge position.

Against that backdrop, we announce ARtillry Insights, a research and intelligence subscription. Through a partnership with the SF-based Intelligence firm ARtillry, we'll deliver a monthly package consisting of original and curated intelligence. 

Its main goal: to equip subscribers in AR and VR sectors -- or those entering from other industries -- to make informed business decisions. To find out more, see sample work or subscribe, go to the ARtillry Insights main page, or contact us.

VRARA Members receive a subscription discount.