Global AR & VR revenues to grow from $4.1 billion in 2016 to $79.4 billion in 2021.
AR and VR stakeholders claim that their market sizes will be massive. And we believe they’re right. But how big are they and how big will they realistically get? ARtillry Intelligence ventured to quantify these sectors in more precise terms. The result is our latest industry revenue forecast.
Applying market sizing and forecast experience from 15 years of analyst work (see methodology), ARtillry Intelligence has devised a disciplined and non-biased revenue forecast for AR & VR, segmented into their product areas.
The forecast provides overall market revenue projections, subdivisions of each product category, and narrative insights all along the way. This is meant to qualify the revenue drivers and rationale behind the numbers.
Lastly, to characterize ARtillry Intelligence’s overall position on AR & VR revenue growth, we maintain a cautiously-optimistic view. Growth and scale will come but slower than most analyst firms project, due partly to the pace of consumer adoption and other signals ARtillry tracks.
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. Steep growth results from the category’s current small base, as well as software-dominant revenues in outer years that benefit from Saas dynamics (scalability and recurring revenue). Scale will also 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, again, 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 2016 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).
ARtillry Intelligence follows disciplined best practices in market sizing and forecasting, developed and reinforced through its principles’ 15 years in research and intelligence in the tech sector. This includes the past two years covering AR & VR as a main focus.
This report focuses on AR and VR revenue projections in various sub-sectors and product areas. ARtillry Intelligence has built financial models that are customized to the specific dynamics and unit economics of each. This includes variables like unit sales, pricing trends, individual company performances, broader market trajectory and several other micro and macro factors that ARtillry Intelligence tracks. It all comes together in a forecast model with several spreadsheet tabs and thousands of active cells.
This approach combines the top-down and bottom-up forecasting methodologies. Together, confidence is achieved through triangulating revenues and projections in a disciplined way.
Disclosure and Ethics Statement
ARtillry has no financial stake in the companies mentioned in this report, nor received payment for its production. With respect to market sizing, ARtillry remains independent of players and practitioners in the sectors it covers. It doesn’t perform paid services or consulting for such companies, thus mitigating bias — real or perceived — in market sizing and industry revenue projections. Disclosure and ethics policy can be seen in full here.