I want to start by making a prediction: the year ahead is going to be all about VR. OK, ‘all about’ was to get your attention (guessing it worked – especially if you work with AR). Still, VR will dominate the news, VR products will fill store shelves - and the VR industry will likely make more money than AR too.
However, funding and deals are areas where AR will start to climb into the driver’s seat during 2017.
Part of the reason is that AR looks set to overtake VR in terms of market size, and in the medium to long term, it has a much broader potential impact on our lives than VR does.
Here is why.
Two new kinds of realities
VR stands for Virtual Reality. It involves systems that immerse you in a fully computer-generated environment. Anywhere you look, everything is computer graphics. To achieve this, you need a headset, and over the last couple of years, you have suddenly become spoilt for choice. Companies like Facebook (Oculus Rift), Google (Cardboard and Daydream), HTC (Vive), Sony (PlayStation VR) and Samsung (Gear VR) all offer VR headsets.
AR is short for Augmented Reality. It refers to a mix of computer-generated graphics and our physical reality. The two meld together, so to speak. The best-known examples are perhaps heads-up displays (HUD) in cars and modern fighter planes, as well as Google Glass. There has also been some experiments with AR contact lenses.
Apart from Microsoft (HoloLens) and Google (Magic Leap), the main producers of AR-equipment are generally less known than the companies working on VR.
Gaming means VR comes first
If you wanted to go into an electronics store and get either AR or VR equipment, you would quickly find VR far more available than AR. The main reason is that VR systems are more mature than AR systems. While VR is on stores, many AR systems are still working their way towards full-scale mass production after completing very successful trials.
Looking at the market, 2016 has in many ways been a breakout year for VR. Sales are projected to round $1 billion, with Tractica projecting that the market for VR applications will reach around $15 billion within the next five years.
The main driver behind this growth projection is computer games, followed by fully immersive entertainment experiences.
I think that 2017 will see the emergence of the first games that fully take advantage of the new possibilities VR gives. This could open up gaming to a wider customer segment, much as we saw when the Wii console rocketed Nintendo’s sales and stock value into the stratosphere back in 2006.
Next in line will be fully immersive entertainment. Think 360-degree film experiences, etc. For example, imagine being able to follow a snowboarder down the side of a mountain, having the experience of actually being on that slope. After that comes VR films and similar new ventures.
While VR does have lots of potential outside of entertainment, the space is the most conducive for funding. This, in turn, seems to limit the advances in VR outside of entertainment.
Starting gun sounds on the AR revolution
Turning to AR, it can initially be difficult to see how it will not only match – but easily surpass – VR’s fast rise. Especially when considering that IDC projects AR sales for 2016 to be lower than those for VR.
It is partially down to the failure of Google Glass. One thing that slipped below the radar at the time of Glass’ flop was how the product kickstarted a wave of AR-startups that have since been developing their solutions. While company names like Daqri, Blippar and Aurasma are not household brands today, they could well become so in the coming years.
It is worth noting that many large tech companies are investing in both AR and VR through funding startups and M&A. Google has invested heavily in the AR startup Magic Leap, while Twitter has confirmed that it is working on AR/VR. Apple is being secretive as ever, but there are many indications that it will soon launch AR / VR products, which will, in part, be built on its acquisitions of AR startups Metaio and Flyby Media.
They will all be competing for customers in a market that analysis from Digi-Capital predicts to reach $90 billion in revenue already by 2020.
Many new companies are entering the race for that market. A report from Woodside shows that the number of AR companies getting funding has been steadily rising since 2010, with 2015 being the best year yet. At the same time, CB Insights data shows that the levels of funding for AR companies has been rising, and has beaten their VR ‘cousins’ over the last three years.
Why AR will ’win’
So why is a technology with a smaller market and more immature technology going to ‘win’?
I think the reasons are threefold – one is AR’s wide portfolio of possible applications, the second is complementary technologies and the third is down to market developments.
AR’s greatest strength is its ability to overlay our reality with useful information. This has applications across many different industries.
To give a couple quick examples:
- In factories: instantly displaying status data for a machine, repair history and other statistics. Possible to use for on the job training.
- In healthcare: displaying real-time patient data in front of the eye of a surgeon during an operation
- Education: enabling interaction and creating things like in-school projections that help bring lessons to life.
- Engineering: on-site projection of building layout and conflict resolution before construction.
- Real estate: showing how a house will look on-site before construction begins.
These are just a few of the examples, and a few of the industries. Other areas where AR has multiple use cases include entertainment, architecture, retail, technical professions, live events, the military and video games.
Then there are the synergies between AR and complimentary technologies. Factory 4.0 and the Industrial Internet of Things both mean an explosion in data produced and available to companies. Turning that data into meaningful and useful information is going to require AI and machine learning – which is progressing by leaps and bounds. That leaves finding a way to interact with this information at the points where it is relevant – and that is where AR will play a central role.
Many companies are aware of these developments, and that is part of why we are seeing so many new companies emerge – and get funding. A rule of thumb is that there is a 18 to 24 month gestation period between startups getting funding and releasing their first products, joining an already rapidly growing ecosystem of AR hardware and software solutions.
Many of these products will start to hit the shop shelves during 2017. It turn, the number of possible use cases will rise, as the competition for customers increases and drives down prices – not to mention encourage more innovation. In short, it looks like a perfect positive circle for AR.
ABOUT THE AUTHOR
Jakob Sand
Partner, BDO Denmark, Leader, Global TMT Corporate Finance & Technology teams
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