The AR hardware segment is estimated to grow at a CAGR of 125% between 2018 to 2022 due to rising adoption of AR smart glasses by enterprises.

Extended reality is an umbrella term which is currently being used to describe the entire AR, VR and MR segment and the market for Extended Reality has sharply distinct hardware and software sides. The hardware market is dominated by VR headsets. However, if we look at the software market, it is mainly AR which is gaining popularity due to the increased focus on Mobile AR.

Hardware Market

In the hardware market, headset shipments are expected to increase more than four times in volume by 2022. The market is dominated by the VR segment which is estimated to grow at a CAGR of 35% between 2018 and 2022. The AR and MR segments which currently capture a smaller share of the overall market will gain prominence in the coming period, due to rising use cases and an increasing focus of companies introducing new devices through a partnership approach.

Exhibit 1: Main Players in AR/VR/MR Segment

VR Segment

• The VR segment is dominated by low cost smartphone-powered VR headsets, capturing more than two-thirds of the total VR market.
• Standalone VR headsets are a new entry into the VR market which are expected to gain traction in the coming period due to price reductions and ease of use. For instance: Oculus Go which was announced last October, is now available for sale in 23 countries at a price of $199 for the 32GB model.

AR Segment

• The ability of smart glasses to provide a hands-free immersive experience has led to an increase in the number of enterprise use cases.
• We expect manufacturing, logistics, retail and healthcare sectors to drive growth within this segment.
• The Field of view (FOV) has swiftly become an important differentiating aspect in this segment. AR smart glasses are trending towards a wider FOV which is essential in many enterprise use cases. Wide FOV allows the user’s vision to cover a larger area rather than a limited view. The FOV for most smart glasses available currently, averages around 40°- 45° as opposed to the 115° view offered by the human eye. A wider FOV will be essential in industrial use cases, especially when using smart glasses in hazardous work environments.

Exhibit 2: FOV Comparison of AR Smart glasses

MR Segment

• Mixed reality Head Mounted Displays (HMDs) in general, have had limited adoption due to high pricing and limited use cases. However, various players such as Dell, Asus and HP have started launching MR HMDs at lower price points in partnership with Microsoft. This may drive adoption, albeit at a slow rate.

Software Market

The Software market mainly focuses on mobile device AR, comprised of SDK Packages. This will help developers add AR capabilities to portable devices like smartphones and Software Applications will enable them to add AR capabilities to the phone camera, for example Facebook and Snapchat Apps.

• Apple’s ARKit and Google’s ARCore are both driving the Mobile AR market
• E-commerce has become one of the most attractive use cases for ARKit and ARCore. Education and Training is another major area which is driving adoption in this segment.
• Along with this, the recent improvements in AR software platforms (e.g. addition of Vertical Space Detection in Apple’s AR Kit) and enhanced application development support has led to the growth of AR-enabled applications in smartphones.

Strategies adopted by Market Leaders

The big players are adopting a hybrid strategy to tap both the software and hardware segments. Tech giants are also acquiring startups and building their internal R&D efforts to enhance their AR/VR capabilities.

• Google, Facebook, and Snapchat are using AR technology for user engagement and content creation. Google is taking a ‘bet-on-all-horses’ approach, though eschewing hardware for now.
• Apple is mainly driving Mobile AR, with an expected initial foray into the hardware segment with the introduction of an AR/VR headset, which is expected to be introduced in 2019 or 2020.
• Facebook’s main emphasis is on VR headsets and Mobile AR. It recently expanded into Standalone VR Hardware with the Oculus Go.

In the coming period, VR headsets will continue to capture a larger part of the total market, while AR headsets are poised to represent the fastest growth in the market due to surge in enterprise applications. We expect the overall market for extended reality to develop, however, the optical performance remains the main stumbling block to large scale AR/VR adoption. Innovative developments such as those by Finnish start-up Varjo are addressing the optical performance, but this will likely emerge in selected enterprise use cases first with consumer deployments still several years away.

The detailed insights are available in our latest ‘VR MR AR Industry Trends 2018’ report (click here to access).