Virtual and Augmented Reality Statpack Current Forecasts and the State of the Market July 2017

Virtual and Augmented Reality StatPack Current Forecasts and the State of the Market July 2017

Victoria Petrock

Contributors: Christopher Bendtsen, Ricky Costa

Virtual reality (VR): VR fully immerses a user inside a nonfixed visual environment, such as a virtual world or experience. Examples of VR include 360-degree videos, photos and product demos via any device (e.g., connected TVs, desktops/laptops, mobile devices and headsets that let users navigate through the experience), and games via head- mounted displays (HMDs). Examples of VR headsets include AuraVisor, Google Cardboard, Google Daydream View, HTC Vive, Oculus Rift, PlayStation VR and Samsung Gear VR.

Augmented reality (AR): AR enables a user to interact with virtual objects and other types of digital information that are overlaid over the real world. Examples of AR include filters for videos and photos (e.g., Snapchat Lenses); games (e.g., Pokémon Go); navigation (e.g., heads-up displays [HUDs]); interactions with objects (e.g, Blippar, HP Aurasma); and 3-D product demos and projections via headsets and smart glasses.

• Virtual reality (VR) users: Individuals of any age who experience VR content at least once per month via any device. This definition includes users who view 360-degree photos/videos and 3-D animations on any device, including desktops/laptops, mobile devices, game consoles or HMDs. • 360-degree video: Video footage recorded using a collection of cameras, or an omnidirectional camera that enables the viewer to control the viewing direction. This format is also known as immersive video or spherical video. • Head-mounted displays (HMDs): Devices used to experience VR and AR content that are held up to the eyes or worn on the head. HMDs are either stereoscope-style headset enclosures that can incorporate a smartphone, or dedicated HMDs that contain their own screens and are tethered to computers or game consoles. Examples include Oculus Rift, Google Daydream View and PlayStation VR. HMDs are also commonly referred to as “headsets.” • VR headset users: Individuals of any age who experience VR content at least once per month via specialized HMDs. • Augmented reality (AR) users: Individuals of any age who experience AR content at least once per month via any device. • Smart glasses: Wearable computer glasses used in AR applications that display information that supplements what the wearer is seeing. Examples include Google Glass, Epson Moverio and Vuzix Blade 3000. • Heads-up displays (HUDs): Transparent displays that project information and imagery onto a surface (often a windshield) without requiring viewers to look down or away from what they are focusing on. They are most often used in AR applications, as with aircraft or automobiles.

That’s 14.8% of the population

The number of users will grow 109.5% in 2017. The increasing 60 109.5% popularity of 360-degree photos/videos is driving growth. eMarketer’s forecasts include people who 49.2 100% consume 360-degree photos/videos or 3-D animated VR content at 36.7 least once a month on any device. 63.7%

22.4

10.7 34.1%

0 0% 2016 2017 2018 2019 2017 2018 2019

US Virtual Reality Users (millions) US Virtual Reality User Growth (% change)

By 2019, nearly 15% of the US population 20% and 17.5% of internet 17.5% users will be VR users. 13.2% 14.8% % of internet users

8.2% 11.1%

6.9% 4.0% % of population

3.3%

0% 2016 2017 2018 2019

US Virtual Reality User Penetration (% of internet users and % of population)

• VR generally falls into two categories: 360-degree photo/video and 3-D animation. It can be consumed via Desktop/laptop Mobile Console desktop/laptop, mobile device, game console or HMD/headset. • Most of today’s VR is consumed via desktops, laptops and mobile devices in the form of 360-degree photo/video. • Specific HMDs used to view VR are designed to tether to one or another of 39.5% 37.8% 22.6% these devices. HMDs currently make up less than one-quarter of VR device sales. • The majority of today’s VR content is related to gaming and entertainment, but there are also promising applications in other industries.

Virtual Reality Device Sales Share Worldwide, by Type, 2016 (% of total)

“YouTube has hundreds of thousands of 360-degree videos available.”

—Amit Singh, Vice President, Business Operations, AR & VR, Google, February 2017

“More than 25 million 360-degree photos and more than 1 million 360-degree videos [have been] posted on Facebook to date.”

—Brent Ayrey, Product Director, and Christopher Wong, Software Engineer, Facebook, March 2017

25 100% 98.7%

17.2

13.9 45.3% 9.6

23.4% 4.8

0 0% 2016 2017 2018 2019 2017 2018 2019

US Virtual Reality Headset Users (millions) US Virtual Reality Headset User Growth (% change)

VR headset users Headset non-users VR headset users’ share of 2016 45.0% overall US VR users will decline over time. The 2017 42.7% sales and use of cheaper headsets will 2018 37.9% decrease, and more people will watch 360- 2019 34.9% degree photos

and videos on 0% 100% other devices. US Virtual Reality User Share, Headset Users vs. Non-Users (% of total)

Google Cardboard Samsung Gear VR Oculus Rift June 2014 November 2015 May 2016

PlayStation VR HTC Vive Google Daydream View October 2016 June 2016 November 2016

Samsung Gear VR 60%

PlayStation VR 42%

Oculus Rift 22%

The Samsung device’s Google Daydream 18% popularity is likely a function of its perceived value at a relatively low Google Cardboard 14% price.

Virtual Reality Headsets Used by US VR Headset Owners (% of respondents)

Source: Thrive Analytics, March 2017 © 2017 eMarketer Inc. BI Intelligence expects global VR headset shipments will increase from 12 million in 2017 to more than 55 million in 2022 That’s 359% growth over the next six years

VR hardware is 40 expected to drive industry growth in the 30 near term.

0 2017 2020 2025

Virtual Reality Headset Sales Worldwide (millions of units)

100% China $168 million in 2016 $384 million by 2020 $170 million in 2016 Japan $705 million by 2020 VR device sales in these countries and US $576 million in 2016 $2.1 billion by 2020 regions are forecast to reach $5.6 billion by Europe 2020. $632 million in 2016 $2.4 billion by 2020

0% 2016 2017 2018 2019 2020

Virtual Reality Device Sales in Select Countries/Regions (millions/billions and % of total)

Most consumers who purchased headsets reported experiences that met or exceeded their expectations.

Fewer than

15% of internet users worldwide are interested in purchasing a VR headset...

while 59.6% are not interested and

25.6% are unsure

Older people are more likely to say they aren’t Just not interested 53% interested, but less likely to be concerned about Too expensive 43% motion sickness.

May cause motion 14% sickness

Younger people are Lack of content 12% more concerned about cost and more likely to worry about a lack of Poor quality of content 3% content for headsets.

Reasons that US Internet Users Are Not Interested in Owning a Virtual Reality Headset (% of respondents)

60 50% eMarketer’s forecasts 54.4 include people who 48.1 consume AR content at least once a month on 40.0 30.2% any device.

30.7 20.1%

13.1%

0% 0 2017 2018 2019 2016 2017 2018 2019

US Augmented Reality Users (millions) US Augmented Reality User Growth (% change)

That’s 16.4% of the US population

That’s a compound annual growth rate (CAGR) of 81% between 2016 and 2024

25%

19.4% % of internet users 17.3% 14.7% 16.4% 11.5% 14.6% 12.3%

9.5% % of population

0% 2016 2017 2018 2019

US Augmented Reality User Penetration (% of internet users and % of population)

25%

... but VR AR users 16.4% use is 14.6% growing 14.8% 12.3% more quickly, from a 9.5% 11.1% smaller base.

6.9% VR users 3.3%

0% 2016 2017 2018 2019

US Virtual Reality vs. Augmented Reality User Penetration (% of population)

Smart glasses and Handheld devices HUDs HMDs

Smart HMDs Mobile devices glasses

15.8% 35.8% 48.4%

0% 100% Augmented Reality Device Revenue Share Worldwide, by Type, 2016 (% of total)

Snapchat and Instagram Facebook Messenger lenses, filters and filters, 3-D masks and Pokémon Go stickers camera effects

VR hardware is much further along on the development and adoption curve; much of the AR hardware remains experimental.

$120 $120

AR devices have more potential to begin replacing smartphones, and to become more widely used as work tools. AR hardware

VR hardware $18 $9 $10 $2 $2 $9 $10 $0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Axis Title

Augmented Reality vs. Virtual Reality Hardware Revenues Worldwide (billions)

Travel, Tourism & Video Gaming Transportation Real Estate Healthcare

Retail & Digital Automotive Education Marketing Entertainment

Source: Doctor: IYIKON; Car: Dinosoft Labs; House: ranjit kumar; Airplane: Gan Khoon Lay; Mortarboard: amy © 2017 eMarketer Inc. morgan; Shopping cart: Made; Movie camera: Storm; All icons from thenounproject.com Gaming and entertainment will continue to drive revenues in the near term

100% $0 Although Commerce $163 billion software, service and $4 billion content will make up the largest Software, service & content portion of $276 billion AR/VR revenues by 2025, commerce $4 billion will grow Hardware $130 billion from $0 to $163 billion. 0% 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Augmented and Virtual Reality Revenues Worldwide, by Segment (billions and % of total)