Market Forecast Virtual and Devices Worldwide, 2016-2020

August 2016 Content

ƒ Categorization of (VR) and augmented reality (AR) devices ƒ Update on the VR and AR market in 2016 ƒ Key assumptions and long-term evolution ƒ Summary of the VR and AR forecast ƒ Smartphone VR forecast ƒ Dedicated VR forecast ƒ AR forecast

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 2 Categorization of VR and AR Devices

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 3 VR and AR: Split into Subcategories

Subcategory Definition Examples of current devices

Augmented reality Devices that overlay information from smart glasses a smartphone onto the user's field of vision. Recon Jet M300 Epson Moverio BT-300

Mixed reality headsets place virtual objects in the real world and allow users to interact with them through gestures and voice commands. Microsoft HoloLens Meta 2 Intel Alloy HMD Smartphone virtual Devices providing a fully immersive reality VR experience by using the screen and processing power of a smartphone, which is inserted into the VR Carl Zeiss VR One device. Dedicated virtual Devices that offer a fully immersive reality experience enhanced by additional sensors, cameras and controllers. Rift Sony PlayStation VR HTC Vive

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 4 Smartphone VR: Competitive Landscape

Samsung Gear VR Carl Zeiss VR One View-Master VR Google Cardboard

ƒ Definition: smartphone VR devices provide a fully immersive experience. They use the screen and processing power of a smartphone, which is inserted into the device. – Some advanced, high-end products like the Samsung Gear VR can include sensors, a camera and other enhancements. – Simple cardboard or plastic devices with extremely low retail pricing provide a basic, but sufficiently good introductory VR experience at the low end. ƒ Primary uses: – Consumer: gaming, home entertainment and sharing user-generated content. – Enterprise: marketing, tourism and education. ƒ Key current players: Google, Samsung, Carl Zeiss.

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 5 Key Messages from the VR and AR Market in 2016

ƒ Smartphone VR is gaining momentum. – Samsung Gear VR is performing well. Samsung sold over 500,000 units in Europe alone from January to August 2016. – In May, Google revealed its Cardboard application has been installed over 50 million times, up from 25 million installs in January 2016. – In July, Oculus VR disclosed there were more than 1 million monthly active users of the Oculus-powered Samsung Gear VR headset. ƒ Several dedicated VR devices successfully debuted. – started shipping its consumer version at the end of March 2016. Demand outstripped supply. – The HTC Vive headset started selling in April. Unofficial numbers suggest sales have been strong. Our channel checks support this. – Sony PlayStation VR is expected to start selling in October. ƒ AR devices have had a slow year to date. – Despite our expectations that enterprise deployment of AR solutions in 2016 would grow strongly, adoption in the first half of 2016 has been slow, primarily centred on low-volume pilot projects. – has all but disappeared from the public eye. Small competitors are selling thousands rather than tens of thousands of units. – Microsoft released its HoloLens device to the public at more than $3,000, but with few applications available, we expect limited volume in 2016.

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 11 Dedicated VR: Projected Evolution

2015 2016 to 2017 2018 to 2020 Distant future Products: Early prototypes, First Oculus, HTC and More devices, mostly Large variety of availability, developer kits. Sony devices, a small improved versions with products. Socially functionality, number of other devices wireless connectivity. Links acceptable. maturity following. to major gaming consoles. Pricing High. Oculus sets price at Relatively stable. $600. Users Developers, individual Gamers, early Gamers, early enterprise Adoption beyond enthusiasts. enthusiasts, trials by adoption in some verticals gamers. Many enterprises. (retail, travel and others). possibilities in enterprise, education and entertainment. Application or Gaming, exploration of Predominantly gaming. Predominantly gaming, also Anything. Immersion use other uses, trials. entertainment content, can be in daily marketing. situations. Technology Very immature. Developing. Some Third generation. Problems Development in problems solved, but solved. Links to other various directions. others in progress. connected devices.

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 15 Changes to the Forecast Since February 2016

Installed base of devices at end of year (M) Shipments of devices (M)

250 100

200 80

150 60

100 40

50 20

0 0 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 New forecast Previous forecast (Feb 2016) New forecast Previous forecast (Feb 2016)

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 20 Installed Base of AR and VR Devices Will Reach 236 Million in 2020

Installed base at end of year (M), core scenario 250 236 12 AR 200 47 Dedicated VR 155 150 6 29 Smartphone VR 97 100 16 177 54 120 50 7 23 78 7 46 0.6 21 0 2014 2015 2016 2017 2018 2019 2020

ƒ The biggest adoption will be seen in smartphone VR devices — mostly made of plastic and cardboard — owing to their low retail prices. Another driver will be the growth of the installed base of capable smartphones and of VR content. ƒ Adoption of dedicated VR headsets will mostly be boosted by gamers in the next few years. Another growth driver will be marketing in certain industries selling high-value products and services such as cars and holidays. ƒ AR devices will be adopted mainly by enterprises.

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 21 Sell-In Value of AR and VR Devices Will Approach $15 Billion in 2020

ASP by subcategory ($), core scenario Sell-in value by subcategory ($B), core scenario 14.7 1,500 15 2.1

10.4 1.8 1,000 10 1.5 7.1 0.9 1.3 9.3 0.5 500 5 4.0 6.6 0.8 1.9 0.1 4.3 2.2 0.2 0.4 1.0 0.9 1.1 1.3 1.6 0 0 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 Smartphone VR Dedicated VR Smartphone VR Dedicated VR AR smart glasses Mixed reality AR smart glasses Mixed reality

ƒ The majority of the market value will come from dedicated VR devices. We project the average selling price (ASP) of dedicated VR to be relatively flat after their launches in 2016. These are devices for a limited audience, such as advanced gamers, willing to pay for the latest technology. ƒ Smartphone VR devices will account for the bulk of the volume, but only a small proportion of the value, as their ASP is low and will erode fast. Some devices will be offered for free, or in a bundle with other technology products or consumer products. ƒ The ASP of AR devices will fall but will remain relatively high. Mixed reality devices will have a higher price that AR glasses, owing to their superior capabilities and high build cost. AR will account for 26% of the total value in 2020.

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 25 AR: Alternative Scenarios

Installed base at end of year (M) Sell-in volume (M) 25 12 21.2 10.0 10 20 7.3 8 6.9 15 13.1 12.4 6

10 3.7 3.6 6.1 6.5 4 4.9 2.2 2.0 1.9 5 3.1 1.5 2.4 3.0 2 1.0 1.0 1.6 0.7 0.0 0.1 0.2 0.6 0.03 0.02 0.2 0.3 0 0 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020 Low Core High Low Core High Drivers of low scenario: Drivers of high scenario: – Slow conversion of trials to deployment in enterprises. – Successful conversion of most trials into operational – Slow development of relevant applications. implementations using more devices. – Hardware glitches make enterprises wait for future – Fast adoption by a specific vertical. One major player iterations of the technology. drives quick adoption. – Clear business case for adoption.

The difference between core, low and high scenarios is – Adoption in medicine and education. only in the speed of adoption. – Some consumer adoption.

Market Forecast: Wearables, UK, 2016-2020 © CCS Insight 41 More information about CCS Insight's wearables service can be found at: http://www.ccsinsight.com/our-services/wearables

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