Report: AR/VR Spending Will Double Through 2021

Ry Crist, CNET:

Worldwide spending on virtual and augmented reality is expected to double each year through 2021, say the analysts at IDC, a market research firm based in Framingham, Massachusetts. According to their math, total spending will increase from $11.4 billion in 2017 to $215 billion in 2021, with a compound annual growth rate of 113.2 percent.

This absolutely echoes what I’ve been hearing. Barring a significant economic event that curtails global spending (which, frankly, is quite possible), the money that’s already flowing into AR and VR will only flow more readily over the next three to five years.

Consumer sales for things like headsets and games are currently the top driver of overall spending, followed by sales in the manufacturing and retail sectors. In the US, some of those sectors could ultimately overtake consumer sales by 2021.

Consumer interest in, and spending on, VR will climb steadily, but I don’t think headsets will be the new smartphone anytime soon. That said, expect more “consumer sales drive AR/VR growth!” headlines over the next few years as sales of AR-ready iPhones inform analysts’ reports. I’d argue that these numbers will be somewhat artificially inflated, as the percentage of consumers who buy new iPhones specifically for Augmented Reality applications will be rather low.

“Other segments like government, transportation, and education will utilize the transformative capabilities of these technologies,” said Marcus Torchia, research director of IDC Customer Insights & Analysis.

This is where the big, dull action will be. Microsoft is already building a healthy Hololens business in the enterprise. Nobody outside the enterprise talks about it because enterprise tech is “dull” and consumer tech is “sexy.” But serious money is being invested in practical innovations built on AR and XR (mixed reality) technologies, and big corporations are betting on those innovations paying dividends in the form of more efficient training, logistics, and business processes.

AR will generate lots of buzz over the next 12 months thanks to iOS 11 and ARKit. What consumers do with it after that remains to be seen. But the money will continue to flow into AR and XR for the enterprise, at least for another three to five years.

Very Few VR Rigs Have Been Sold. So What?

Justin Williams, The Economist:

Yet despite many pronouncements that 2016 was the year of VR, a more apt word for virtual reality might be absence. Of the 6.3m headsets that were shipped last year, most were cheaper, less sophisticated devices, such as the Samsung Gear VR, that rely on smartphones to act as their screens, according to SuperData, a games-market research firm. Only 200,000 high-end Oculus Rift headsets were sold globally (see chart). In the end, SuperData revised its first forecast, made in January last year, that total revenue from VR software and hardware would reach $5.1bn in 2016, down to $3.6bn. The actual figure for total worldwide revenue was a meagre $1.8bn.

Here’s the aforementioned chart:

Chart by Superdata Research, via The Economist

I’d never heard of SuperData before reading this Economist post. That doesn’t mean anything — I’m not particularly up on who’s who in the world of gaming business analysis. A quick visit to SuperData’s website was notable for several prominent grammatical errors amidst the copy marketing their consulting services. Again, may not mean anything. Just passing along the very little I know about them before saying the following:

When an analyst says their own forecast was off by 275% — especially when that margin represents $3.1 Billion — I’m not sure that’s an indictment of the industry they’re trying to analyze. Seems like it’s at least worth considering whether the industry underperformed or the analyst did.

I agree with Williams in that there was a lot of VR-related noise last year. I started getting involved with consumer-grade VR in 2015 when I hosted a panel on AR and VR for Salesforce Developers at Dreamforce. I spent some time ahead of the conference with a Samsung Gear VR and Kodak 360 camera, and checked out an Oculus Rift-based experience at the show itself. Google Cardboard was also a thing that year.

And Palmer Luckey was on the cover of Time that August. Luckey, of course, is no longer CEO of the VR company he founded. But that’s how it goes when you sell your startup for $2 Billion.

The story accompanying Luckey’s infamous cover photo included this paragraph:

Headsets will start going on sale this year, and competition will increase dramatically through 2016. At first they’ll be bought by hardcore gamers and gadget geeks. They’ll be expensive–as much as $1,500 with all the accoutrements. And just as with cell phones, everyone else will mock the early adopters for mindlessly embracing unnecessary technology with no useful purpose. At first.

We’re past that stage, if barely. Useful purposes for VR have emerged. They’re just not mainstream. VR is most useful to gamers and niche users across health care, industry, research, and training. Prices of consumer VR headsets have dropped some, but an Oculus with the necessary PC to run it will still set you back right around $1,500, minimum. As the chart above shows, Superdata is forecasting year over year growth of VR headset sales in 2017, but the numbers are still quite small.

So what?

VR is a long play. Everyone involved knows that. Tons of money is being invested in the VR ecosystem by tech industry giants betting on it becoming one of the pillars of a new wave of immersive computing. These companies have the resources to invest and don’t need to realize immediate returns.

Facebook (owns Oculus), Google, Samsung, and Sony are all big players in VR’s early stages but none of them relies all that heavily on headset sales for revenue right now. Intel, Lenovo, and Qualcomm are slightly smaller players, and they, too, make their bread and butter elsewhere. Apple and Microsoft get mentioned with the terms “Augmented Reality” and “Mixed Reality” more than VR, but let’s mention them, too: They don’t need to sell headsets to keep chugging along.

That basically leaves HTC. HTC probably has the most to win or lose when it comes to VR’s near-term success. Once a darling of the smartphone world, the company has struggled to generate meaningful profits from their phone business in a market dominated by Apple and, to a lesser extent, Samsung. While they still sell phones, HTC’s future lies in something else. For the time being, that something else is their Vive VR headset.

HTC has sold other assets to fund its VR focus, and their need to generate meaningful revenue from this new line of business is more immediate than what their competitors face. But even if Vive “fails” and HTC is forced to close up shop, the VR business itself isn’t going anywhere even if headset sales don’t grow meaningfully over the next few years. (And don’t get me wrong, I’m rooting for HTC; they made some of the best smartphones in the world ten years ago, and Vive is arguably the best VR system on Earth today.)

That said, we’re on the brink of a transition from VR’s earliest days to the beginnings of mainstream VR. All of the VR hardware action to date has been at the extreme ends of the price spectrum, plotting out a barbell curve with super cheap headsets (Cardboard, Gear VR) on one end and super expensive headsets (Rift, Vive) on the other. A new wave of standalone VR rigs offering more power and ease of use than today’s cheap stuff, but in simpler, less expensive form factors than today’s expensive stuff, will launch by year’s end. Google, HTC, Lenovo, and Samsung have already shown their intentions. Facebook/Oculus just jumped on the train today, too, according to this Bloomberg report.

As technology and production techniques improve, and consumer preferences mature, the VR industry will mature. Too much has been invested, and too many big players are excited, for VR to fizzle out now. Ignore the short-term projections and anxiety and play the long game. The Virtual Reality industry is barely in its adolescence.

Apple’s AR Glasses Will Cost Less Than $1,000. Maybe only $699.

Former analyst and newfound venture capitalist Gene Munster made some waves a week or so ago with his five-year forecast for Apple. Munster, a longtime Apple watcher, had this to say about the rumored Apple AR glasses:

Our best guess is that Apple Glasses, an AR-focused wearable, will be released mid FY20…We believe Apple sees the AR future as a combination of the iPhone and some form of a wearable. With an average sale price of $1,300 we expect initial demand to be limited at just over 3m units compared to 242m iPhones that year. This equates 2% of sales in FY20 increasing to 10% ($30B) in FY22 when we expect the ASP to be about ~$1,000. This growth curve is modeled after the iPad initial growth.

Munster’s got the pricing all wrong; there’s no way any such glasses debut at $1,300 (ASP). If and when Apple ships AR glasses, they’ll sell for under $1,000.* My best guess right now is that they start at $699. Here’s why:

1. I agree with Munster’s notion that Apple sees a potential AR wearable working in combination with iPhone (and/or Apple Watch, see below). In this model, iPhone is the computer and the glasses are a “dumb” peripheral handling input and output but not running an OS or apps. The current, top of the line iPhone 7 sells for $969; there’s no way Apple launches a peripheral that costs 30% more than the phone it’s useless without.

2. Apple glasses would be built atop current and forthcoming Apple technology, both for ease of adoption/use and to keep production and service costs down. What kinds of tech are we talking about?

– High-end displays based on the ProMotion-equipped OLED panels everybody assumes this Fall’s iPhone will ship with.

– Advanced wireless connectivity to shuttle data between the phone and glasses with high reliability, minimal interference, and supreme ease of use. Like the W1 chip-based system in current AirPods, but on steroids.

– Miniaturization techniques to create high-powered, energy efficient embeddable systems for wearable computing. Like the S1/2 SoCs found in Apple Watch. But, you know, on steroids. Even as a peripheral that doesn’t run apps or an OS on its own, AR glasses will need their own computers to send and receive data (to/from an iPhone running an app, and also from cameras and sensors embedded in the glasses themselves), and turn it into imagery to display to the user.

Eventually, these miniaturized computers may be robust enough to power standalone glasses and/or an Apple Watch that renders the iPhone itself unnecessary. One day you may leave the house with your watch but no phone, and your glasses could run off the watch’s computer. But we’re not there yet.

– Personal audio technology that supports immersive listening, on-demand voice recognition, and wireless data with super-low latency to keep the audio and visuals in sync. Again, see also: AirPods with W1 (and — gulp! — Siri).

ARKit and the ecosystem of developers already working on the first AR apps for iOS 11.

Apple won’t literally re-use iPhone display panels in AR glasses. But they will leverage their investments in — and knowledge of — their existing hardware businesses to keep the cost of producing glasses as low as possible. Remember, Tim Cook’s a master of the supply chain.

Same goes for the software, developer ecosystem, back-end systems (app store, iTunes credit card database, etc.), and other important bits that make all of this stuff run: It doesn’t make any more sense to shove iOS into a pair of glasses then it would have to cram it into a watch. But just as watchOS was built on iOS was built on OS X, so too will the mythical glasses run a mythical glassesOS built atop the very real OS foundation that already exists.

(Important Aside: AR glasses would represent a paradigm shift jarring enough to the mainstream iOS user that asking him to adapt to Computer ized Glasses! and learn to navigate a new OS entirely inside of the glasses would be tantamount to blasting him to Mars without a spacesuit or survival guide. Just like the first iPhones relied on a desktop computer to manage apps, photos, music, and so on, so too will the first Apple glasses lean on iOS devices for all that stuff. They won’t represent a brand-new, standalone platform. That’s just not how Apple does it.**)

And all of that stuff saves time in getting to market with killer hardware and a legit app ecosystem. And saving time saves money, which helps keep the retail cost down.

Which brings me back to point #1: The glasses will depend on an iPhone (or, possible, iPad) to run. And there’s no way Apple prices an iPhone peripheral well above the top of the line iPhone. I know Apple views themselves as a maker of premium goods and charges accordingly, so their glasses may cost more than whatever they’re competing with come 2020. But they won’t cost $1,300.

$699. $999, max.

*I have no inside knowledge. I could be wrong. I very well may be wrong. But I think I’m right, so I’m presenting it as such, for the sake of good writing.

** I could be doubly wrong, etc etc, see above. But Apple followed the same concept with Apple Watch, which today relies on iPhone, but likely won’t sometime in the near future.

CNET and IDC Team Up for a Horribly Misguided Take on AR

Anne Dujmovic, writing for CNET:

Virtual reality, which virtually transports you to a computer-generated world via a headset like Sony’s PlayStation VR or Facebook’s Oculus Rift, is expected to remain ahead of AR in headset shipments in the next five years. But that’s partly because, IDC said, AR is “harder to achieve.” In augmented reality, digital images are laid on top of images in the real world on your phone or a headset. (Think Pokemon Go.)

But the IDC said AR is set to “fundamentally change” industrial jobs in the next five years. Over the same period, it said it expects a little over 80 percent of all AR headsets shipments to be for commercial use.

I’m not sure if Dujmovic and her editors were trying to turn a benignly irrelevant analyst forecast into a hot take, if they’re woefully ignorant about AR in general, or if the truth lies somewhere in between. To say, “Virtual reality … is expected to remain ahead of AR in headset shipments in the next five years” is to miss the point entirely. By a wide, wide margin.

Near-term AR is all about not needing a headset. Pokemon Go proved this last summer. Apple ARKit will prove it again on a wider scale when iOS 11 rolls out this Fall. Consumers will try Augmented Reality apps because downloading, installing, and running them will work just like any other app, on the phones they already use, no headset required.

The fact that Pokemon Go is used as the example to explain AR in the context of, “AR headsets will lag behind” is baffling. Tens of millions of people roamed the Earth last summer, heads buried in screens, no headsets required, playing Pokemon Go.

Meet Jaunt, A Big-Time, VC-Backed Virtual Reality Studio

Interesting profile of Silicon Valley startup Jaunt, a VR film studio backed led by one of the execs who launched Hulu, by Ronald Grover for CNBC:

Fans of the America’s Cup sailing competition leapt into a boat sponsored by Land Rover, thanks to virtual reality, heeling to one side of the tilted boat as its crew battled the heaving spray of the Caribbean Sea. In one scene viewers were thrown overboard.

The film was produced by Palo Alto start-up Jaunt, which has the backing of Walt Disney, Alphabet’s GV start-up and other major media and technology companies as it makes its bid to dominate the virtual reality world, which many experts predict could be entertainment’s next big play.

A quick scroll through Jaunt’s home page lists some impressive credits, including VR content for Star Wars Rogue One, The Lion King, and Mr Robot. I also saw former First Lady Michelle Obama’s picture on there.

Backed with nearly $101 million in venture capital, Jaunt has built a library of nearly 300 pieces of mostly short-form VR content that includes a 360-degree view of a concert by former Beatle Paul McCartney, a panoramic of “The Lion King” on Broadway and a bullet-splattered “Escape of the Living Dead” video segment.

Eventual consumer adoption is anybody’s educated guess, but virtual reality is already hot when it comes to B2B spending:

Watching the world through goggles may not be everyone’s cup of tea, but analysts at Goldman Sachs recently projected an $80 billion industry by 2025, with $45 billion spent on goggles and other equipment and $35 billion more for the content to play video games or watch sports and entertainment in VR.

“It ultimately will change entertainment,” says digital media consultant Bernard Gershon, a former Disney strategic planning executive. “VR will be an immersive experience impacting all the senses – sight, sound, motion, touch, smell.”

It’s nothing particularly original, but this theory is taking shape in my brain: AR is to casual gaming and the app economy what VR is to console gaming and the movie biz. The two are related, and there’s a place for both, but ultimately AR will go mainstream and VR will offer deeper experiences for niche consumption.

You can watch Jaunt’s content on Oculus, Vive, Samsung Gear VR, and Android/iOS devices with a VR viewer.