Every year the semiconductor industry and its customers start a discussion about the next big market for semiconductor products: Main Frame computers had their day, then servers and PCs, and only a few years ago, smart phones. But with Apple reporting declining sales in 2016 for the first time in a decade and Samsung still recovering from their disastrous Note 7 debacle, what can these two behemoths do to re-kindle growth? For that matter, where will Google and Facebook place their bets on the Next Big Thing? To judge by comments from Apple’s Tim Cook (“high on AR in the long run…continue to invest a lot in this…AR can be huge.”) or the 2014 $2B purchase of Oculus by Facebook, it seems probable that at least in the case of Apple and Facebook the growth will come from AR/VR. Recent forecasts by Digi-Capital place the size of this industry by 2021 to be between $94 and 122 billion. Considering that 2016’s size was $3.9B ($1.2B for AR, $2.7B for VR), this market’s proposed growth is one that must be investigated, if not invested in.
The AR/VR market needs a little definition in this post before we go any further. AR is defined as Augmented Reality, while VR is virtual reality. What this means in greater detail is that AR takes live direct or indirect views of the physical world and “augments” those views by adding computer-generated sensory data such as sound, video, graphics, or GPS data. VR on the other hand provides a view of an artificial world, one fully generated by software. A further delineation of the AR market is the breakdown between mobile AR and desktop/laptop delivered AR; and yet a further division of the mobile market is into smartphone and smartglasses. A commercially successful example of mobile AR was last year’s wildly successful Pokemon Go from Nintendo and Niantic: a game that made $600 million in its first three months alone and outperformed the entire VR market in 2016. Other successes in 2016 included Sony’s Playstation VR and Google’s Daydream View mobile VR headset/controller and the first Tango mobile AR phone.
Well then just who are the players in the emerging AR/VR market? They are some traditional players from the past like Microsoft and Intel from the software and semiconductor world, the two giants from the smartphone world Apple and Samsung, and the two new giants of software: Facebook and Google. Where each of these companies appears to be going might well control the ultimate fate of the whole market. For example, will they focus on price points greater than $1500/unit in the manner of Intel’s project Alloy set to launch late this year? Or will they focus on price points below $500 and take advantage of the well-proven habit of smart phone users to replace their phones with each new iteration of their phone of choice. In that case, Apple is my personal bet to win the mobile AR race; consider hardware, software, app store and retail outlets and you have a corporation uniquely suited to dominate this part of the market. That being said, Google may well surprise us all with its Tango for mobile AR and Daydream View for mobile VR.
Whoever comes to dominate the market will have five problems that must be addressed according to Digi-Capital: (1) hero device (Apple-quality device), (2) all-day battery, (3) mobile connectivity, (4) app eco-system, and (5) telco cross-subsidization. With these five problems solved and the right price point identified, there is every reason to believe Digi-Capital’s forecast of an $83B AR market and a $25B VR market by 2021. The last question then dear Reader is, who are you betting on?