Published on August 3rd, 2020 | by Emergent Enterprise0
The AR/VR Ecosystem — Are We There Yet?
Users are the true metric of the state of AR/VR adoption. This VentureBeat report by Tim Merel is an excellent overview on the state of consumer AR/VR in the world today. The reason to keep close watch on consumer usage is that it may very well be those users that create valuable ways to implement AR & VR in the enterprise. That was the case with mobile phones as companies were late to the party in smartphone usage when consumers were spending big chunks of time on them for personal use already. It will be up to AR/VR hardware and software developers to create useful solutions for the enterprise before we can ever say it is “mainstream.”
Image Credit: Mark
Digi-Capital’s virtual and augmented reality forecast is for global revenue to grow from over $13 billion this year to more than $67 billion by 2024. Yet today’s market is still evolving beyond its early stage of offering related point solutions to specific problems, to becoming a fully functioning ecosystem in its own right. Different parts of the market are moving at different rates, with many shifting pieces to the puzzle.
Let’s look at where we are today with consumer AR/VR markets, not enterprise.
For platforms to be platforms, they need active users. Lots of them. Table stakes are tens of millions, and hundreds of millions are better — but billions are the ultimate goal. For comparison, most of us are active users of the biggest consumer platform on the planet: mobile. According to Ericsson, mobile now has as many subscriptions as there are people on the planet.
Mobile AR can now claim to be a consumer platform, with Digi-Capital forecasting over 1 billion active installed base across messaging-based, OS-based, and web-based mobile AR platforms in 2020. For example, ByteDance’s TikTok use grew 130% in the first week of March for a weekly total over 3 billion hours due to both higher user numbers and average time per session. This was a significant factor in TikTok owner ByteDance (also owner of Chinese messaging platform Douyin) being reported by Reuters to have 130% revenue growth to $5.6 billion in Q1 2020. However, ByteDance is now dealing with different challenges across several fronts.
Looking to the long-term, Digi-Capital forecasts messaging-based mobile AR’s active installed base to top 1.5 billion by 2024, OS based mobile AR over 1 billion by 2024, followed by web-based mobile AR (at a much higher growth rate). This could see all mobile AR platforms combined active installed base over 2.7 billion in 5 years’ time. (Note: total figures for active installed base types inherently involve double counting, exaggerating total figures due to users active on more than one platform. However, this enables direct comparison between different platform types and platforms.)
VR has different user dynamics, partly because of a lack of plurality, but mainly due to user attrition. One of the challenges for VR is a primary entertainment focus (games, video), which despite its immersion can be done more easily and cheaply on existing devices. Also the social side of VR hasn’t scaled – even Facebook announced it was starting again from scratch with a totally new social VR platform late last year. When describing ambitions for Facebook Horizon, CEO Mark Zuckerberg said “Horizon is going to have this property where it just expands and gets better.” Yet scale remains a question. While there is a dedicated core of active VR users, there aren’t enough casual users to scale VR as a platform yet.
If Apple launches smartphone-tethered smartglasses as an iPhone peripheral in late 2022, as Digi-Capital forecasts, we’ll get a better idea of what consumer smartglasses Daily Active Users (DAU) could look like. But as we’ve said many times, only Tim Cook and his inner circle really know if and when Apple’s going to enter. Magic Leap pivoted away from the consumer market, with former CEO Rony Abovitz saying, “While our leadership team, board, and investors still believe in the long-term potential of our IP, the near-term revenue opportunities are currently concentrated on the enterprise side”. It’s also early days for consumer smartglasses startups like nReal, despite CEO Chi Xu describing it as a “cell phone companion” taking a different approach to Google Glass, HoloLens and Magic Leap. Similarly, Snap Spectacles (not smartglasses) and Google Glass highlighted some of the consumer challenges for high tech goggles.
High frequency users
The most important economic lesson from mobile is “Frequency ∝ Revenue” (“∝” means “proportional to”). In other words, high user frequency = money. For example, top 1% grossing mobile apps deliver 35 times the sessions per day of top 5% apps. And going back to active users, lifetime value of top 1% grossing apps is 20 times that of the top 5%. While it’s obvious, you need to hold on to users and give them something they want to do every day to make money. There are big differences between AR/VR and mobile, but this remains a crucial dynamic.