Virtual & Augmented Reality
Market Report
This report provides an overview of key terms and theories related to Virtual Reality (VR) and Augmented Reality (AR), offers insights into VR equipment, examines the global AR & VR market and venture activity, and highlights notable AR & VR projects and companies.
SUMMARY
Virtual and Augmented Reality:
Concepts and the Global Market
April 1, 2024
Key Concepts and History of Virtual Reality
TERMS
  • There are several virtual reality technologies (as categorized by Microsoft), with very subtle differences between them.
  • Augmented Reality (AR) – technology that allows the superposition of digital elements into the real-world environment. While some AR experiences may offer a certain degree of interaction between physical and virtual elements, typically, there is limited to no direct interaction between the digital and physical world components.
  • Virtual reality (VR) – technology that allows the creation of a fully immersive digital environment. In VR experiences, the physical or real-world environment is entirely blocked out.
  • Mixed reality (MR) – technology that allows not only the superposition of digital elements into the real-world environmental and their interaction. In MR, the user can see and interact with both digital and physical elements.
  • Extended reality (XR) – an umbrella term that encompasses any technology that alters reality by adding digital elements to the physical or real-world environment to any extent, blurring the line between the physical and the digital world. XR includes AR, MR, VR, and any technology at any point in the virtuality continuum.
  • Metaverse – a virtual reality space where users can interact with the computer environment and other users.

Sensorama, 1962

The first stereoscope, which allowed the viewer to see the picture as a 3D object, appeared in 1837. The principle of its work is the basis of all current VR headsets: the device combines two flat images into a single three-dimensional one. However, the father of virtual reality is rightly Morton Heilig. In 1962, he patented the world's first virtual simulator, Sensorama. The device was a bulky object resembling slot machines of the 1980s. It allowed the viewer to experience immersion in virtual reality, such as riding a motorcycle through the streets of Brooklyn. Sensorama stimulated the senses with speakers, a 3D display, scent generators, and a vibrating chair. Heilig saw Sensorama as the movie theater of the future and wanted to immerse people in movies fully. Six short films were developed for Sensorama. However, at that time, investors distrusted Heilig's invention, and the scientists had to stop working on it.


  • In the 1960s, the first AR-helmet – the "Sword of Damocles" – was developed. It was connected to a computer: glasses were attached to the ceiling, and a picture was broadcast through the computer.
  • Then, the interactive VR platform VideoPlace was created, and in the 1980s, VPL Research developed more advanced virtual reality equipment – the EyePhone goggles and DataGlove glove.
FACT

The real boom began only in 2012, when a little-known startup, Oculus, launched a Kickstarter campaign to raise funds to release a virtual reality headset. The required amount of $250,000 was raised in the first four hours.

Oculus Rift CV1, 2015


Oculus developers promised users a "full immersion effect" thanks to displays with a resolution of 640 by 800 pixels for each eye.
Three and a half years later, on January 6, 2015, pre-sales of the first mass-produced consumer virtual reality headset, Oculus Rift CV1, began. The entire first batch of headsets was sold out in 14 minutes.
This marked the beginning of a boom in VR technology and the explosive growth of investment in the industry. Since 2015, virtual reality technology has become a new technological Klondike.
Virtual Reality Hardware

VR headsets device diagram

The main components of virtual reality hardware are headsets, tracking devices, real-time data transmission and processing devices, VR suits, gloves, and other devices that enhance the user experience.

The headset (virtual reality headset) is the foundational piece of equipment. Stereoscopic lenses reshape the image so that it appears three-dimensional. When the user moves their head, the headset tracks their location and focus, adjusting the in-game visuals accordingly. This is a noticeable difference from augmented reality, which superimposes virtual objects in the real-world environment. In virtual reality, the entire environment is simulated, and it is harder to achieve a real-life experience.

There are two fundamentally different approaches to tracking in modern VR headsets. The first is called inside-out tracking or internal tracking. Several wide-angle cameras are placed on the headset to track the controllers and the headset's position relative to the objects in the environment. Another approach is called outside-in tracking or external tracking. It requires base stations to be placed in a room opposite each other to delineate the playing area. External tracking is much more accurate and reliable.

VR suits, gloves, tracks, better controllers, and other devices allow for a more immersive experience.


The main matrices that produce VR headset displays include LCD, OLED, and AMOLED. In 2024, the industry is set to turn towards new matrices – OLEDoSi, which features high efficiency. Sony Semiconductor leads the OLEDoSi market in revenue, while Samsung Display is acquiring OLEDoSi pioneer eMagin, which has direct emitter patterning technology.

VR headsets device diagram

AR headsets device diagram



Virtual reality headsets use six degrees of real-time freedom (DOF) and simultaneous visual localization and mapping (SLAM) to provide real-world information such as 3D coordinates and object recognition.

The transparency technology used in today's VR headsets is called VST (Video See-Through), while the transparency technology used in AR devices is called Optical See-Through (OST). VST technology combines a digitized three-dimensional image of the real world with a computer simulation of reality, which is then displayed on an opaque display. Using VST together with the appropriate rendering technique and algorithm, interaction and occlusion between virtual and real objects can be provided, and a digital 3D model of the physical world can be reconstructed.

  • Tethered VR headsets work only when connected to a PC. This type of connection has advantages, including the wide availability of content on SteamVR platforms, stability, the ability to run high-performance applications, and interactivity.

  • Standalone VR headsets run on their operating system, without a PC and cables. The main advantages of such headsets are affordability, interactivity, lack of wires, and full interaction with the environment.

Key headsets released in 2023-2024

Apple Vision Pro headset was officially released in the US on February 2, 2024. Pre-orders for the headset began on January 19, and 10 days later, the entire first batch of 200,000 units was sold out. Apple positions Vision Pro as the first device for spatial computing, which the company calls a workflow in which the natural world and virtual program windows are visible.

The Apple Vision Pro also has the latest Apple M2 and R1 chips, delivering high performance and efficient power consumption. The headset's new feature is a high-performance eye-tracking system with LEDs and infrared cameras. It projects invisible light patterns on each eye and, combined with head and hand tracking, allows users to interact with the virtual world without using controllers.
Consequently, the user's eyes are used as the cursor. Users must focus on the desired button to select an item on the screen. Additionally, a mouse and keyboard can be connected to Vision Pro if one needs to work with text.

Apple Vision Pro and Meta Quest 3 comparison

FACT

VR/AR technology has multiple applications in various fields, including gaming, film and television, sports, real estate, education and training, medicine, commerce, and more.

Automotive & Manufacturing
Car manufacturers are already adopting VR technology to enhance their operational and manufacturing capabilities from prototyping to production. Some benefits of doing so include improved safety standards, a more streamlined production process, and the increased ease with which stakeholders across the globe can cooperate on internal projects.

For example, Ford, Hyundai, BMW, and many other automotive brands use VR technology in their vehicle design process.

Market Overview
The Virtual Reality (VR) market size is expected to grow from $54.24 billion in 2023 to $163.82 billion by 2028 at a compound annual growth rate of 24.74% during the forecast period.
The Extended Reality (XR) market is projected to grow from $105.58 billion in 2023 to $472.39 billion in five years by 2028, at a compound annual growth rate of 34.94%.

The Augmented Reality (AR) market size was valued at $29.84 billion in 2023 and is projected to grow to $174.47 billion by 2028 at a CAGR of 42.36% during the forecast period.
The Metaverse market is expected to grow from $82.31 billion in 2023 to $472.37 billion by 2028 at a compound annual growth rate of 41.83% during the forecast period.

VR market size forecast, $ billion
VR market size forecast, $ billion
AR market size forecast, $ billion
Metaverse market size, $ billion
Specialized microprocessors, AR & VR chips, have been explicitly designed to meet the complex processing requirements inherent in AR and VR applications. The key manufacturers are Qualcomm and MediaTek. The primary function of these chips is to facilitate the rendering of highly realistic 3D environments and provide the level of low-latency performance required to deliver an immersive and seamless user experience. In light of the growing adoption of AR and VR technologies in various industries, the demand for these highly specialized chips is expected to grow in the foreseeable future.

AR/VR chip market size forecast

The VR market can be segmented based on technology type into non-immersive, semi-immersive, and fully immersive segments. Geographical distribution reveals that 12% of the total demand for VR headsets is in the US, while 41.6% of VR manufacturers are in China. There are other classifications of the VR market, such as by type of solution and device.

The AI & ML market is divided into 3 segments by type of solution:

Hardware

  • Headsets
  • Glasses
  • Accessories
  • Components
  • Other
Software

  • SDKs
  • Design
  • 3D Models & marketplaces
  • Low-code and no-code platforms
  • Content capture & distribution
Application& Services

  • To-C Segment
  • To-B Segment

Looking at Augmented Reality, the market can be segmented based on technology type into marker-based AR technology segment and markerless technology segment.

FACT

The number of active VR headsets will reach 46 million in 2024, showing a CAGR of 42% from 2019.

  • However, AR & VR headset shipments declined 8.3% year-over-year to 8.1 million units in 2023. Sony's PSVR and Meta Quest 3 have been well accepted, but macroeconomic pressure on households coupled with slowing spending in the commercial segment has stalled growth. Nevertheless, 2024 promises to be a year of massive recovery: AR & VR headset shipments are expected to grow by 46.4%. The reason could be the release of Apple's Vision Pro headset, which is already garnering much attention.

  • In October 2023, the US Federal Communications Commission (FCC) voted unanimously to open the 6 GHz band for "new ultra-low power devices." This move could lead to new applications for AR and VR.

  • Major VR Headset manufacturers focus on making their headsets more affordable and have announced intentions to create lite versions of their new products. Meta, for example, may release a low-cost version of its $199 Quest 3 Lite VR headset in the first half of 2024. According to some sources, Apple is also developing a cheaper version of its Vision Pro headset, with a possible price tag of $1,500-$2,500.

  • The display systems research group at Meta recently unveiled the Butterscotch prototype. This prototype limits the field of view to about half that of the Meta Quest 2 and utilizes a 3K LCD with a new type of hybrid lens to achieve an overall system resolution of 55 PPD. This is close to retinal resolution, which is about 60 PPD.

  • AR contact lens companies are gaining popularity. Mojo Vision developed the world's smallest and densest dynamic display for the first augmented reality smart contact lenses and is now applying these innovations and expertise to lead a breakthrough in the $160 billion display industry. In October 2023, XPANCEO, a technology startup headquartered in the UAE, announced the completion of an initial round of funding of $40 million that will be used to accelerate the release of contact lenses with AR vision capabilities.

  • VR for business applications is gaining traction in several areas, especially when it comes to inspections of capital equipment. For example, since 2017, Walmart has partnered with Strivr to use VR technology to train employees. The relatively low cost of headsets like the Oculus Quest 2 means that virtual reality training can become more cost-effective than flying new employees to training events and conferences.
  • The number of AR headsets is expected to grow in 2024 due to the availability of cheaper models from companies such as Xreal and Rokid. AR headset shipments in 2024 are expected to reach 845,000, an 85.6% increase from 2023. According to Gartner, 75% of capital-intensive industries are expected to use AR to reduce costs by 2026. These cost savings can be achieved by streamlining workflows and not having to send employees to training.

  • The growth of no-code and low-code platforms may stimulate the adoption of AR. Such platforms will allow companies to integrate augmented reality functionality into mobile apps and websites more efficiently. AR filters are standard technology on many social media platforms, such as Snapchat and Instagram. Given the continued adoption of AR development tools by Apple's ARKit, Google's ARCore, and Amazon's Sumerian, integrating AR functionality into mobile and browser-based e-commerce is easier than ever.

Despite its potential, Virtual Reality still needs to overcome barriers to widespread adoption.

  • 1
    Uncertainty in the regulatory environment
  • 2
    High cost of implementation and application
  • 3
    Risk of virtual reality addiction (one in three users experienced fatigue or cyber mania when using virtual reality)
  • 4
    Bulky hardware and technical glitches
  • 5
    Eye fatigue and dizziness due to low screen resolution and refresh rate
  • 6
    Data privacy and security concerns
  • 7
    Integration of the VR ecosystem with low-end devices.
FACT
279 venture deals were made in the VR vertical in 2023, with a compound annual growth rate (CAGR) of 22.2% from 2014 to 2023. Venture capital investment in the VR market amounted to $1.38B in 2023, exceeding the pre-pandemic level of activity in the market. §of activity in the market. The CAGR of VC deal volume from 2014 to 2022 was 30.01%.

Virtual Reality – VC deals number and investment dynamics

The AR vertical generated 305 venture deals in 2023 with a CAGR of 23.1% from 2014 to 2023.

Venture capital investment in the AR market increased from $0.12B in 2014 to $1.85B in 2023 with a CAGR of 35.5%.

Augmented Reality – VC deals number and investment dynamics

Specific Solutions & Market Activity
The US and China are major players in the global Virtual and Augmented Reality market. Virtual Reality is a consolidated market due to many major players. The major VR & AR market players today include Meta and Sony. Meta accounted for 50.2% of the VR & AR headset market in the second quarter of 2023, with Sony holding another 27.1%.

AR&VR market players by revenue size for 2023 by country, $M

Top 6 global VR/AR headset manufacturers

Segmentation of companies in the market

The market is active in terms of M&A deals. According to Pitchbook, 499 M&A deals were completed in the Virtual Reality and/or Augmented Reality verticals during 2023. Some of the largest buyers include Meta Platforms, Apple, Snap, Alphabet, Epic Games, and others. Below are the most relevant deals in the VR/AR/XR markets.
  • Meta Platforms

    • In October 2022, Meta Platforms acquired Armature Studio, a video game development studio.
    • In August 2022, Meta Platforms acquired Camouflaj Game Studio, which specializes in developing games for virtual reality technologies.
    • In December 2021, Meta Platforms acquired Imagineoptix, a developer of augmented and virtual reality optical technologies designed to solve optical and optoelectronics problems in displays, for $125 million.
    • In October 2021, Meta Platforms acquired Within, a developer and provider of virtual reality content and technology. The exact amount of the deal was not disclosed, but the approximate valuation was $400 million.
    • §In November 2021, Meta Quest, a subsidiary of Meta Platforms, acquired Twisted Pixel Games, a developer of game software products. Twisted Pixel Games specializes in console, first-person and virtual reality game development.
  • Apple

    • In June 2023, Apple acquired Mira, a developer of a mobile augmented reality platform and virtual reality headsets, including for military applications.
    • In August 2020, Apple acquired SPACES, a virtual and mixed-reality theme park developer. The company's theme parks are based on three-dimensional technology spaces and provide a platform for connecting virtual reality to video chat and broadcast software.
    • §In May 2020, Apple acquired NextVR, a developer of a virtual reality platform that enables the broadcasting of high-definition 3D virtual reality content, such as sports, music and entertainment events.
  • Snap
    • In January 2022, Snap Group acquired CP Display, a developer and manufacturer of microdisplays designed to facilitate the creation of augmented reality, virtual reality, and embedded projection applications.
    • In 2021, Snap Group acquired Adshir, a graphics technology company offering real-time ray tracing technology that delivers high-quality AR graphics.
    • §In July 2021, Snap Group acquired Vertebrae, a 3D augmented reality platform developer designed to connect customers with developers and publishers to deliver 360° e-commerce experiences.
  • Alphabet
    • In August 2022, Alphabet acquired Alter, a developer of a 3D avatar system designed to enable developers to create and monetize new experiences, for approximately $100 million.
    • In May 2022, Alphabet acquired Radium, a holographic display technology developer designed to merge the digital and physical worlds seamlessly.
  • Other deals

    • In April 2023, Amazon acquired Sine Wave Entertainment, a developer of a virtual reality platform designed to create immersive environments for events and remote teams.
    • In November 2022, Twitch Interactive, a subsidiary of Amazon, acquired Spirit AI, a developer of cloud-based gaming technology designed to create playable characters, stories, and worlds in games and virtual reality.
    • In November 2022, Sony acquired Beyond Sports, a developer of a 3D modeling platform designed to facilitate sports training using augmented and virtual reality technologies.
    • §In March 2022, Adobe Systems acquired Brio XR, a cloud-based AR, VR, and 3D platform developer.
Conclusions
  • The virtual reality boom began in 2012, when a little-known startup, Oculus, launched a Kickstarter campaign to raise funds for the Oculus Rift CV1 headset, the first batch of which sold out in 15 minutes in 2015. Since then, the industry has undergone many changes: some companies have reached new technological and marketing milestones in the battle for market share, while others have left the competition, giving way to the winners.
  • There are two distinct market segments: consumer and corporate. The latter is characterized by special requirements for resolution and functionality, which becomes a driver for the development of the most potent headsets currently available: for example, thanks to the combination of 4K displays with 51 PPD resolution, advanced LiDAR depth sensor, and autofocus cameras, the Varjo XR-4 headset offers virtual and mixed reality capabilities close to those of natural vision. On the mass market side, Pimax's flagship product, Crystal, with 35 PPD resolution, has some of the best performance in the consumer virtual reality market and is the world's first VR headset to feature glass aspherical lenses.
  • However, in the consumer market, the headset's technical characteristics and price-quality relationship are essential. Regarding the price/quality criterion, the leader is Meta, which captured 55.2% of the market and introduced Meta Quest 3 at the end of 2023. The release of the new headset immediately became one of the most significant industry news for 2023. Before the release of Quest 3, Meta's VR and AR technology division, Meta Reality Labs, recorded an operating loss of $3.7 billion with sales of $210 million in the third quarter of 2023. However, the company sees the development of meta-universe and VR headsets as long-term bets on future technology.
  • It's worth noting that Mark Zuckerberg's tech conglomerate has not been alone in having difficulties. Global shipments of augmented and virtual reality headsets fell 8.3% year-over-year to 8.1 million units in 2023. Macroeconomic pressure on households coupled with a slowdown in corporate spending slowed down the market growth.
  • The good news is that the market is universally expected to rebound strongly in 2024, with headset shipments forecast to grow by 46.4%. There are three reasons for this: first, Meta Quest 3 is just gaining popularity; second, sales of the long-awaited Apple Vision Pro headset started at the beginning of the year, which may become the best headset in the user segment from a technical point of view; and third, the consumer headset market tends to democratize.
  • The market development is largely aided by partnerships entered into by major players to create new products. For instance, Qualcomm and Google have announced a partnership for the mobile XR. Before this, from 2017 to 2023, Samsung launched several versions of its Gear VR headset for virtual reality on a smartphone, which did not gain popularity. Google had a similar experience. However, it is possible that a new collaboration between two previously unsuccessful companies will turn out to be a success and could revive the mobile mixed reality market.
  • Another trend that cannot be ignored is the shift from fully virtual to mixed reality, with an opportunity to interact with the world around us. There is plenty of evidence for this because all new products, including the already mentioned Meta Quest 3 and Apple Vision Pro, position themselves as mixed-reality headsets.
  • However, some went further and offered the corporate segment holographic devices. This refers to Microsoft Hololens 2, created for manufacturing, design and construction, healthcare, and education. For example, with Microsoft Hololens 2, Toyota reduced inspection time by 20%, Lockheed Martin simplified the assembly process, and Mecedes-Benz reduced business trips by 40%, increasing efficiency using remote assistance.
  • The use cases for VR/AR/XR headsets are expanding from games and entertainment to educational programs, virtual travel, training, and medical applications. For example, innovations in virtual reality are helping to create new forms of content for movies and television. In real estate, AR technologies allow potential buyers to take virtual tours of properties. In education and training, VR provides tools to create interactive and immersive learning programs, making the learning process more effective and memorable. In medicine, VR trains surgeons to simulate complex surgeries, rehabilitate patients, and treat certain psychological conditions.
  • It is important to note that the above discussion focused solely on the headset segment, while peripheral segments attract just as much interest from consumers and venture capitalists. This group includes content creation companies, social platforms, content distribution platforms, cloud services, VR peripherals, development tools, and chip manufacturers. We believe the most promising companies in this field are FitXR, Sensorium, Virtex Stadium, VRChat, and Rec Room.
  • Despite the great potential and opportunities offered by the virtual reality market, it is essential to be realistic in assessing its current stage of development, potential risks, and limitations. As with any innovative technology, there are technical and market challenges, such as high initial investments, the need to improve the quality and accessibility of devices, and the development of content that fully unlocks the potential of immersive virtual worlds. In addition, eye fatigue and possible dizziness are still common among users of many VR headsets. Next-generation matrices are a possible solution to this problem, which means that technological progress is one of the critical factors in the development of the industry.
  • Another important factor in the market development is the increase in investments. Significant interest in VR/AR/XR from venture capital funds and corporate investors emphasizes the market's potential. Technology industry giants are investing in the market, improving the technology base, and increasing public attention to the field. Investments are made in device development, content, software, and infrastructure.
  • Thus, the constraints listed above are stages on the path to maturity and broad market acceptance rather than insurmountable obstacles. We expect that the development of technologies, the emergence of new headsets and peripherals, and the democratization of the market will contribute to the popularization of VR/AR/XR industries, expanding the horizons of their applications and strengthening their position in the market.

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