The following previews our 2018 Year-End xR Trends Report, which highlights our latest data and analysis.
Late in December, we feel obliged to take a look back at the past year and forward to the next. The perspective we get from this transitional time gives us a chance to reflect on our past year’s expectations and how they compare to the reality of what occurred. In the xR space, the past year, like most, provided a number of surprises, both happy and not so much.
2018 was a year that saw the rumors running hard, with companies large and small teasing us with their entry, or soon-to-be entry, into the xR arena. There were major announcements in the entertainment field, in software tools, in visual displays, and in new and interesting applications of VR and AR. 2018 also saw the adoption of a new terminology for this industry – xR, with the lower-case “x” indicating a variable, such as V (virtual), A (augmented), M (mixed), X (extended), S (synthetic/simulated), and the ”R” indicating Reality. This neologism has proven useful, providing a verbal shorthand for the many technologies that are applied in more than one mode of nontraditional reality.
Announcements that Attracted Attention in 2018
As we received sales data from the 2017 holiday shopping, we saw that PSVR and Samsung Gear led sales, with Sony claiming to have sold 3 million units to date. However, 2018’s top vendors in high-end HMDs were eclipsed by Google, which sold more than 16 million Cardboard and Daydream Systems.
Keep in mind that what may be the two biggest announcements in the HMD sector are barely reflected in that data. Oculus’ announced their Quest standalone HMD at Oculus Connect 5 in September, though their shipment date (Spring 2019) is still vague. Still, the demos they offered showed fast, inside-out tracking and a comfortable unit with reasonable computing power and a mid-range price.
But HTC wasn’t sitting still, and the Focus HMD they released worldwide in November seemed to hit all the right notes, with 6-DoF outside-in tracking, a vivid display, and plenty of apps at launch. HTC beat Oculus to market and has shipped Focus in China, and is taking orders in the US now.
Full immersion isn’t the only reason to don an HMD. As Microsoft has shown, with many other companies joining in, headsets for AR are also big sellers. Magic Leap, HP, Lenovo, Daqri, Vuzix, North, DigiLens, Atheer, Toshiba, and Epson are just a sampling of the vendors jumping onto this bandwagon. We believe AR is going to be very big, and more likely to be used by your average Joe or Jill than full immersion VR. There are huge benefits for AR in training, maintenance, navigation, and gaming, and the overlay of computer-generated content on the real world provides a more flexible and sociable interface than full immersion. Don’t get us wrong — we are still big believers in the importance of VR in many applications. But we think consumer-grade AR has already proven its viability — think Pokemon Go — while VR for consumers has yet to show us a killer app.
Conspicuous in its absence in the xR space is Apple. While the Cupertino Colossus has provided an SDK, ARKit, despite teasing and patents, Apple has yet to show, much less deliver, a xR headset. CEO Tim Cook warns that we should not look for an Apple AR headset anytime soon, because the technology needed “doesn’t exist to do that in a quality way.”
On the other hand, Alphabet, Google’s parent company, is delivering the AR Core SDK with pretty good developer support, and experience in smart glasses. Google Glass still exists as a professional product, and AR Core will run on iOS as well as Android, providing a huge potential user base. Google has been willing to experiment publically, so don’t be surprised to see 2019 reveal more Google hardware in this space.
Phones make a decent AR platform, but we expect smart glasses and dedicated headsets to provide a better user experience and start to move into the consumer space more strongly in 2019. We are already seeing significant penetration in the enterprise space, and expect a steeper adoption curve in the new year.
Not-To-Be Forgotten: Other Interesting Displays
HMDs and Smart Glasses aren’t the only displays you’ll be looking at next year. We have been impressed by the emergence of lightfield display prototypes this year and believe a couple of systems will become available in 2019. (Lightfield displays provide a 3D display in space. One can walk around it and see it from any angle. The Princess Leia hologram in the first Star Wars movie is the classic example of what a lightfield display may look like.) Lightfield Labs, Looking Glass Factory, and Fovi3D have announced prototypes and several other organizations in stealth mode have what looks like promising technology. Venture money is flowing in this direction, and VCs are not noted for their patience. Expect developments here late in 2019.
CAVEs and Domes provide the ultimate in social VR experiences. Essentially small (or not so small) rooms with projected displays on the walls, these systems enable multiple users to share virtual environments in the most natural way. These systems are quite expensive, but for the enterprise users that need them, there is no substitute. Domes are basically CAVEs with no corners, and both systems are very popular for AEC collaboration, industrial design (especially related to vehicles), training, dataset visualization, and especially for domes, entertainment. While we don’t see huge numbers of installations, we expect over $300 million in CAVE and Dome revenue in 2019, with the potential for that to be exceeded as vendors become more aggressive, and the ROI of collaborative VR is demonstrated in more sectors.
We see interesting developments in haptic and olfactory display coming in 2019. However, both of these sectors face considerable technological challenges that make mass adoption unlikely. Olfactory displays are more sophisticated than the 1950’s phenomena, Smell-O- Vision, but not enough. Challenges include developing a “spectrum” of primary scents, delivering those scents effectively and in sync with the virtual environment, and removing one scent before the next is needed. None of these issues seems to be solved yet, nor will they be next year.
Haptics are further along, and include proprioceptive (force) displays and tactile (feelings of texture). Tactile is somewhat easier to deliver, as it does not require the grounding a force display requires to resist against. However, despite decades of work, haptic displays are, at best, crude and unconvincing. Force displays, typically requiring an exoskeleton or anchor, can be very realistic, but they are bulky, expensive, and unwieldy to get on and off. We really don’t expect much progress in this area other than very specialized applications.
The Business of xR
The past year was full of breathless stories and press releases touting huge funding wins and startling business failures. In December, we learned that IMAX was throwing in the towel on its IMAX VR venture, closing the last of seven venues. We also saw META lose a promised investment and Blippar move into receivership. But in nearly the same breath we learned that North is acquiring Intel’s AR glasses, Dave & Buster’s has announced the rollout of VR to all of their venues, Microsoft announced a new version of Hololens, and NVIDIA announced graphics cards with xR compatibility built in. Qualcomm's recently announced xR1 chip is making xR in mobile form factors more accessible. What can it all mean?
It means that xR is becoming a mature business sector. The weak are falling by the wayside and the strong are getting stronger. Many of the best ideas will be absorbed into companies robust enough to bring them to market; others may end up in the dustbin of history. While this can be painful – especially if your favorite developer goes under, or the HMD you just bought is orphaned, in the long run, this makes for a stronger and more resilient industry. We expect to see a significant amount of churn in the LBE VR sector, especially among smaller operators, as venues struggle to find content that brings people back and ways to improve margins without increasing prices.
While the consumer xR marketplace is still strong, it is going to take more and better content to maintain its growth curve. HMD owners are not spending enough time wearing their headsets, and the lack of compelling content is a significant reason why. Great content is often a surprise – take Beat Saber for example – so we don’t attempt to tell you which apps will be hits. We do see a lot of potential in Angry Birds VR, and expect to see a new game, Harry Potter Wizards Unite, from Niantic, whose Pokemon Go is the biggest AR app released to date. We see great potential in AR apps for the consumer, and believe that 2019 may be a breakout year in that sector. With apps for healthcare, home design, navigation, entertainment, travel, education and training coming down the pike, we suspect that consumer AR may be the “surprise” hit of 2019.
Of course, the enterprise market is an entirely different case. Both VR and AR are making strong inroads into the laboratory, studio, factory floor and classroom. The military is a huge user of xR, and we expect that use to only increase. Training for factory workers has demonstrated a substantial ROI for Volkswagen. Maintenance workers are being outfitted with smart glasses that enable them to pull up manuals and get assistance from remote experts. Medical professionals are using xR to diagnose, plan treatment, explain those treatments to patients, and overlay medical imaging during procedures.
The use of xR in retail is also taking off. Audi has committed to using VR in its showrooms. Last year L’Oreal bought AR developer Modiface for their novel and attractive makeup visualization system, and many other retailers are offering AR fitting rooms, in their stores and online. Ikea is offering ways to see their furniture in your home. Many more retailers are eager to pull you into their virtual showrooms to sell you real goods. We expect this to be a very big market sector.
So, where do we see xR succeeding in 2019? Pretty much everywhere. While we expect a fair amount of churn, especially in the entertainment sector, we see strong growth in most xR technologies. Consumer success is going to be largely dependent on more and better content, but the enterprise space is doing quite well, and we see a clear path there for the vendors who address real business problems with an eye on the user’s ROI. The bottom line: we think 2019 will be a good year for xR.