Extended Reality Gets into Gear

Minor decline in 2020 just a bump in the road to solid growth

Disrupted supplies in the first half of 2020 and economic weakness in the second hurt the market for extended reality devices, but consumer excitement about new products and strong interest from enterprises are paving the way for solid adoption of these devices in the future. These are the main messages from our latest forecast for virtual and augmented reality (VR and AR) devices.

The forecast projects shipments to fall 1% in 2020 to 7.2 million units, but to grow strongly over the next four years to reach 55 million units in 2024, as shown in the chart below.

It’s worth pointing out that an almost flat market is a good result in this extraordinary year. To put things in perspective, the largest consumer electronics category in the world, mobile phones, will fall by 15% in 2020.

Sales of VR and AR devices, to both consumers and enterprises, would have been higher if some of the main players had been able to ramp up production faster. For example, Facebook suffered shortages of the original Oculus Quest earlier in the year, and in the autumn we saw huge numbers of pre-orders for the attractively priced Oculus Quest 2. This demand shows the potential of standalone VR headsets, which will form half of all sales of extended reality devices in 2024.

The market has also faced other obstacles in 2020. The launch of the new Xbox Series X and Series S and the new PlayStation 5 meant that many gaming enthusiasts directed their Christmas spending toward a new console rather than a VR headset. We expect VR devices that attach to a PC or games console will become a niche part of the market.

However, recent announcements by Qualcomm at its Snapdragon Tech Summit confirm our view that affordable VR and AR devices that connect to a smartphone are a growth segment (see Instant Insight: Qualcomm Snapdragon Tech Summit 2020). We expect that telecom operators will become an important part of the distribution network for extended reality devices, especially as they seek to position VR and AR headsets as accessories to pair with 5G-capable smartphones.

Meanwhile, the enterprise market saw a significant rise in demand for extended reality devices and services in 2020. In fact, this year the technology got a golden opportunity to finally make the step from promise to reality in enterprises and educational institutions. Sales of extended reality headsets to the enterprise are expected to swell almost 2.5 times in 2020 to reach 650,000 devices. These products are most often used to provide business continuity in scenarios related to remote field service, manufacturing, product demonstration, training and other areas.

It’s fair to say that in 2020, extended reality companies grew in the enterprise space as much as their production and distribution reach allowed them. Epson, Google, RealWear and Vuzix are among the companies that have benefited from a focus on the enterprise market, thanks to their established distribution and relationships with different industry sectors. Demand for extended reality in enterprises and education is expected to remain strong and more than double again in 2021, despite difficult economic conditions, reaching 8.2 million devices by 2024.

In addition to these positive indicators for the extended reality industry, we’ve spotted signals that support our prediction that consumer AR glasses will emerge as an important category by 2023, including products from major consumer brands like Samsung, Facebook and Apple. This nascent market, comprising just 50,000 devices in 2020, has the potential to reach 9 million units by 2024, should new lightweight stylish devices grab the attention of technology enthusiasts in the next few years.

More details of CCS Insight’s extensive VR and AR research service can be found at www.ccsinsight.com/research-areas/virtual-and-augmented-reality