Extended Reality Pace Slowed by Economic Woes

Macroeconomic weakness is hindering all consumer device markets right now, with virtual and augmented reality devices (VR and AR) — often combined as “extended reality” or XR — being no exception. This is a finding from our latest market forecast, which projects global unit sales in this segment to remain just short of 10 million in 2022 before growing to 11.4 million in 2023.

High inflation has hit consumer budgets the world over this year, and people who would otherwise have treated themselves to a VR headset have postponed their purchase. In addition, we’re seeing signs of businesses being more cautious in their XR investment until the economic outlook improves.

These trends are expected to continue for most of 2023, although one bright spot will be the arrival of the new Sony PlayStation VR2 headset, which should spur some consumer demand.

The $100 retail price increase of the most popular VR headset, the Meta Quest 2, is also weakening sales. The original price of the Quest 2 was very attractive; according to our recent user survey, it was right at the sweet spot where new tech enthusiasts would consider buying one. But the higher price is more than what potential VR owners are willing to pay, which is a problem for a segment seeking growth.

Another major obstacle to the adoption of XR is the time needed to build light and attractive AR smart glasses. It’s understandable that large technology players are being cautious: no one wants to risk disappointing buyers by bringing out a product that’s not quite ready. We’ve been expecting smart glasses to come to market for a while now, but the tech’s proving tricky to master. CCS Insight’s latest forecast now expects some devices to be revealed in 2023, with rising sales in 2024, but these will only reach more significant numbers from 2025 onward.

Because of these setbacks, CCS Insight now predicts that unit sales of XR devices will build up more slowly than previously projected, reaching 67 million units in 2026. Of these, 11 million will be sold to businesses and other organizations, where XR is showing great promise for uses in customer support, training, marketing and more. But the bulk of sales will be to consumers eager to get their hands on the latest technology.

We believe the outlook for XR remains positive, as the technology forms part of the “metaverse” vision shared by many large industry players. The vast sums that have been invested in the metaverse, despite its nebulous nature, show that there’s a real appetite for building immersive spatial computing experiences. There’s already lots of momentum behind the project, and despite a lull in the coming years, we expect the metaverse bandwagon to keep rolling on.

A summary of CCS Insight’s new forecast is presented in the chart below.

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