Data Point of the Week is ARtillry’s weekly dive into data from around the XR universe. Spanning usage and market-sizing data, it’s meant to draw insights for XR players, or would-be entrants. To see an indexed archive of data briefs and slide bank, subscribe to ARtillry Pro

One of the things that gives us confidence about XR’s eventual market size is the level of investment and motivation shown by influential tech giants. We wrote an entire report about it. One of those companies is particularly outspoken on AR’s transformative opportunity: Apple.

Given those signals and other inputs (think: patents, acquisitions, supply-chain, etc.), the folks at Merrill Lynch believe that AR could drive $8 billion in Apple revenues between now and 2020. And if it fulfills industry rumors to move into smart glasses, that total could be $11 billion.

Breaking that down a bit, the $8 billion is mostly in software revenues from AR apps. That breaks down to premium app purchases and in-app purchases, where Apple takes a 30 percent cut. That’s essentially Apple’s motivation for seeding an AR market with the free ARkit.

As for the breakdown of premium apps and in-app purchases, we believe the latter will be dominant in AR. That’s due to consumer comfort levels that have been conditioned (especially in gaming), and the model’s validation with Pokemon Go. Our survey data also support the claim.

Moving on to hardware, smart glasses are the wild card. Hardware is still where the majority of Apple’s margins lie, so smart glasses could be a question of when. Timing is always a well calculated variable in Apple land: It’s usually late and formulated (the opposite of Google and FB).

Merrill’s software heavy-revenue projections ($8 billion of the $11 billion projected), align with our forecast for aggregate AR revenues (see above). This is mostly because software has head start, given the smartphone installed base it piggybacks on. Smart glasses will take longer to ramp up.

In the outer years of our forecast, the ratio of software to hardware revenue is about 4 to 1. That’s not far off from Merrill’s 2.7 to 1. Obviously the firm is more bullish on hardware revenues than we are, but they’re careful to phrase hardware (smart glasses) as a “maybe” scenario.

More than the numbers themselves, it’s relevant at this stage to focus on the rationale behind them, and the accuracy of inputs. Merrill’s thinking is solid on those measures, and we’ll be watching closely to see how it plays out and where it creates opportunity gaps for smaller players.

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Disclosure: ARtillry has no financial stake in the companies mentioned in this post, nor received payment for its production. Disclosure and ethics policy can be seen here.

Header image credit: Apple