“Behind the Numbers” is AR Insider’s series that examines strategic takeaways from ARtillery Intelligence data. Each post drills down on one topic or chart. Subscribe for access to the full library and other knowledge-building resources.

AR continues to show early-stage characteristics, including volatile interest and investment. But how big is it, and how big will it get? AR Insider’s research arm ARtillery Intelligence has quantified the revenue position and outlook, resulting in the fourth and latest wave of its AR forecast.

At a high level, the firm projects AR revenues to grow from $1.96 billion last year to $27.4 billion in 2023. That includes lots of moving parts and sub-sectors including consumer, enterprise, hardware, software, advertising and AR commerce enablement (full list of inclusions here).

Drilling Down: Consumer AR

Drilling down into one of those areas, how does consumer AR look? ARtillery Intelligence projects it to grow from $957 million in 2018 to $7.9 billion in 2023, a 53 percent compound annual growth rate. This includes things consumers pay for, such as apps, in-app purchases and AR glasses.

Of these, the leading revenue source is in-app purchases, growing from $813 million in 2018 to $4.1 billion in 2023. That means near-term revenues will be dominated by mobile AR. Revenues will also be software-centric during that time (mobile device sales aren’t counted as AR revenue).

In-app purchases dominance over premium apps is meanwhile due to consumer resistance to pay upfront for AR apps. They aren’t proven enough to get over that hump. ARtillery’s separate AR consumer survey validates that, as does the in-app revenue model validated by Pokémon Go.

Speaking of which, PGO revenues continue to roll in, along with the healthy but lesser in-app purchase revenues from Harry Potter, Wizards Unite. AR killer apps could emerge in 2020, likely built around a utility like visual search, or through viral growth of a native social/multiplayer app.

Longer Term

In outer years, consumer AR revenue share will shift to hardware. That will start around 2022 as smart glasses, likely from Apple, approach consumer-friendly specs and standards. That’s where the technology and business case point us, but Apple’s influential entrance is still a moving target.

After that, premium software share will grow as a corollary to AR glasses’ installed base. Compared to mobile AR — dominated by in-app purchases for the reasons mentioned above — premium apps align with dedicated AR hardware (similar to how apps are purchased in VR).

Until then, developers’ work in mobile AR will be a training ground for an eventual glasses-oriented era beyond 2022. Mobile AR will likewise acclimate consumers to spatial experiences and seed demand for AR glasses in the long term. Hearables will be a wild card (quantified separately).

Speaking of separate sizing, other revenue categories include AR advertising and commerce. Though these touch consumers,* they’re counted under enterprise AR because of who’s paying for them (advertisers, brands, retailers, etc.). This is a subset that ARtillery calls B2B2C.

Cautiously Optimistic

At a high level, ARtillery Intelligence’s position on AR revenue growth is best characterized as cautiously optimistic. Growth and scale will come, but slower than many industry proponents have thought, due partly to the pace of adoption and other signals that ARtillery Intelligence tracks.

In fact, you may notice that AR revenue projections in outer years are lower than other figures you may have seen. They’re also lower than ARtillery’s past estimates, as it adjusts to market signals. This is common in market forecasting, as market watchers course-correct to market variables.

Stay tuned for more forecast tidbits and insights over the coming weeks. Meanwhile, find out more about the report methodology or access the entire thing here. There will be lots to unpack as the AR market unfolds and brings us a combination of expected outcomes and surprises.

*The transaction value of consumer goods bought through AR interfaces is tracked in this forecast but not counted towards “AR revenue.” More inclusions and exclusions are spelled out here

For deeper XR data and intelligence, join ARtillery PRO and subscribe to the free AR Insider Weekly newsletter. 

Disclosure: AR Insider 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.