Spatial computing – including AR, VR, and other immersive tech – continues to alter the ways that we work, play, and live. But there have been ups and downs, characteristic of hype cycles. The pendulum has swung towards over-investment, then towards market correction.
That leaves us now in a sort of middle ground of reset expectations and moderate growth. Among XR subsectors, those seeing the most traction include AR brand marketing and consumer VR. Meta continues to advance the latter with massive investments and loss-leader pricing.
Beyond user-facing products, a spatial tech stack lies beneath. This involves a cast of supporting parts. We’re talking processing muscle (Qualcomm), experience creation (Adobe), and developer platforms (Snap). These picks and shovels are the engines of AR and VR growth.
So how is all of this coming together? Where are we in XR’s lifecycle? And where are there gaps in the value chain that signal opportunities? This is the topic of ARtillery Intelligence’s recent report Reality Check: the State of Spatial Computing, which we’ve excerpted below.
Though most media attention focuses on AR’s longer-term headworn prospects, the practical – albeit less sexy – reality today is handheld. As our friend and AR thought leader Tom Emrich likes to say “Don’t forget about mobile AR.” Though lesser in experiential depth, it scales today.
In other words, Mobile AR has an inherent ability to piggyback on 3.5 billion smartphones. This is a tradeoff, as it doesn’t achieve AR’s full immersive potential due to a small screen that needs to be held up. But it does achieve the reach that’s required for a real business case.
For example, one of AR’s leading revenue categories today is brand-sponsored experiences in Snapchat, Instagram, TikTok, and web AR. This is driven by user demand and engagement with AR lenses, but it also contains the prerequisite scale and reach for brand marketing.
This brand spending, which is under the banner of AR marketing, is estimated to grow from $3.38 billion annually in 2022 to $14.5 billion in 2026. User engagement fuels this spending as they turn to AR lenses as a way to enhance activities like media-sharing and enhanced selfies.
Besides being drawn to all those eyeballs, brand marketers are attracted to AR because it lets them flex creative muscles and transcend 2D media where they’ve been confined for years. It also helps that there’s a strong business case shown in ongoing AR performance and ROI.
As for who’s doing what to tap into all that brand marketer demand, Snapchat is an exemplar, due mostly to its dedicated focus on AR, and the medium’s alignment with its “camera-company” mission. Meta also looms large given global scale from both Facebook and Instagram.
AR has found fertile soil in the latter, given AR’s alignment with the shopping and product discovery use case that Instagram has cultivated. Meanwhile, TikTok also looms. Its Effect House AR creation platform could do for TikTok’s AR scalability what Lens Studio did for Snap.
Speaking of which, an open (and free) developer platform has become the playbook for scaling AR. This approach effectively crowdsources AR creation and incentivizes developers to build content that drives user engagement… which then attracts brand marketers and ad revenue.
There’s also visual search such as Google Lens and Snap Scan which let users point their phones at objects to identify them. This carries the same high user intent that made web search such a strong business. That user intent will be the foundation for visual search’s monetization.
Beyond AR endpoints, it’s also important to note the ecosystem of enablers. This includes other parts of the AR stack, such as Niantic, as well as Qualcomm’s work with not only AR and VR chipsets (e.g., Snapdragon AR2), but a developer platform (e.g., Snapdragon Spaces).
We’ll pause there and circle back in the next report excerpt with the snapshot of another XR subsector and what we learned from it in the past year. Meanwhile, check out the full report here.