Like many analyst firms, market sizing is one of the ongoing practices of AR Insider’s research arm, ARtillery Intelligence. A few times per year, it goes into isolation and buries itself deep in financial modeling. One such exercise recently zeroed in on VR revenues.
This takes the insights and observations accumulated throughout the year and synthesizes them into hard numbers for spatial computing (see methodology and inclusions/exclusions). It’s all about an extensive forecast model coupled with rigor in assembling reliable inputs.
So what did the latest VR forecast uncover? At a high level, global VR revenue is projected to grow from U.S. $8.3 billion in 2021 to U.S. $28.8 billion in 2026, a 28.3 percent compound annual growth rate (CAGR). This represents fairly healthy growth but a slow road to scale.
Drilling down, our latest Behind the Numbers installment looks at consumer VR revenue. Segmenting out spending by enterprises, what is the (currently larger) share that represents consumer purchases? What are the revenue dynamics within that segment and who’s leading?
After examining hardware unit sales in the previous installment, we move on to global consumer VR spending. According to ARtillery Intelligence estimates, it’s projected to grow from $4.98 billion in 2021 to $18.4 billion in 2026, a 29.9 percent compound annual growth rate.
How does this revenue break down? It’s hardware-dominant in early years as an installed base is established. Over time, software will build on that base and gain revenue share with a faster refresh rate; and as more in-market hardware incentivizes developers to create content.
Altogether, these factors drive more robust VR content libraries, more users, and greater software spending per user (ARPU). This is a common path to growth in emerging tech markets. We saw a similar step function and hardware/software interplay early in the smartphone era.
Speaking of historical comparisons to smartphones, premium apps will dominate software revenues in VR’s early stages. But in-app purchases, especially in gaming, could gain revenue share over time. Ad support could also grow in revenue share, but that requires more user scale.
These revenue dynamics will unfold as VR matures and reaches wider audiences. In fact, most mass-market media (exception: console gaming) don’t require upfront cost, relying instead on back-end monetization like ads. Premium and ad-supported content will coexist in VR.
As for other ways to segment VR consumer spending, there’s varying market share for VR headset players. Meta leads in revenue and units sold – surpassing PSVR’s former lead – as it gains market share through lowered barriers to adoption. This is mostly due to Quest 2.
Meta continues to invest heavily to push VR adoption, including massive R&D and M&A. Its consumer VR hardware sales (not counting headsets sold to enterprises) reached an estimated 5.15 million units last year and 12.17 million units by 2026 (52 percent market share at the time).
Sales will be greatest in Q4 holiday periods, given a giftable price point for some consumers. Meta’s deep pockets and commitments to VR also give it the freedom and flexibility to apply loss-leader pricing in order to strategically prioritize penetration and market share over margins.
This is good for consumers in that they get hardware that’s cheaper than it should be. But it creates a challenging market for VR players that depend on margins as a core revenue stream. One exception is Pico, which is similarly owned by a deep-pocketed social giant (ByteDance).
That said, Pico is disadvantaged in the content department and hasn’t matched Meta’s level of investment in R&D. So it’s mostly doing lots of following and porting. And its fate in U.S. markets could be dragged down by geo-political issues around its corporate cousin, TikTok.
We’ll pause there and circle back in the next Behind the Numbers with more VR market segments and drill-downs…