One way to interpret AR/VR ecosystem is classifying it as a platform, what I am referring in this blog as “Platform 4.0”. Followed by personal computer, web, and mobile, AR/VR platforms fundamentally are transforming how present-day consumers interact in the physical world. One way to define AR/VR is as follows,
- VR: Immerses users in an imagined or replicated world
- AR: Goes closer to reality overlaying digital imagery onto the real world.
AR/VR offers significant business opportunities, but a holistically understanding on how to create a business from this very promising platforms is very critical. As per Statista, by 2021, the augmented and virtual reality market is expected to reach a size of $215 billion. For AR alone, ARtillry Intelligence projects consumer AR revenues to grow to $14 billion by 2021. The business models for capturing the market opportunity of AR/VR platforms preferably should encompass on upstream and downstream of “New Reality Value Chains”. The upstream part of value chains covers the core of AR/VR development needs and downstream part of value chains address the various channels to serving AR/VR demands. The term ‘business model’ in this blog ties to either a segment of upstream or downstream of AR/VR value chain. While the detailed characteristics of each business model are slated for a separate blog, tried to summarize the various models with “AR/VR Business Opportunity Framework” as depicted above.
As mentioned above, while “New Reality Value Chains” offers significant business opportunity, the potential market opportunity sizes vary by business model and respective focus segment. With further market analysis, the indicative percentage market opportunity size by each of the business segment is shown in the chart “AR/VR Business Models and Market Size” below. Hardware, eCommerce, and Ads contribute to >2/3rd of market share. Another key observation is immediate whitespaces in Apps, Subscriptions etc. can be target areas to evolve innovative business models.
The above-mentioned business models and their growth potential is estimated to be varying across verticals. The “AR/VR High Impact Sectors” with most promising opportunities are Games, Healthcare, Industrial, and Broadcasting Events. The relative opportunity size of AR/VR across various verticals and respective dominating use cases are summarized below.
- 1/3rd of the VR/AR market opportunity comes from the Gaming industry. Leveraging VR to enrich the video gaming experience offering players with illusory environments by porting games onto playing fields offers a significant business opportunity. The recent success of “Pokemon Go” is a use case to showcase.
- Next 1/3rd market opportunity prevails in Industrial, Healthcare, and Event Broadcasting verticals. For example, in the industrial sector, AR/VR can help engineers to test scenarios and designs allowing rapid prototyping and yield cost reductions fixing known errors before mass production.
- Remaining 1/3rd market opportunity comes from other verticals including Retail, Real Estate, Entertainment, Education, and Military. For examples, Retailers can revolutionize the way consumers shop by elevating the shopping experience and promoting emotional connection to a brand or product
In summary, i) AR/VR Business Opportunity Framework, ii) AR/VR Business Models and Market Size, and iii) AR/VR High Impact Sectors presented above can be used as a starting point in carving out specific target business initiatives in much promising AR/VR space.
You can reach me @ email@example.com for a deeper mindshare on this topic.