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As we approach the turn of a new year, it’s once again time for our annual ritual of synthesizing the lessons from the past twelve months and formulating the outlook for the next twelve. Notably, when kicking off this thought exercise, we realized that several of the topics look similar to last year.

Though there are lots of developments and new insights to break down, the topical containers that house those insights are beginning to coalesce into standard buckets. We’re talking mobile AR engagement & monetization; AR cloud development; enterprise AR and the gradual march of VR.

This standardization is good news, in that it signals spatial computing’s exciting – yet insecure – early days have transitioned to an adolescent period of its lifecycle. We have a firmer grasp on what’s working and not working… versus 2017’s wild speculation on the technology’s world-shifting impendence.

For example, AR’s near-term viability is supported by smartphone scale – estimated at 3.04 billion AR-ready devices and 598 million active devices. This has attracted reach-driven brand advertisers that are interested in immersive marketing. AR ad spending has reached an estimated $1.4 billion.

Elsewhere in mobile AR, Pokémon Go is experiencing the most successful stage in its lifetime, recently passing an estimated $1 billion in year-to-date revenue, and $4 billion cumulatively. Speaking of Niantic, it joins the list of tech giants investing heavily in planet-scale spatial mapping that’s hoped to power the next generation of AR experiences.

The list of companies assembling “AR clouds” otherwise includes Google, which continues to apply its vast knowledge graph as a visual database that can localize AR devices. It also includes Facebook, whose Project Aria is a step towards its Live Maps AR cloud ambitions. Meanwhile, Amazon’s IoT data could represent an AR cloud sleeper.

All of the above mobile AR happenings will pave the runway and create a softer landing for consumer AR’s fully-actualized head-worn era. Meanwhile, a different technology is working towards the same end: wearables. The device class will acclimate consumers to wearing sensors on their bodies – starting with Apple.

Speaking of Apple, its rumored AR glasses in the 2022 timeframe could determine the fate of the AR industry, given the company’s proven “halo effect” on emerging technologies. This year, we learned many clues that signal the approach Apple may take, including elegant and ambient ways to enhance human vision.

But the story doesn’t end there. What about enterprise AR? What about VR, given the sector’s acceleration at the hands of Oculus Quest 2? Finally, what impact will an ongoing global pandemic have on spatial computing (spoiler alert: there will be mixed results)? We’ll tackle these questions and more in this report through numbers & narratives.

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Like many research & intelligence firms, one of the things that ARtillery Intelligence does is market sizing. A few times per year, we go into isolation and bury ourselves deep in financial modeling. This takes the insights and observations we accumulate throughout the year and synthesizes them into hard numbers for the current and future spatial computing industry (methodology details here).

In covering spatial computing exclusively for five years, our sector knowledge base and perspective continue to improve. That occurs on several levels, including insight and access to insider information, all of which informs our forecast models and inputs. Further reinforcing that knowledge position, the daily rigors of editorial production at our sister publication AR Insider emboldens our market access and insights.

Beyond knowledge-position and market-sizing process, the focus of these forecasts likewise continues to evolve. Our first market forecast four years ago examined AR, VR and their revenue subsegments. Last year, we began to produce separate forecasts for AR and VR. Though they share technological underpinnings, their nuanced market dynamics deserve deeper and focused treatment.

This year, we continue that focused approach. After publishing forecasts in July on mobile AR, and September on head-worn AR, we now turn attention in this report to VR. This includes a revenue outlook for key revenue categories like VR hardware, software, consumer and enterprise spending. Other subdivisions include revenue categories like location-based entertainment.

So what did we find out? Our outlook continues to be best characterized as cautiously optimistic, especially when compared to several large research firms that turn attention to AR & VR occasionally to publish eye-popping revenue estimates in the hundreds of billions of dollars. We’re still comfortably and confidently in the low single-digit billions, with outer-year projections in the low tens of billions (sample above).

The question is how VR is materializing today: How are revenues trending? Which subsectors are most opportune? How will Facebook’s ongoing investment accelerate the sector? And how will a global pandemic continue to impact VR? We tackle these questions through numbers & narratives.

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A common AR industry sentiment is that the smartphone is the device that will pave the way for smart glasses. The thought is that before AR glasses achieve consumer-friendly specs and price points, AR’s delivery system is the device we all have in our pockets. There, it can seed user demand for AR and get developers to start thinking spatially.

This thinking holds up, but a less-discussed product class could have a greater impact in priming consumer markets for AR glasses: wearables. As we examined in last year’s “audio AR” report 2 , AR glasses’ cultural barriers could be lessened by conditioning consumers to wearing sensors on their bodies.

Meanwhile, tech giants are motivated toward wearables in varied ways. Like in our ongoing “follow the money” exercise, they’re each building wearables strategies that support or future-proof their core businesses, where tens of billions in annual revenues are at stake.

No one embodies this principle more than Apple. The company continues to double down on Watch and AirPods as they offset iPhone revenue deceleration in the near term; and future-proof the company’s hardware-heavy profit machine in the long term.

In fact, Watch and AirPods could eventually converge with glasses in a holistic suite that augments reality from several angles. This could replace (or augment) the current suite of iThings. This outlook fits the profile for Apple’s signature multi-device ecosystem approach.

The story is similar with Google in that its wearables ambitions are to create an additional touchpoint for Google-delivered content (and ads). This likewise “fits the profile” as the same rationale drove Google to invest in the Android operating system many years ago.

And the list goes on: Amazon launched its Echo Frames and other wearables to create a more direct touchpoint to shoppers… and thus stimulate more frequent and bigger shopping baskets. Microsoft meanwhile has launched Office-centric earbuds to further its mission to enable enterprise productivity.

And of course, there’s Snap, with its famous Spectacles. Though the headlines have been more about the device’s commercial performance, the more important story is the device’s true mission to feel out cultural and social sensitivities for face-worn sensors. Facebook will do similar with its Project Aria, announced last month at Facebook Connect 7.

Though there are strong motivations in all of the above moves, wearables and “hearables” aren’t for everyone. The much-vaunted Bose AR platform – delivered through the flagship Bose Frames – retracted from the market (for now). What signals or warning signs should we take from this retreat?

While we’re asking questions, will wearables fulfill the above-stated goal to acclimate the world to face-worn sensors? And if so, will this pave the way for AR glasses? In this report, we embark on a data-driven narrative to answer these questions and others. The goal as always is to empower you with a spatially-smart position.

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Like many research & intelligence firms, one of the things that ARtillery Intelligence does is market sizing. A few times per year, we go into isolation and bury ourselves deep in financial modeling. This takes the insights and observations we accumulate throughout the year and synthesizes them into hard numbers for the current and future spatial computing industry (methodology details here).

In covering spatial computing for five years, our sector knowledge base and perspective continue to improve. That occurs on several levels, including insight and access to insider information, all of which informs our forecast models and inputs. Further reinforcing that knowledge position, the daily rigors of editorial production at our sister publication AR Insider emboldens our market access and insights.

Beyond knowledge position and market-sizing process, the focus of these forecasts likewise continues to evolve. Our first market forecast four years ago examined AR, VR and all their revenue subsegments. Last year, we began to produce separate forecasts for AR and VR. Though they share technical underpinnings, their nuanced market dynamics deserve deeper and focused treatment.

This year, we’re doubling down on that principle once again and subdividing the focal range within AR. After publishing a forecast in July on mobile AR*, we now turn attention to Headworn AR. This includes AR glasses hardware, software, consumer spending and enterprise spending. We’ve also built market sizing and analysis around audio AR, stemming from the expanding base of in-market hearables.

So what did we find out? Our outlook continues to be best characterized as cautiously optimistic, especially when compared to several large research firms that turn attention to AR occasionally to publish eye-popping revenue estimates in the hundreds of billions of dollars. We’re still comfortably and confidently in the low single-digit billions, with outer-year projections in the low tens of billions.

The question is how it’s materializing today: How are AR revenues trending? Which subsectors are most opportune? How will Apple’s market entrance impact industry revenue. And how will a global pandemic affect AR? We tackle these questions through numbers & narratives.

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Augmented reality continues to evolve and take shape as an industry. Like other tech sectors, it has spawned several sub-segments that comprise an ecosystem. These each represent standalone topics in ARtillery Intelligence’s ongoing analysis, including monthly Intelligence Briefings like this.

Prominent sectors so far include industrial AR, consumer VR, and AR shopping (a.k.a. camera commerce). But existing alongside all of them – and overlapping to some degree – is AR marketing. Among other things, this includes sponsored AR lenses that let consumers visualize products in their space.

In fact, immersive ad placement is a primary AR marketing subsegment, on pace to reach $2.9 billion this year according to ARtillery Intelligence’s mobile AR forecast. This puts it on pace for an estimated $6.7 billion by 2025. These figures measure spending on amplified AR lens placement in paid distribution channels such as Instagram and Snapchat.

As we’ve examined in past reports, the factors propelling this revenue growth include brand advertisers’ growing affinity for, and recognition of, AR’s potential. Its ability to demonstrate products in immersive ways resonates with their creative sensibilities, transcending what’s possible in two-dimensional formats.

Beyond that high-level appeal among creative professionals, there’s a real business case. AR marketing campaigns continue to show strong performance metrics. This was the case in “normal” times and has accelerated during the Covid era when retail lockdowns compelled AR’s ability to visualize products remotely.

Proof points can be seen in the numbers, such as campaign performance metrics analyzed in past campaign summaries that we’ve published. We’re now doubling down on those narratives with a fresh round of case studies.

The goal is to explore not only the what and why of AR marketing – which is a well-worn topic by now – but the how. This takes shape in AR campaign breakdowns. What’s working and not working in these early stages while the AR advertising playbook is still being written?

Another ongoing theme carried forward in this report is how AR marketing campaigns can map to brand marketers’ varied goals. This builds on AR’s versatility and its unique ability to span the consumer purchase funnel – from upper-funnel reach-driven campaigns to lower-funnel conversion-driven campaigns.

The case studies in this report will accordingly span funnel stages. Similarly, we’ll examine varied and evolving analytics. In fact, a looming question in AR marketing is what are the metrics being used to track effectiveness? This will continue to be a moving target.

As a bonus, ARtillery Intelligence has created a repository of AR ad campaigns. Known as Campaign Tracker, it lives on ARtillery Pro, available for all subscribers. It includes AR ad campaigns at-a-glance and in-depth. It’s meant to supplement this report series with ongoing education around AR ad best practices. As always, the goal is to empower you with a knowledge position.

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Like many research & intelligence firms, one of the things that ARtillery Intelligence does is market sizing. A few times per year, we go into isolation and bury ourselves in deep financial modeling. This takes the insights and observations we accumulate throughout the year and synthesizes them into hard numbers for the current and future spatial computing industry (methodology details here).

In covering spatial computing for five years, our sector knowledge base and perspective continue to improve. That occurs on several levels, including insight and access to insider information, all of which informs our forecast models and inputs. Further reinforcing that knowledge position, the daily rigors of editorial production at our sister publication AR Insider emboldens our market insights.

Beyond knowledge position and market-sizing process, the focus of these forecasts likewise continues to evolve. Our first market forecast four years ago examined AR, VR and all their revenue subsegments. Last year, we began to produce separate forecasts for AR and VR. Though they share technical underpinnings, their nuanced market dynamics deserve deeper and focused treatment.

In this forecast, we’re doubling down on that principle once again and sub-dividing the focal range. Given its leading revenue position among AR segments, and its hardware installed base, we’re zeroing in on mobile AR. This allows us to go deeper on key revenue sources like consumer, corporate & industrial, advertising and commerce. We’ll do the same later this year for head-worn AR.

So what did we find out? Our outlook continues to be best characterized as cautiously optimistic, especially when compared to several large research firms that turn attention to AR occasionally to publish eyepopping revenue estimates in the hundreds of billions of dollars. We’re still comfortably and confidently in the low tens-of-billions range for aggregate AR spend (less in many revenue sub-categories).

The burning questions: How is mobile AR pacing? Which subsectors are most opportune? And how will a global pandemic impact revenue? We answer these questions through numbers & narrative in this slide-based report. The goal, as always, is to empower you with a knowledge position.

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Augmented reality continues to evolve and take shape as an industry. Like other tech sectors, it has spawned several sub-sectors that comprise an ecosystem. These segments represent standalone topics in ARtillery Intelligence’s ongoing analysis, including monthly Intelligence Briefings like this.

Those segments include things like industrial AR, social, gaming, and shopping. But existing alongside all of them – and overlapping in a classic Venn diagram – is AR advertising. This includes immersive animations that let consumers visualize products in their space through the smartphone camera.

AR advertising is actually one of the most lucrative AR subsectors, on pace to reach $1.41 billion this year according to ARtillery Intelligence estimates, and $8.02 billion by 2024. These figures measure the money spent on sponsored AR experiences with paid distribution on networks like Facebook and Snapchat.

As we’ve examined within past reports, the factors propelling this revenue growth include brand advertisers’ growing affinity for, and recognition of, AR’s potential. Its ability to demonstrate products in immersive ways resonates with their creative sensibilities, transcending what’s possible in two-dimensional formats.

Beyond that high-level appeal for creative constituents, there’s a real business case. AR is proving to have the rare ability to span the purchase funnel – from upper funnel brand awareness to lower funnel conversions and transactions. And it’s demonstrating favorable performance at all funnel stages.

Proof points for the above claims can be seen in the numbers, such as campaign performance metrics analyzed in this report. We’ll double down on that in Part II of this series with a procession of case studies and actionable takeaways for AR advertising.

But before we get to that point, who are the players? What does the value chain look like? And what are the comparative platforms for ad creation and distribution? Competitive intelligence like this is required to fully understand the AR advertising landscape and its players. We’ll do that in the coming pages.

Throughout this process, we intend to maintain a strategic angle. There’s lots of flowery language out there about AR’s potential (which we’ve admittedly done in the preceding paragraphs). But it often falls short of actionable takeaways for AR startups, ad tech players or advertisers themselves.

Put another way, we’ll methodically examine the what, why and – most importantly – how of AR advertising. All three will be examined in this first installment, while following reports will go deeper into the how. What’s working and not working in these early stages while the AR advertising playbook is still being written?

As a bonus, ARtillery Intelligence will create a dynamic tracking index for AR ad campaigns, available to PRO subscribers. This will be an at-a-glance chart that shows hundreds of AR ad campaigns, including results and other key attributes and source links. As always, the goal is to empower you with a knowledge position.

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How do consumers feel about mobile AR? Who’s using it? How often? And what do they want to see next? Perhaps more importantly, what are non-users’ reasons for disinterest? And how can app developers and anyone else building mobile AR apps optimize product strategies accordingly?

These are the questions we set out to answer. Working closely with Thrive Analytics, ARtillery Intelligence wrote questions to be presented to more than 1,000 U.S. adults in Thrive’s established consumer survey engine. The results are in and we’ve analyzed the takeaways in a narrative report.

This follows several months of ARtillery Intelligence Briefings that examine social, gaming and commerce-driven AR. Now, a deeper view into real consumer usage and attitudes validates those narratives while providing new dimension on mobile AR strategies and opportunity spotting.

So what did we find out? At a high level, mobile AR usage is up to 26 percent of U.S. adults. Many of these users experience mobile AR through apps, such as those built on ARkit and ARCore. But there’s faster growth for lower-friction experiences such as “AR-as-a-feature” and web AR.

Mobile AR users also appear active and engaged across the board, with just under half of users reporting that they engage at least weekly. The top app category is gaming, which we attribute to Pokémon Go’s popularity. But other categories such as social AR and visual search are growing faster. Mobile AR users also indicated high levels of satisfaction with the experience.

But beyond these and a few other positive signals, there are some negative signs and areas for improvement. For example, non-mobile AR users report low likelihood of adopting, and an explicit lack of interest.

This disparity between current-user satisfaction and non-user disinterest continues to underscore a key challenge for AR: you have to experience it to really get it. But there’s little drive for users to get that first taste without first seeing the benefits. This boils down to a classic “chicken & egg” dilemma that represents a core marketing challenge for AR.

Put another way, AR’s highly visual and immersive format is a double-edged sword. It can create strong affinities and high engagement levels. But the visceral nature of its experience can’t be communicated to prospective users with traditional marketing such as ad copy or even video.

The same chicken & egg challenge was uncovered in our corresponding VR report last month . This makes it a common challenge with immersive tech, though AR is relatively advantaged by mobile ubiquity. Still, it will take time and acclimation before AR reaches a more meaningful share of the population.

Meanwhile, there are strategies to accelerate that process, and to build AR apps that align with consumers’ current standards. In the coming pages, we’ll examine those strategies and unpack the full set of survey results. This is meant to empower readers with a greater knowledge position.

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How do consumers feel about VR? Who’s using it? What devices and apps do they prefer? And what do they want to see next? Perhaps more important, what are non-users’ reasons for disinterest? And how can VR software developers and hardware players optimize product strategies accordingly?

These are key questions at VR’s early stages that we set out to answer. Working closely with Thrive Analytics, ARtillery Intelligence wrote questions to be presented to more than 1,000 U.S. adults in Thrive’s established consumer survey engine. And we’ve analyzed the results in a narrative report.

This follows similar reports we’ve completed over the last two years. Wave IV of the research now emboldens our perspective and brings new insights and trend data to light. All four waves represent a collective base of 9,079 U.S. adults for robust longitudinal analysis. This capability will continue to improve.

Meanwhile, what did we find out? At a high level, 19 percent of consumers surveyed have bought or used a VR headset, up from 16 percent in 2019. More importantly, VR users indicate high levels of satisfaction with the experience: 55 percent reported extreme or moderate satisfaction with VR.

As for price sensitivity, demand inflects at $400 and $200. These are interestingly the price points for Oculus headsets including Quest, Rift S and GO. This indicates Oculus’ competitive edge, aggressive price competition and accelerating market share, congruent with our separate projections.

Furthermore, standalone VR – embodied by Oculus Quest, Go and other emerging headsets – represents a key inflection point for VR this year. Though still early, standalone VR addresses many consumer objections to PC-based VR including cost and setup friction.

However, it’s not all good news: Non-VR users report relatively low interest in VR ownership – 27 percent, down from 31 percent in 2019 – and explicit lack of interest. This downward trend in interest is concerning for VR but isn’t surprising given the dip in excitement we’ve anecdotally observed.

Moreover, the disparity between current-user satisfaction and non-user disinterest underscores a key challenge for VR: you have to “see it to believe it.” In order to reach high satisfaction levels, VR has to first be tried. This presents marketing and logistical challenges for the industry to push that first taste.

But if anything is going to bring that accessibility and interest to mainstream markets, it’s the lowered pricing and compelling play of standalone VR headsets like Oculus Quest. The device continues to turn heads and break pricing barriers, given Oculus’ loss-leader pricing strategy to subsidize hardware in order to build a network effect.

These points join several other strategic implications that flow from the latest consumer VR sentiments. We’ll examine those takeaways in the coming pages, including the latest wave of findings, and our analysis for what it means. The goal is to empower you with a greater knowledge position.

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The consumer AR sector still lingers in early stages. Among other things, this means the playbook is being written mid-flight. There’s a great deal of experimentation underway as companies test and iterate rapidly to discover winning formulas and business models.

This goes for consumer AR product strategies. Though a common sentiment in 2016’s hype cycle was that AR applies to everything, it’s become clear that it’s not a silver bullet. It will have native and natural applicability to some aspects of our lives and work… but not all.

Beyond macro categories and use cases where AR should or shouldn’t be developed, there are more granular strategies around user experience (UX). What types of AR interactions resonate with consumers? And what best practices are being standardized for experience and interface design?

Equally important is the question of AR monetization and revenue models. Just as user experience is being refined, questions over what consumers will and won’t pay for are likewise being discovered. The same goes for brand spending in cases of sponsored AR experiences or ads.

These lingering questions compel acute attention to quantifiable AR market successes and best practices. Not only do the sector’s early stages mean that these questions are prevalent… but also that their answers are scarce. That includes evidence of successful execution, as well as transferrable lessons.

With that backdrop, ARtillery Intelligence ventures to find, aggregate and draw meaning from finite AR successes in today’s environment. When examining consumer AR engagement and revenue leaders, what product attributes and tactics are driving their performance?

This started in Part I of the report series with Snapchat. Its social lenses have the greatest consumer AR active usage, and it holds the leading share of AR ad revenue. Among other things, this is propelled by product-market fit, ease of use, distribution and fulfilling key goals for brand advertisers.

Also on the list is Pokémon Go, which we examined in Part II of the series. Though the tech press has moved on to other shiny things, 2019 marks its best revenue performance to date. This is attributed to innovation cycles that breed ongoing novelty and replayability, as well as its sparing use of AR as a game element.

After examining these proven leaders, we now turn attention in the third and final installment of this series to emerging players that show signs of potential. Though earlier and unproven, they show promise and adherence to best practices examined in parts I & II. And they show new best practices worth noting.

These upstarts include 8th Wall, Ubiquity6, and Tilt Five. They also include established brands entering AR, such as Houzz, Instagram and Pinterest. This seemingly random sample shows signs of product and business model traction, which we’ll examine in the coming pages. The goal, as always, is to triangulate best practices and extract tactics and takeaways for AR players today.