The global augmented and virtual reality (AR/VR) market is forecast to grow at a compound annual growth rate of 36% to reach $125 billion by 2024. Headsets appear to be the next big thing, growing to sales of 23 million by 2025. We take a look at three tech giants at the forefront of this trend.
Facebook (NASDAQ: FB) has already released products in the space and has over one-fifth of its employees working in AR/VR in Reality Labs, with CEO Mark Zuckerburg stating that AR/VR is “the next major computing platform”.
Facebook was one of the earliest companies to launch a headset after acquiring Oculus in 2014, with sales of 3.5 million units in 2020, up from 400,000 in 2016. Facebook is currently the leader in the space, and the Oculus headset is the first mainstream VR headset.
Recently, Facebook announced that it is working on AR glasses that would work alongside a wristband to detect finger movements. This would work through ‘intelligent clicks’ (subtle hand movements) to interact with the virtual world. Unlike its competitors, Facebook plans to produce an affordable headset.
Although the majority of Facebook’s revenue comes from advertising, its Other segment, which includes AR/VR and makes up roughly 3% of revenue, is growing fast at 156% year-over-year 2020.
Alphabet Inc. (NASDAQ: GOOGL) was another early entrant in the AR/VR headset space, launching Google Cardboard, where a phone was inserted. This was an inexpensive way to introduce people to VR and later launched the Daydream View virtual reality headset in 2016. This was successful early on before faltering and being discontinued. Google appears to have ended its ambitions of conquering the VR market, but AR is very much alive.
After a failed attempt with AR Google Glass that was discontinued, it launched Google Glass Enterprise Edition in 2017. This marks a move away from the consumer market and provides notifications for people working jobs where both hands are required. Google’s AR/VR head stated that it is “much more in a mode of R&D” but has ventured further into AR/VR with the acquisition of Canadian company North in 2020. North is the maker of smart glasses and was on the cusp of releasing version 2.0 of its smart glasses, but was brought on board to help with Google’s hardware efforts in the space.
Regardless of its success in the headset market, Google’s mobile platform, Android operating system, and other applications such as Google Maps live view offer other AR and VR growth areas. The move away from being consumer-focused may be wise as we see how lucrative this can be with our next company.
Unlike the other two companies, Microsoft (NASDAQ: MSFT) appears to be targeting industrial and professional users rather than consumers.
Microsoft recently won a contract to produce AR devices for the U.S. Army. The Integrated Visual Augmentation System (IVAS) headset is based on the HoloLens technology and Microsft Azure and is a mixed reality headset for soldiers. It will now move into the production phase from prototyping, where it was awarded a $480 million contract in 2018. The latest deal is worth approximately $21.9 billion over its ten-year lifespan and is significant even for a company of Microsoft’s size. Microsoft has also faced criticism from employees for its work with the defense forces, but CEO Satya Nadella had played down these concerns.
Microsoft is the only company in the space generating significant revenue from its AR/VR products. Its HoloLens headset is also used by companies such as Airbus and Lockheed Martin. Due to the significant drain on financial resources, these early wins mean that Microsoft is far ahead of its competitors.
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Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.