Virtual reality has been promoted as the "next big thing" for years, but only recently became a tangible market thanks to big technological advances which dramatically improved the overall experience. Let's discuss four key stats which show how quickly the VR market is growing, and which companies are best poised to capitalize on that growth.
Facebook's Oculus Rift. Source: Facebook.
1. 500 million headsets sold annually by 2025
CCS Insight believes that total sales of virtual and augmented reality devices will soar from 2.5 million in 2015 to 24 million by 2018. That forecast bodes well for the four biggest early adopters -- Samsung (NASDAQOTH: SSNLF), Facebook's (FB 3.91%) Oculus VR, HTC, and Sony (SNE 0.60%).
Samsung launched its Gear VR headset last November. The $99 device, which was co-developed with Oculus, turns Samsung's flagship phones into VR headsets. The stand-alone headsets -- Facebook's Oculus Rift, Sony's PlayStation VR, and HTC/Valve's Vive -- will all launch this year. The Oculus Rift and Vive will be compatible with PCs, while the PlayStation VR will only work with PS4 consoles.
Piper Jaffray estimates that throughout 2016, Samsung will sell 5 million Gear VRs, Facebook will sell 3.6 million Rifts, HTC will sell 2.1 million Vives, and Sony will sell 1.4 million PlayStation VRs. Looking further ahead, Piper believes that annual sales of VR headsets could reach half a billion by 2025.
Sony's PlayStation VR. Source: VR.
2. A $30 billion market by 2020
Tech M&A advisory firm Digi-Capital estimates that the virtual reality market will grow from practically nothing today to $30 billion by 2020. The firm expects that growth to be fueled by VR games, movies, and experiences.
CEO Mark Zuckerberg stated that the Oculus Rift headset would initially be marketed for "immersive gaming" but eventually expand as "a platform for many other experiences" like attending live events, taking remote lessons, or visiting faraway places. Facebook has also been building a digital ecosystem with Oculus Home, a Steam-like platform which lets users buy VR games or view VR scenes. Facebook also established Oculus Story Studio, a dedicated film studio for VR filmmaking, last year.
Meanwhile, Sony hopes that a portion of its 36+ million PS4 owners will buy PlayStation VR headsets to experience its games in a more immersive way, while HTC hopes that Valve's Steam ecosystem will boost its hardware sales.
3. 28 million paying customers by 2018
Research firm KZero believes that the number of paying VR users will rise from 4.8 million this year to 28 million by 2018. However, the firm estimates that just seven million of those users will be "hardcore" gamers. The remaining 21 million are expected to be more casual mobile gamers.
The forecast indicates that cheaper mobile-centered solutions like Samsung's Gear VR could gain momentum at a faster rate than pricier PC or console-tethered ones like the Rift, Vive, and PlayStation VR. That forecast also supports Piper's expectation of the Gear outselling its pricier rivals this year.
4. Up to 10 million downloads of Google Cardboard
However, those forecasts could all be meaningless if VR devices fail to gain mainstream acceptance. To accomplish that, Alphabet (GOOG 2.45%) (GOOGL 2.30%) released Google Cardboard, a cheap DIY kit which turns a smartphone into a cardboard VR headset. Google "open sourced" the design on its website, and vendors soon started selling pre-assembled Cardboard headsets and more durable plastic versions.
Google Cardboard. Source: Google.
Those affordable headsets gained a lot of attention, and the main Cardboard app has already been downloaded up to 10 million times from Google Play. Developers soon noticed Cardboard's popularity and started creating apps for the headset. Oculus developers also ported their apps over to Android to reach a wider audience.
Market growth isn't guaranteed yet
All these forecasts for the VR market look rosy, but investors should realize that its future growth isn't guaranteed. 2016 will be a decisive year for VR -- if the Rift and PlayStation VR sell well, the market could take off. But if mainstream consumers think that the devices are too expensive or cumbersome, the VR market could remain a niche one for hardcore techies.
