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The Winner of the VR Wars Needs to Dominate This Key Vertical

By Tim Brugger - Apr 14, 2016 at 4:21PM

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This could be the year that virtual-reality gaming takes off, but that will be just one small piece of the overall pie.

By virtually all accounts, the combined markets of virtual reality (VR) and augmented reality (AR) are expected to become massive. Estimates vary, of course, but most pundits expect the futuristic alternative-reality formats will become multibillion-dollar juggernauts in the coming years.

Now that Facebook's (FB 1.39%) Oculus Rift VR headset is available to the masses, and Microsoft's (MSFT 3.20%) AR wonder HoloLens is ready for developers to expand its already impressive capabilities in preparation for widespread production, the VR-AR war is officially on. Much of the hype surrounding VR -- and AR as it gets ready for the general public -- is being driven by gamers. No surprise there.

What may raise a few eyebrows, however, is a recent report that suggests gaming is just one piece of the alternative-reality pie. And should the forecast come to pass, it could prove to be a boon for Microsoft and its HoloLens AR.

Image source: Microsoft.

The envelope, please
According to a recent study from Goldman Sachs, the combined AR and VR markets are expected to generate $80 billion in revenue by 2025. That's an impressive figure, but it's also somewhat conservative compared with others that suggest the two cutting-edge technologies will grow to become a $120 billion market in four years.

Either way, there's a lot at stake for the likes of Facebook and Microsoft, among others, and both recognize the world's gamers will get the VR-AR market off and running. When CEO Mark Zuckerberg announced Facebook's $2 billion deal for Oculus in March 2014, he said, "Immersive gaming will be the first, and Oculus already has big plans here that won't be changing and we hope to accelerate."

As for Microsoft's HoloLens, one of its early developers, who's no longer with Microsoft, recently admitted, "There is clearly a gaming potential there, but they [Microsoft] don't want to put this out there as an Xbox extension." Microsoft's reluctance to promote HoloLens as a gaming device, and Zuckerberg's assertion that Rift for gamers is "just the start," speak to the opportunity non-game-related applications represent.

As per Goldman Sachs' forecast, nearly half the VR-AR market -- both software and hardware -- will be derived from the "enterprise and public sector, with healthcare and engineering being the most promising areas of use." For example, of the $35 billion VR and AR software is predicted to generate by 2025, Goldman expects $16.1 billion will come from enterprise and public-sector customers, while consumers will drive $18.9 billion in software revenue.

The possibilities are endless
The potential of VR and AR for enterprise customers is also why some pundits expect it will be devices such as Microsoft's HoloLens that will ultimately win the day over the Rifts of the world. According to research from Digi-Capital, $90 billion of its forecasted $120 billion in total sales by 2020 will come from AR, while VR generates "just" $30 billion.

It's not hard to imagine engineers, healthcare professionals, and educators around the world, among others, who will use AR to facilitate projects and communicate with cohorts, regardless of location. That's ideal for Microsoft, given its emphasis on building HoloLens for commercial use first and gaming second. Facebook's Rift, on the other hand, has taken a more traditional approach of gaming first, with the enterprise to follow. But as Zuckerberg made clear from the get-go, his plans for Oculus will take a similar path as HoloLens.

In fact, word has it Facebook is exploring AR even as it works to get its Rift VR headset off the ground. Developing solutions that address needs across both the VR and AR markets is clearly a no-brainer, given Goldman Sachs' assertion that enterprise customers will account for such a large part of the combined markets.

For now at least, the success of VR and the soon-to-be-released AR technologies lies in the hands of the world's gamers. But Microsoft and Facebook recognize there's a lot more than immersive games in the future of VR and AR. Dominating the commercial market will determine who wins the virtual war.


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