PwC predicts growth for VR industry, Snap makes AR shopping a reality and Netflix steps into VR content production

Dec 14, 2021 - min read min read

VR growth will surpass all other media by 2025

This month's edition is all numbers and graphs. Anyone who follows the XR industry from a distance may have noticed serious dollars being slammed down in recent months. Plus, technology giants are increasingly eating smaller (and some medium-sized) players, forcing market research firms and consultancies to once again juggle predictions.

While the market is still small, the virtual reality industry continues to see strong growth and significant investment, with several studios and startups recently raising new funding rounds. Last month, PwC released its Global Entertainment & Media Outlook 2021-2025 Report, which forecasts that growth will not only continue, but be faster than any other media segment.

PwC also contends that VR’s global compound annual growth rate will increase by 30%(!!). Meaning virtual reality will progress faster than Cinema, Data Consumption, Out-of-Home Advertising and OTT (Over-the-Top = streaming services such as Netflix and Streamz).

The market failed to reach its full growth potential in 2020–despite growing 31.7% in a year–since many people were at home. Part of the slowdown was due to hardware manufacturing issues during the first half of 2020 and consumer VR adoption slowing down as expected. In turn, it led to an increasing focus on enterprise solutions, especially in training, collaboration and commercial applications.

Here’s an overview of just a few of the recent acquisitions and capital increases:

  • Osso VR raises $27 million Series B to expand its VR surgical training platform.

  • VRChat raises $80 million to further expand its social VR platform.

  • Epic Games buys Sketchfab for an undisclosed amount. Sketchfab is the largest online library/marketplace for 3D scans of people and objects.

  • Resolution Games closes $25 million investment to work on new VR games

  • VR Education Platform ENGAGE Raises $10.7 Million to Build Oasis Metaverse for Business. The virtual world enables companies, professionals and students to connect and sell their own products and services through virtual locations and avatars.

Snap Inc. buys Vertebrae, a company that helps brands turn their products into 3D assets. Another move to make AR shopping a reality. Snapchat's parent company declined to say how much it paid for Vertebrae, but the deal was likely small compared to the WaveOptics acquisition ($500 million) earlier this year. WaveOptics is the manufacturer of the AR displays used for Spectacles, Snapchat's smart glasses.

Snapchat goes all-in on Augmented Reality

Taking a closer look at the recent acquisitions and product launches, it quickly becomes clear that Snap Inc. is an AR-believer. And Snapchat is doing well, too. The social media startup from Santa Monica recorded a record turnover of $982 million in the second quarter of this year—a growth of 116% compared to the same period last year. In addition, Snapchat averaged 293 million daily active users in Q2: an increase of 55 million year-over-year.

One of the success factors is undoubtedly the progress the company has made in recent months in terms of its augmented reality platform. For example, recent filters, which use artificial intelligence to turn people into 3D animated cartoon characters, have created powerful experiences and show that they can go viral both inside and outside Snapchat. In the first week after release, the filter reached no less than 2.8 billion impressions on the platform.

While Snap is currently using its augmented reality technology for crazy effects like the filters, the company is increasingly seeing AR as a way to shop online. Experiments with Gucci, for example, where one could virtually try on a pair of limited-edition sneakers, have shown that people are more likely to buy after playing with them in 3D. The concept is clear and validated, but technically, there are some limitations. 

Even in terms of hardware, Snap is trying to pack a punch. The Spectacles, the fourth iteration of their smart glasses, is out in beta for developers. Below is an example of a creative developer who has already started working on the headset.

Things are obviously going well with Evan Spiegel, the spiritual father of Snapchat. Eight years ago, he was nearly called insane when he turned down a $3 billion takeover bid from Facebook, and he did the same again for ten times that amount in 2017, when he fired Google. For now, Snap Inc. is not yet profitable, but the future looks bright.

The social network becomes 'a metaverse company'

Speaking of Facebook, the quarterly figures released this month are usually accompanied by communication about the strategic vision of the company. Recently, The Information published an article that revealed approximately 20% of Facebook employees are allocated to VR/AR initiatives. That would mean that 10,000 employees are building the future of the company.

Build is probably the right word, as Zuckerberg said during The Verge podcast this month that the social networking company will evolve into a "metaverse company." The future of the company would go well beyond its current projects, a suite of connected social apps and some hardware to back it up. What’s happening is a three-dimensionalization of the Internet, in which you enter a virtual world as an avatar and can connect with other avatars.

Facebook is by no means the only player in the metaverse race. That’s why CEO Mark Zuckerberg advocates an open ecosystem, where you can move between worlds. The 'metaverse' should be accessible via smartphone, computer and headset. By emphasizing an "open ecosystem," Zuckerberg takes aim at Apple, who are known for keeping everything closed.

Hardware figures also look good for Facebook. If they maintain this momentum, they will reach 20 million headsets sold by the end of 2021. In fact, according to market research firm Nielsen, Facebook would account for 87% of all VR headset sales by 2021. Zuckerberg always talked about the 10 million milestone to make an ecosystem for developers and users viable. So it looks like they're going to cross that line soon.

But it's not all roses and sunshine. Facebook’s image still suffers from the privacy scandals and the misuse of data from the social networking site. Since the arrival of the Oculus Quest 2, it is even mandatory to log in with a Facebook account. This means that anyone who is not a member cannot install a headset and it will not be appreciated.

Based on a market survey by Morning Brew among US consumers, it appears that they prefer AR/VR hardware from Apple and Google over Facebook and the difference is not that small. Apple CEO Tim Cook is increasingly showing that they also see VR/AR as “the next big thing.” If they succeed in bringing a great hardware product to market, something they are quite good at, it could cause serious headaches for Zuckerberg and his team.

Netflix makes its intentions clear

We are no longer under any illusion that Apple is preparing a product launch. Rather, it is a matter of when and which features will be included in their device. Rumors are circulating suggesting that it will be a VR/AR device with a focus on gaming and entertainment. Hardware goes hand in hand with content, and Netflix has made two interesting moves in which they make it clear that they are taking steps in the field of VR and games.

Last month, the streaming service announced a renewed partnership with Shonda Rimes, showrunner of the hit series Bridgerton. The agreement states that they will work together to produce feature films, TV shows about diversity in Hollywood, as well as produce and distribute gaming and VR content. In addition, Mike Verdu, Vice President VR/AR Content at Facebook, is also making the switch. Netflix is ​​expanding its offer with video games, but has clear plans with virtual reality in the near future.

It is almost as if we teleported back in time. Right back to the year 2014. Even back then, tens of millions were pumped into the XR industry every week and the sector was depicted by analysts as the realm of unicorns. For my fellow entrepreneurs within the VR/AR sector, I hope this time that the predictions are more realistic than, say, 7 years ago. Because based on those predictions, we would all have been millionaires already. Spoiler alert: most of us are not, yet, but some are now. Or soon will be.