Digi-Capital’s Reality Check for October has just been announced. Reality Check is a quarterly forum for VR/AR CEOs, corporate divisional heads and VC General Partners by invitation only. It’s free if you’re lucky enough to be invited, and Digi-Capital limits the numbers to a few hundred to keep the “signal to noise ratio high.”
“Stop calling Pokémon Go AR” say the purists. But who cares what you call something that is so successful? Just be glad it happened, and let’s figure out what it means for the AR/VR industry.
Games industry M&A across all sectors hit another record this month, topping $25 billion in total between January and July 2016 with latest $4.4 billion acquisition of Playtika by a Chinese consortium led by Giant. This is yet another sign of late stage games market consolidation, as Digi-Capital forecasts games software revenue growth for the games market as a whole slowing to 7% CAGR from $91 billion in 2016 to $116 billion by 2020. Combined with changing growth rates across different games sectors, there could be more big acquisitions before the end of the year.
“Gotta catch ’em all”
Pokémon Go isn’t the only breakout AR/VR success this year. Early stage VCs and corporates invested a record $2 billion into AR/VR startups in the last 12 months, despite the market still being in its earliest stages.
As the fourth wave of platform change (after PC, online and mobile) kicked off this year, the smart money is making significant bets on companies with the potential to survive the early stage market and dominate in the long term. Fortune favors the brave in early stage investment markets, and nobody wants to be part of the “Oops I missed it again” crowd (as Qualcomm Ventures Jason Ball puts it). The FOMO is strong with this one.
VR will be big, AR will be bigger (and take longer). But as in most early stage tech markets, growth will be curved, not straight. There will be a few billion dollars revenue this year, a progressive ramp in 2017, and a hoped for inflection point in 2018 (when AR could deliver that magic combination of hero device, long battery life, cellular capability, strong app ecosystem and telco cross-subsidization).
But AR/VR is still in the first of the four stages of tech market development (hype cycle, facing reality, liftoff, sustainable market). Its installed base, from low-end Cardboard through high-end HoloLens, is unlikely to top 100 million until 2018. So how can AR/VR startups survive when long term AR/VR business models won’t have the scale they need to thrive for 18-24 months? You just need to know where to look. So let’s look.