There is nearly as much confusion as there is excitement about Augmented and Virtual Reality. While VR could be big and AR could be bigger and take longer (VR $30B and AR $90B for combined $120B AR/VR revenue by 2020), there are more questions than answers out there. Business models are one of the big questions, and AR/VR hardware sales, eCommerce sales, adspend and mobile data/voice could drive over 80% of all AR/VR revenues. Things might look a little different to what you expect.
Augmented Reality and Virtual Reality investment reached $1.1 billion in the first 2 months of this year. This is the first time that AR/VR investment has topped a billion dollars in any year (let alone 2 months), and shows incredible growth compared to the $700 million invested during all of 2015. (See analysis of last year’s investment here)
Nearly $800 million came from the monster Magic Leap round, but another $300 million went into AR/VR solutions/services, VR hardware, advertising/marketing, distribution, video, peripherals, apps and games. Even without Magic Leap, investment is up 20% in Q1 2016 compared to the $250 million invested in Q4 2015. Plus there’s another 4 weeks left for investors to boost AR/VR this quarter.
Some of the other investments in 2016 so far include:
It’s hard to call the top of an investment market, but the massive numbers around mobile internet in 2015 have a tale to tell. 102 mobile internet unicorns became worth $1 trillion after adding $130 billion value in Q4 2015, but 4 mobile unicorns died (i.e. dropped below $1 billion). There was over $100 billion of mobile internet exits, as consolidation kicked into overdrive while IPOs cooled. $69 billion was invested into mobile internet last year, but investment dropped over 20% in Q4 2015 after 9 straight quarters of growth. Finally the mobile internet stock market of 92 companies across 16 sectors was flat for the year.
Every exit is an entry somewhere else
The last time games deals looked like last year, the iPhone had just launched – it was 2007.
The total deal value (in dollars) across games investments, mergers and acquisitions (M&As), and IPOs dropped below $5 billion in 2015, down 81 percent on the prior year. Games investment value fell by 30 percent, games M&A deal value dropped 75 percent (excluding Activision-Blizzard/King which was announced but hasn’t closed yet), with the games IPO market at its lowest level for a decade. After more than $25 billion of games deals in 2014, the difference last year was remarkable.
The games market continues its transition, with leaders consolidating their positions as the balance of power shifts across sectors. The coming years could be both “steady as she goes” for some, and a rollercoaster (up and down) for others. Games software revenue could grow from over $90B in 2016 to top $115B by 2020. Big, solid numbers, but long term growth appears to be slowing to a steady 7% CAGR (a fancy term for annual growth). The current single digit growth games market looks very different to the go-go years gone by, so let’s see who’s up and who’s down.
Changing of the guard