KEY POINTS

  • Virtual Reality (VR) headsets are debuting on the consumer market and set to launch an advanced and immersive content platform. We estimate shipments of VR headsets will grow at a swift 99% compound annual growth rate (CAGR) between 2015 and 2020, ultimately hitting roughly 26 million units shipped annually in 2020.
  • VR shipments will create a $2.8 billion hardware market by 2020, up from an estimated $37 million market this year. We estimate revenue from shipments of VR headsets will grow 137% per year on average between 2015 and 2020.
  • VR headsets are a fairly low-cost consumer electronics category, and this will help drive adoption. We see the average selling price (ASP) dropping from $197 this year to $107 in 2020. The devices will be priced similarly to smartwatches and also need to pair with another standalone computing device.
  • There are three major types of VR headsets, including PC-tethered, smartphone-tethered, and console-tethered devices. Because smartphone-mounted headsets require only a smartphone, these headsets will be much more affordable and accessible. Smartphone-mounted VR headsets will account for 40% of the market in 2020, while console-based headsets will see the fastest shipments growth.
  • Demand for VR headsets will be fueled by gaming on both mobile and console devices. There are 1.2 billion gamers worldwide, including nearly 1 billion mobile gamers alone. This creates a direct, addressable market for VR headsets; gaming will be the most popular use for virtual reality technology going forward.
  • Beyond gaming, VR will be an important platform for streaming content and even shopping. Oculus has already experimented with Story Studio, a platform for VR movie creation. In addition, many consumers claim the VR experience will drive them to shop more online rather than in stores.

The VR headset

There has been a lot of buzz recently around virtual reality (VR) and its potential as both hardware device and software platform. The technology, which immerses the user in a computer-generated simulation of an environment, projects highly visual imagery in full 3D. While the technology has been associated mostly with gaming, the platform offers new opportunities for video, e-commerce, and more.

OculusShutterstock

What sets VR apart from other forms of digital content is that [...]