KEY POINTS 

  • This has been an important foundational year for the virtual reality (VR) market. New VR headsets like the Oculus Rift and the HTC Vive debuted amid great consumer anticipation, while VR content launches kept pace, with Batman: Arkham VR and Chair In A Room garnering encouraging download totals. At the same time, industry groups and conferences brought developers, investors, and content producers together, helping to further ramp up buzz in this nascent space.   
  • BI Intelligence forecasts shipments of VR headsets to spike by 1047% year-over-year (YoY) to 8.2 million in 2016. This growth will help propel the virtual reality space to exceed $1 billion in revenue for the first time, according to research by Deloitte. Powering that growth is an estimated 271% increase in investment in AR (augmented reality) and VR hardware makers from 2015, according to estimates from CB Insights.
  • The progress seen in 2016 created a highly fragmented and volatile space, which is ripe for transformation in 2017. Developers, consumers, investors, and hardware makers have a host of options from which to choose, each with their own strengths and shortcomings. The environment is poised for the first killer VR app to hit the market sometime in 2017, which will be a major catalyst for consumer adoption of VR hardware.
  • This will drive shipments of VR head-mounted displays (HMDs) to surpass 12 million in 2017. The further growth of platforms and consumer adoption will drive VR HMD shipments to 55 million in 2022, at a compound annual growth rate (CAGR) of 36%. 
  • Not all headset categories and platforms will emerge as winners between 2017 and 2022. More immersive headsets that offer the best VR experiences are too expensive for most consumers. Alternately, affordable headsets that rely on smartphones as processors offer sub-par experiences that can induce sickness.
  • In the near term, smartphone-powered VR will gain the largest market share. This is because it's cheaper and built on devices people already own. However, as the prices of more immersive headsets drop, these devices will become at least as popular with the larger population as game consoles are today. Ultra immersive headsets like HTC's Vive will cater to only a niche market. 

Introduction 

Virtual reality (VR) has made significant strides thus far in 2016. New VR headsets like the Oculus Rift and the HTC Vive debuted amid great consumer [...]