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Extended Reality
Overview
Extended reality (XR) is the umbrella term that includes Augmented Reality (AR), Virtual Reality (VR), and Mixed Reality (MR). These segments are characterized by the varying degrees at which reality interacts with the virtual world. AR refers to the overlay of computer-generated (CG) content (e.g., video streams, images, interactive data, holograms) in a real-world environment. VR is a fully immersive world made with real-world (360-degree video) or CG content or a mix of both prepared in advance. MR, as the name suggests, falls in between the AR/VR mediums and refers to CG content that interacts with objects in the real world.
Gaming has been the legacy use case for XR allowing players to interact in virtual worlds and adding to the realism of gaming genres. However, the industry is witnessing renewed interest driven by the application of this technology for B2B use cases such as product demos, distance learning, virtual therapy, remote work, and field operations. The retail e-commerce boom, the advent of mixed reality/spatial computing, and the continued interest in social and interactive gaming post-pandemic could boost the industry’s prospects moving forward.
Industry Updates
Market Sizing
The US Extended Reality market could reach USD 20.7 billion–50.8 billion by 2028
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Use cases
XR-based solutions have found widespread adoption across various industries, with the industrials and consumer discretionary sectors being particularly prominent. This specifically includes the construction and engineering subsegment for industrials as well as the auto components and automobile manufacturers subsegment under consumer discretionary.
The adoption levels for employee training solutions are relatively high, given that they offer a cost-effective, safe, and immersive environment to improve learning retention for industrial applications. Additionally, XR product demos have seen a high level of adoption, as they enable brands to differentiate themselves, enhance customer acquisition and retention, and bolster sales.
We have identified key XR use cases below:
Market Mapping
Extended reality industry players operate in four segments, with the AR/VR platforms segment housing many of the startups in the space. This could be attributed to the lower barriers to entry compared with the capital-intensive hardware manufacturers segment. As such, startups in the hardware manufacturers segment account for most funding (with the exception of Roblox’s public valuation) and include large players such as Magic Leap, Rokid, Xreal, and Varjo.
Notable incumbents in the space include tech companies such as Meta, Microsoft, Google, and Apple. Additionally, Vuzix is one of the only incumbents in the space that positions itself solely as an XR firm.
Players generally tend to specialize in either the consumer or enterprise market when it comes to the development of headsets; a notable exception to this is ByteDance’s Pico Interactive.
Hardware manufacturers
AR/VR platforms
Content
Location-based AR/VR
The Disruptors
The hardware manufacturers segment includes prominent disruptors such as Magic Leap, Rokid, Xreal, DigiLens, and RealWear. This is likely due to the large amounts of funding required for R&D in areas such as eye and motion tracking, spatial data capturing, multi-sensory recognition, and laser beam scanning, prior to commercialization. The AR/VR platforms segment is led by players such as Niantic, Rec Room and Perfect Corp.
Roblox’s public valuation is the highest among disruptors in the space, given platform popularity. Magic Leap is the highest-funded headset manufacturer in the space, although it narrowly avoided bankruptcy in 2020. Similarly, Blippar, an AR creation and publishing platform was resurrected from bankruptcy, as investors took a flier on it with a USD 5 million pre-seed round in 2021.
Given the capital-intensive nature of the industry and the relatively long path to commercialization, partnerships are a common way for disruptors to test proof of concept. Furthermore, several players focus on the enterprise space, and, in other cases, have completely pivoted to enterprise applications—this includes Magic Leap and Blippar.
Funding History
Competitive Analysis
Incumbents
Incumbents in the space include a mix of large tech companies and other conglomerates providing XR products. Meta leads the charge, with its consumer-focused Quest headset series, arising from its acquisition of Oculus. Other acquisitions in the space to advance its market position consist primarily of VR game development studios. Furthermore, the company focuses on the AR/VR platforms segment through its Horizon Worlds metaverse.
On the other hand, Microsoft focuses on the enterprise sector via its HoloLens headset series and Microsoft Mesh, its virtual collaboration platform. Following the limited success of Google Glass, Alphabet pivoted toward providing AR content creation capabilities. Additionally, Apple recently entered the headset space via its announcement of the Apple Vision Pro.
Other notable players in the space include Snap, focused on AR content creation capabilities, and HTC and Sony, focused on the consumer headset market.
Notable Investors
