Tractica Report: Virtual Reality for Enterprise and Industrial Markets

Introduction

While enterprise markets have made use of professional-grade virtual reality (VR) technology for some time, the recent debut of consumer-grade VR head-mounted displays (HMDs) from companies like Facebook/Oculus, HTC, and Samsung has raised the profile of VR immeasurably and, more importantly, sparked the potential for enterprise VR use cases leveraging consumer-grade VR solutions.

This report examines the market and technology issues surrounding enterprise VR, with an emphasis on hardware, software, ecosystem, and use cases, taking into consideration consumer-grade VR equipment, software, and ecosystems.

Market Observations/Key Trends

Leveraging highly customized and expensive equipment, enterprise use of VR has existed and improved for a number of years, particularly for military training, civil flight training and simulation, and some industrial three-dimensional (3D) modeling. But now, thanks primarily to recent exponential advances in graphics component technology, cheaper, mass-produced consumer-grade VR is coming to market, with ramifications for both the consumer and enterprise markets.

This cheaper, more readily accessible consumer-grade VR equipment and ecosystem is opening up new enterprise use cases, some of which have vast addressable markets. Tractica estimates the addressable market of the five largest areas where enterprise VR will grow is worth over $1 trillion in 2018.

Enterprise VR is poised for significant change. Key trends in the enterprise VR market are:

• Customized legacy VR hardware and software sales continue to be negatively impacted by consumer-grade enterprise VR hardware and software. In the span of less than 16 months, the price of flagship PC-based HMDs (VIVE, Oculus Rift) has dropped nearly 40%.
• Legacy VR hardware and software will remain critical to vertical markets that require professional-grade equipment and experiences. Areas include many military applications, VR-assisted surgery, and aeronautics.
• All-in-one or standalone HMDs are entering the marketplace in 2018, ranging in price from $200 to $900. While these products are more limited than PC-based HMDs, if their performance level is sufficient, they will spur the market for enterprise VR use cases.
• Original equipment manufacturers (OEMs) are expected to introduce HMDs with integrated eye tracking capabilities in late 2018 and 2019, launching affordable and capable standalone HMDs and introducing a potential tipping point for VR.

Market Drivers and Barriers

There are several market drivers and barriers for enterprise VR.

Some of the key drivers include:

• Low-Cost Consumer-Grade Solutions: A rapidly growing number of companies are aggressively pursuing enterprise use cases that leverage accessible, relatively low-cost consumer-grade HMDs (compared to customized professional-grade VR HMDs). Smartphone-based VR expands the enterprise market even further.
• Increased Productivity, Improved Results, Efficiency: In a new era of consumer-grade VR availability for enterprise use, potential benefits expand. Enterprise VR can potentially produce superior results over other methods for mental or physical healing, as well as learning and understanding complex subjects.

Some key barriers include:

• Consumer-Grade Cost and Requisite Equipment: While vastly cheaper than professional-grade equipment, the cost of consumer-grade VR HMDs, accessories, premium content, and the requisite computing hardware for PCs will be a barrier to wider enterprise adoption for the next few years. Complete setups from Oculus and VIVE run in the $400 to $500 range, having dropped from the $700 to $900 price range a year ago. The price of today’s PC-based headset is less of an issue than the cost and requirements of the PCs on which they run. PC-based HMDs require significant central processing unit (CPU) and graphics processing unit (GPU) capabilities, usually found in high-end gaming computers in the $1,500+ range. Tractica estimates that of the global installed base of more than 2 billion PCs, between 10 million and 14 million machines meet the minimum requirements to run these HMDs.
• Consumer-Grade Quality of Experience: VR experiences on consumer-grade VR equipment can be unsatisfactory for a number of reasons. Immersion and realism can suffer when a user experiences frozen video, judder, skipping, and streaking. Even worse, a VR user can become nauseous and experience motion sickness. Tracking issues and field of view (FOV) limitations are also major contributors to poor experiences. Over time, technological breakthroughs in optics, processing efficiencies, cloud computing, and streaming, as well as increased access to higher quality, high-speed broadband, will improve and accelerate the broad availability of consistent, high-quality VR experiences.

Key Industry Players

A diverse range of companies operates in the enterprise VR ecosystem. Tractica estimates the number of players to be more than 100. They include tech giants (Facebook, HTC, Intel); technology enablers (Tobii, Leap Motion); and content developers. This report profiles 18 key industry players across various segments of the value chain.

[This article is from research firm Tractica’s report on artificial intelligence services. View full report details.]

Market Forecast Highlights

Global shipments of consumer-grade HMDs have been adjusted downward significantly from Tractica’s 2017 enterprise VR report. In 2017, Tractica estimated annual HMD shipments would reach 38.5 million in 2021. Our new projection has annual HMD shipments reaching 15.2 million in 2021, a reduction of more than half the previous estimate. The primary reason for this is a slower adoption rate for the education use case.

The total global revenue associated with enterprise HMDs and VR software has also been revised downward from last year’s report. In 2017, Tractica estimated global revenue of $9.2 billion in 2021. Our new projection has annual total revenue reaching $4.6 billion in 2021. More easily monetized hardware will account for the majority of revenue throughout the forecast period, still accounting for more than 60% of all revenue in 2025.

In 2018, approximately 2.3 million consumer-grade HMDs will be shipped and sold for enterprise VR use cases (1.3 million smartphone HMDs, 980,000 PC-based HMDs, and 10,000 standalones). In 2025, the makeup of the type of HMDs sold will look significantly different than 2018. Tractica believes significant progress in eye tracking will make standalone user experience and pricing attractive by 2022, accelerating capabilities within the defined use cases. In 2025, HMD shipments for enterprise VR use cases will reach more than 41 million (15.9 million smartphone HMDs, 2.6 million PC-based HMDs, and 22.7 million standalones). In terms of revenue, standalone HMDs are the largest contributor to the overall VR hardware market, generating $17.5 billion in revenue from 2018 to 2025. In comparison, PC-based HMDs will generate $8.5 billion and smartphone HMDs $5.9 billion from 2018 to 2025.

Tractica’s revised forecast for this report is lower than the 1Q 2017 report. Broadly, this is due to slower adoption in the education and location-based entertainment use cases. In the 2017 report, Tractica estimated 2021 combined spending on enterprise VR hardware and software by use case would be:

• Location-based entertainment (attractions), $4.5 billion
• Training and simulation, $2.2 billion
• Education, $1.6 billion
• Medical therapy, $357 million
• Virtual prototyping/3D modeling, $349 million

Tractica’s revised forecast for 2021 combined spending on enterprise VR hardware and software by use case:

• Location-based entertainment, $1.4 billion ($3.1 billion lower)
• Training and simulation, $1.8 billion ($500 million lower)
• Education, $587 million ($1.01 billion lower)
• Medical therapy, $602 million ($244 million higher)
• Virtual prototyping/3D modeling, $225 million ($125 million lower)

While revenue for the earlier portion of the forecast is less, the market for enterprise VR use cases will accelerate significantly between 2021 and 2023, nearly doubling in revenue (2021: $4.6 billion, 2023: $8.8 billion). The overall combined revenue compound annual growth rate (CAGR) from 2016 to 2025 is a healthy 47.8%.

Conclusions & Recommendations

Market adoption of enterprise VR use cases is moving slower than previously anticipated due to market acceptance lagging behind for the education and location-based entertainment use cases. Lagging market acceptance in these two use cases is due to slower adoption of smartphone HMDs; in education because of the cost of hardware and access to smartphones, and in location-based entertainment because many venues desire higher immersion/quality VR experiences, which smartphone HMDs cannot deliver.

Despite some retrenching in the market, there is momentum and accelerated activity, particularly for location-based entertainment and medical therapy use cases.

Smartphone HMDs in enterprise use cases are proving to be less desirable than other HMD options as entities fear smartphone breakage, theft, and/or reluctance to use personally-owned smartphones to power smartphone HMDs.

Technological advancements continue apace to help speed market adoption of enterprise and consumer VR. Most notably, standalone HMD market adoption will accelerate in 2020 as eye tracking becomes widely incorporated into HMDs. This will allow OEMs to incorporate lower cost microprocessors, causing overall pricing for standalone HMDs to gradually fall, while quality for standalones will increase to near PC-based HMD standards.

Leveraging consumer-grade VR solutions, several market forces will be key for driving enterprise VR adoption: profit motive for location-based entertainment, improved outcomes for education, prototyping/3D modeling, and medical therapies, and cost reductions/economies of scale for training and simulation.

Forward-thinking school districts (education) and public service agencies (for first responders) would be well served by quickly establishing pilot VR programs within their districts with the intent of measuring outcomes. This will accelerate budget allocations and boost VR curriculum development.

VR entrepreneurs in medical therapy should seek to engage health insurers as potential partners. There are compelling reasons for such companies to consider solutions that offer improved, lower cost outcomes.