Science fiction is becoming fact as Virtual and Augmented Reality (AR/VR) enter our daily lives. The arrival and disappearance of 3D television was a false dawn, but signalled the beginning of a new era that is resulting in consumers and businesses around the world engaging with AR and VR in combination with smart devices. And this will have profound effects on the way brands develop and engage with their audiences.
Despite the still emerging nature of the technology, companies and investors are already identifying potential industries that could benefit from integration with AR/VR. Naturally, given AR/VR’s history, the industry showing the most interest is entertainment, specifically gaming and video. This makes sense for these highly competitive industries in which technological advances are directly correlated with sales success.
People may have already experienced, unknowingly, the immersive world of AR/VR through their smartphone and voted with their wallets. Popular mobile game PokémonGo, which was the mobile game quickest in history to reach $1 billion in revenue, is a perfect example of mobile augmented reality in action. Snapchat’s recently rolled-out, and hugely popular, interactive filters and characters also feature augmented reality from the click of a button or tap of a screen.
Another industry that is set to benefit is retail personal apparel, in which virtual mapping will allow consumers to visualise items on themselves before purchasing. This would align with the current shift to online shopping from the traditional high street and shopping mall. Marketing and advertising across sectors will also benefit from AR/VR through the creation of campaigns based on the ability to provide a more immersive and engaging marketing experience for consumers.
Against this background, current mergers and acquisitions (M&A) are already providing an insight into how acquirers are prioritising different areas of the industry as commercialisation takes hold. Over the last 12 months, approximately 80 per cent of the $620+ million worth of deals in VR/AR were related to hardware development – for instance, the production of the AR/VR headsets, smart glasses, etc – as companies seek to establish the platforms on which applications will run.
The current race for technology giants to get commercial products to market has led to acquisitions of start-ups purely to integrate and absorb technology. This will drive the growth of AR/VR as technology giants are in the unique position of being able to bring several key components together and connect them to create new products and platforms and drive them into the market.
Examples of this include Apple’s acquisition of eye tracking pioneer SensoMotoric Instruments, GoPro’s acquisition of image-stitching, virtual tour, 360-degree video experts, Kolor and Microsoft’s purchase of automated 3D optimization software vendor Simplygon to improve its already existing HoloLens technology.
It is possible already to see from levels of investment which of the new generation of VR/AR specialists are likely to become important players moving forward. Magic Leap, for instance, that is working on a head-mounted virtual retinal display which superimposes 3D computer-generated imagery over real world objects, has already garnered $1.4 billion in funding over three rounds and is expected soon to go forward with a Series D round.
The technology giants, too, are in competition to develop their own AR/VR products. Facebook, Microsoft, Google and HTC have all brought AR/VR-capable hardware to market and are looking towards further developing their offerings. Ever the iconoclast, Apple has taken a different route and has focused its efforts largely on pushing new AR development software to lead the way in mobile augmented reality.
This may be portentous. As the sector develops and grows, there will be a reallocation of interest amongst the technology giants to more software-based companies as the market for hardware production stabilises. This is going to drive a new round of activity that will see an overall shift in M&A, as companies begin to fully commercialise their VR/AR offerings at speed and look for opportunities to leverage hardware investments.
The good news for brands is that development of the AR/VR sector will bring huge opportunity – the bad news is that we are still in a period of disruptive change where the winners and losers in the brave new world are not yet clear. Brands will do well to keep a close watch on developments in mergers and acquisitions before placing their bets on a particular company or technology.