BOSTON – Global virtual reality headset revenues will reach $895 million in 2016, with 77% of that value accounted for by newly launched premium devices from Oculus, HTC and Sony, says Strategy Analytics.

These three brands, however, will only account for 13% of volumes in 2016, as lower priced smartphone-based devices will dominate share of the 12.8 million unit virtual reality headset market.

The analyst firm sees 2016 as a pivotal year for virtual reality given a confluence of factors, and also one where managing expectations will be paramount given a dearth of available content and the technical limitations of entry-level virtual reality.

Strategy Analytics predicts state-of-the-art virtual reality headsets tethered to PCs and game consoles will barely exceed 1.7 million devices shipped globally in 2016 due to prohibitively high pricing. However, exposure to such systems will build rapidly in 2016 given a spate of highly anticipated commercial product launches from Oculus, Sony and HTC.

At the same time, smartphone toting consumers are being bombarded by low cost and often bundled-in VR viewers like never before. With proper ecosystem management, Strategy Analytics’ analysts believe smartphone-based VR can serve as an effective “gateway drug” to upsell users to higher quality VR experiences down the road, while locking them into early but potentially sticky ecosystems.

“Consumers will soon be exposed to an incredible diversity of virtual reality options ranging from ultra-low cost to super premium,” said Cliff Raskind, director of Strategy Analytics’ Wearable Device Ecosystems service. “While we expect smartphone-based viewers to take the lion’s share of VR headset volumes in 2016 at 87% of shipments, PC and game console powered headsets will absolutely dominate value share, commanding 77% of revenues.”

With respect to developers and businesses, Strategy Analytics finds that while the potential of virtual reality has come into focus across a number of key sectors and use cases, customer-ready content will largely remain in the planning and building stages in 2016. Game consoles are clearly driving the hardware and software that will be most visible to consumers in 2016, but buyers of new cutting edge VR systems must understand their appetite for a wide variety of game titles is unlikely to be satisfied anytime soon.

“Adoption of the more expensive, high-end PC and game console based devices will be limited to a subset of early adopter enthusiasts and hardcore gamers,” said David Watkins, director of Strategy Analytics’ Connected Home Devices service. “The high price of these devices will act as a significant barrier to more widespread uptake. The PC and console powered virtual reality market is entering the classic chicken and egg phase whereby the major games publishers are waiting on the sidelines until there are enough VR headsets and users in the market for it to make financial sense for them to build a VR library of content. This is providing independent and niche developers the chance to make a name for themselves before the big boys arrive.”

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