As optimism about the future of augmented reality (AR) and virtual reality (VR) grows, a lack of compelling content, cost and issues with the user experience are still viewed as the main impediments to the industry’s expansion, according to a new survey by Perkins Coie and Upload. The survey was completed by 653 respondents, including AR/VR startup founders, executives with established technology companies and investors.
Content Tops List of Challenges for AR/VR, but Respondents Are Eyeing Potential Legal Risks
Among a range of challenges facing AR/VR, inadequate content is seen as the most significant obstacle by 37 percent of respondents. Only 4 percent selected regulation and legal risks as the biggest hurdle. However, executives with AR/VR startups and established technology companies did identify a range of legal risks that they are keeping top of mind, including technology and intellectual property licensing (19 percent), product liability and health and safety issues (18 percent) and consumer privacy and data security (15 percent).
“Just as content was the fuel that launched many successful technology products, our respondents clearly believe that high-quality and robust content is key to moving the AR/VR industry forward,” said Kirk Soderquist, co-chair of Perkins Coie’s Interactive Entertainment practice, in a news release. “Although the relatively low level of concern surrounding the legal risks is common for a young industry, it was encouraging to see that those developing technology and content are mindful of the myriad legal issues, especially as AR and VR become more widely adopted.”
AR Expected to Outpace VR, while VR Taps Mobile to Diversify
Respondents were also asked to identify specific obstacles to mass adoption of AR and VR technology. User experience (e.g., bulky hardware and technical glitches) was the greatest challenge cited for both VR (38 percent) and AR (35 percent), followed by cost (selected by 32 percent for VR and 25 percent for AR). In addition, two thirds of respondents (66 percent) expect the AR market to surpass VR in revenue—but 82 percent said it will take at least three years.
“While most of the buzz has been around VR, particularly in gaming and 3D films, AR is expected to gain further traction in the years ahead,” said Don Karl, co-chair of Perkins Coie’s Interactive Entertainment practice, in the release. “Respondents completed our survey before the Pokémon GO phenomenon, but already saw the potential for AR to attract a larger number of consumers by combining the virtual and real worlds and offering more practical uses and low-cost games and apps.”
As VR looks to attract a larger consumer base, nearly nine out of 10 respondents (89 percent) said VR and smartphone manufacturers will focus on developing mobile VR technologies in the next two years. Mobile VR taps into the continued proliferation of mobile devices to combat some of the barriers identified in the survey related to cost and the need for bulky equipment.
AR/VR Startups Looking Long-Term
The vast majority of AR/VR startup founders (80 percent) identified the lack of an established market as the greatest concern they hear from potential investors. Reflecting on their growth or exit strategy over the next three years, raising capital to build their companies was the most popular choice among AR/VR startup respondents (42 percent), followed by seeking an acquisition (25 percent) or strategic partnership (22 percent).
“The AR/VR ecosystem is still evolving and it requires more time and resources to develop technology in this space,” said Will Mason, co-founder of Upload. “As a result, our startup respondents are taking a longer-term view of building their companies and actively seeking funding to grow.”
Investors Progressing to Larger Funding Rounds, Still Focused on Gaming and Entertainment
The vast majority of investors in AR/VR companies responding to the survey (88 percent) directed most of their capital to investments of $5 million or less last year. However, 22 percent expect to make investments between $6-10 million over the next year—a range that was selected by no investors for the previous 12 months.
“While investment in the AR/VR industry is certainly on the rise, the survey results reinforce that many of the funding rounds for startups are still relatively small,” said Jason Schneiderman, partner in Perkins Coie’s Emerging Companies & Venture Capital Law practice, in the release. “Given the concern around lack of content offerings, it was encouraging that our investor respondents selected content as the area where they are most interested in investing in the AR/VR space.”
In terms of the sectors expected to see the most investment directed to AR/VR technology or content in the next 12 months, 78 percent of respondents selected gaming, followed by movies and television (40 percent), live events (34 percent), education (30 percent) and healthcare or medical devices (24 percent). Investors were even more focused on gaming, with 94 percent selecting it as an area of focus over the next year.
Source: Business Wire; edited by Richard Carufel