VR Headset Market to Hit $895M in Revenue in 2016: Report

Premium-priced devices will bring in the bulk of that revenue, while lower-priced devices will rack up higher per-unit sales.

VR, virtual reality, Oculus Rift, HTC Vive, Sony PlayStation VR, VR headsets

The global virtual reality headset market will bring in about $895 million in revenue in 2016, but while 77 percent of that revenue will come for premium-priced products from Oculus, HTC and Sony, the actual per-device sales totals will be dominated by lower-priced headsets from a myriad of vendors.

That's the conclusion of a new study from research firm Strategy Analytics, which looked at the VR headset market and predicted that three of the latest devices, the Oculus Rift (pictured), the HTC Vive and the coming Sony PlayStation VR, will bring in the bulk of the segment's revenue this year. At the same time, though, those higher-priced devices will only make up about 13 percent of 12.8 million VR headsets that Strategy Analytics predicts will be sold in 2016, according to the report.

The April 7 research report, Global Virtual Reality Headset Forecast: 2014 - 2022, which was written by analysts Cliff Raskind, Steven Waltzer, David Watkins, Neil Mawston, Chirag Upadhyay, Woody Oh and Rajeev Nair, also concludes that 2016 will be "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."

Most of the growth in VR headsets will come from smartphone-based products, while VR systems that work with PCs and game consoles "will barely exceed 1.7 million devices shipped globally in 2016 due to prohibitively high pricing," the report continues.

The comparatively lower-cost units that work with smartphones are gaining popularity and publicity and offer consumers cheaper alternatives to the units that work with computers and game systems, according to the report. "Smartphone toting consumers are being bombarded by low cost and often bundled-in VR viewers like never before," the report states.

Those less-expensive smartphone-based VR devices "can serve as an effective 'gateway drug' to upsell users to higher quality VR experiences down the road" while developing brand awareness and loyalty with consumers, the report says.

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

The building demand for VR devices and additional capabilities "has the potential to fuel a new tech specifications race in hardware areas such as display resolution, GPUs, storage and 360-degree cameras," he added.

A lack of sufficient VR content so far, however, will limit the market somewhat in 2016, according to the report. "With respect to developers and businesses … 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 that their appetite for a wide variety of game titles is unlikely to be satisfied anytime soon."

Watkins said in a statement that the adoption of the more expensive, high-end PC and game console devices "will be limited to a subset of early adopter enthusiasts and hard core gamers," with the higher prices of those devices acting "as a significant barrier to more widespread uptake."

That is creating a "classic chicken and egg phase whereby the major games publishers are waiting on the side-lines 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," said Watkins. "This is providing independent and niche developers the chance to make a name for themselves before the big boys arrive."