The release of Apple Vision Pro last year sparked a new wave of development in the "quiet" XR market. Simultaneously, technological advancements coupled with changes in consumer demand have positioned AR as the primary driving force in the XR market.
Image Source: IDC
According to the latest data released by IDC, in 2023, China's AR/VR headset shipments reached 725,000 units (sales-in measurement), marking a 39.8% decline compared to 2022. Within this, AR shipments amounted to 262,000 units, up by 154.4% year-over-year, while VR shipments totaled 463,000 units, down by 57.9% year-over-year.
It's worth mentioning that in the last quarter of last year, AR shipments surpassed those of VR. In recent months, several leading AR companies in China have announced the completion of new funding rounds. Titanium Media App believes that whether looking from the perspective of the investment environment or the momentum of industry ecosystem development, the AR industry has entered a new "boom period". However, this "boom period" still faces many uncertainties, such as whether AI can truly revolutionize AR, and how to accelerate the mass consumer adoption of AR glasses.
AR Surpasses VR: An Inevitable Outcome
In 2023, the Chinese VR market shipped 463,000 units, with standalone VR units accounting for 357,000 and tethered VR units 106,000. The Chinese AR market shipped 261,000 units, with tethered AR units at 230,000 and standalone AR units at 31,000.
Although VR still dominates in terms of shipment volume, AR surpassed VR in the last quarter of the year. Data shows that in the fourth quarter, AR shipments reached 118,000 units compared to VR's 110,000 units. The decline of VR had begun a year earlier.
In the first half of last year, the VR industry experienced a setback, starting with layoffs at PICO, followed by reports of operational stagnation at iQiyi’s Qiyu VR's operator, Dream Bloom. A former employee of the company revealed to Titanium Media App, "It has always been burning through cash, and salaries could not be paid. I have resigned, and my overdue wages have not been settled." Sony PlayStation VR2 made a strong comeback in 2023 but only shipped in the first quarter, later digesting the inventory from that quarter.
The current VR market is in a slump, a situation that seems to have been predetermined. Discussing the polarization between the AR and VR markets, an analyst from Lotu Technology told Titanium Media App that VR devices are not essential and their high price deters consumer demand; moreover, the VR content library is relatively small and lacks diversity, which is a significant drawback. IDC also noted that due to the relatively long replacement cycle of standalone VR devices and the high uniformity of game content across platforms, there is insufficient motivation for consumers to upgrade their devices.
It's evident that since last year, more entrepreneurs have chosen AR over VR as their venture direction. "Currently, VR is still hard to make lightweight. In comparison, AR is more portable, can efficiently provide user feedback, and the market is sufficiently large," said Wu Dezhou, founder and CEO of Now To Unknown, discussing his choice of entrepreneurial direction with Titanium Media App. "We believe that AR will experience an opportunity similar to the transition from feature phones to smartphones, and the explosion of AR technology will herald the next internet era."
Startups Leading the Domestic AR Progress, Continuous Financing Post-New Year
Currently, as a niche industry, there are not many domestic giants actively laying out in AR. From the data released by IDC, it's clear that the leading domestic AR manufacturers are primarily startups, with the top four manufacturers being newly established startups, such as XREAL, Thunderbird, Rokid, etc.
Image source: IDC
IDC also pointed out that in the market for split-type AR glasses, competition is fierce among products primarily designed for smart projection scenarios, with the unit shipment price generally under $400. In terms of distribution channels, besides online sales targeting consumers, companies have started to establish offline retail systems and collaborate with domestic new energy vehicle brands for joint product launches.
Besides outpacing VR in shipment volumes, the beginning of the year has seen a wave of positive financing news from domestic AR companies. In early January, Rokid completed a strategic financing round, bringing its total financing to nearly 500 million CNY, with the total amount exceeding 2 billion CNY and a valuation surpassing 1 billion US dollars. At the end of January, XREAL announced that it had completed a new round of strategic financing worth 60 million US dollars, bringing its total financing to 300 million US dollars and valuing the company at over 1 billion US dollars.
Compared to the previously sluggish investment environment in the industry, this year has started off on a strong note for the AR sector. Titanium Media App has learned that another leading domestic AR company will soon announce a new round of financing in the hundred-million-yuan range.
"Vision Pro plays a crucial role as a significant influencing factor. Despite encountering various challenges, we believe it has laid a solid foundation for a thriving ecosystem. It has served as a pivotal input condition, aligning well with the industry's acknowledgment at a crucial juncture," said Li Hongwei, CEO of Thunderbird Innovation, regarding the Titanium Media App. "We anticipate a more optimistic outlook for financial and venture investments in the AR device direction in 2024, expecting positive outcomes."
AI Emerges as the Key Disruptor for AR
Examining the current forms of AR glasses, the industry is in an experimental phase, exploring different solutions to find the ultimate form that best suits the consumer market. As mentioned earlier, the domestic AR industry has primarily evolved through the efforts of startups, and its inherent nature has led to a slow push in aspects like the supply chain. The entry of Apple Vision Pro not only expands the influence of the XR industry but also accelerates progress in the supply chain.
IDC previously forecasted that the release of Apple Vision Pro would drive the adoption of Micro OLED screens. In a recent report, IDC notes that the cost of Micro OLED screens has rapidly decreased following the release of Apple Vision Pro. The maturation of both upstream and downstream supply chains has expedited the planning and iteration speed of AR products. XREAL's Xu Chi mentioned to Titanium Media App that their previous pace was one product per year, but now they aim to introduce two or more new products to consumers annually.
In addition to the supply chain and Apple's influence, the rapid development of AI has opened new avenues for AR. Several research institutions have predicted a new wave of development opportunities in the consumer electronics industry, thanks to AI. Executives from multiple AR companies have publicly stated that AR glasses will be the optimal vehicle for AI, showcasing unique value and potential in the era of spatial computing.
Zhao Siquan, Senior Analyst at IDC China, expressed to Titanium Media App that AI offers various choices for hardware integration, including smartphones, PCs, and AR devices. However, for lightweight hardware like AR, the integration of AI significantly enriches its application scenarios, particularly in life assistant applications, enhancing convenience and accuracy.
Li Hongwei believes, "AR glasses will endow AI with senses highly consistent with humans, making AI a true 'external brain' for individuals, enhancing their processing capabilities for visual and audio information. The combination of AI and AR will undoubtedly be a crucial trend in the industry this year. In 2024, the undeniable overarching trend should be AI, and we firmly believe that the most important new hardware brought by AI in the next 2-3 years will be AR glasses."
Image source: Visual China
However, for native players in the AR industry, the increasing visibility of the industry will inevitably lead to more entrants, such as smartphone brands that occupy core terminals. Zhao Siqian, a senior analyst at IDC China, mentioned that smartphone manufacturers entering the field would have a certain impact on the current AR manufacturers' landscape.
At the end of last year, Xingji Meizu launched the MYVU AR smart glasses. In light of the increasingly competitive market environment, Xu Chi believes that healthy competition is beneficial. The hotter the market, the better it is for consumers, similar to the flourishing era of smartphones a few years ago. The AR industry has also entered this phase.
"Smartphone manufacturers definitely have their advantages, but there might also be some limitations. The history of past transitions tells us that there will always be opportunities for both old players and newcomers. In the AR race, to some extent, we are still at the starting line."
The Forward Industry Research Institute points out that with the increase in AR products and the enrichment of content, it is expected that by 2027, the market size of China's Augmented Reality (AR) industry will exceed 200 billion CNY. Currently, there is still much to improve in AR in terms of hardware and ecosystem. The first step is to become a mainstream consumer product and gain traction in terms of scale. For Chinese companies, facing this hundred-billion market blue ocean, it also represents a leading opportunity. (This article was first published on the Titanium Media App, author: Du Zhiqiang, editor: Zhong Yi)
