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Investment Interest in Virtual, Augmented Reality Remains Strong

Billions of dollars are being poured into funding rounds, mergers and acquisitions

In the rapidly changing space of immersive media, a lot can happen in a few months. Several key developments in virtual reality (VR) and augmented reality (AR) highlight new trends and considerations for brands, agencies and publishers looking to create and deliver immersive experiences, as explored in a new eMarketer report, “Immersive Media Update Fall 2016: Key Virtual and Augmented Reality Trends” (eMarketer PRO customers only).

Number of Deals and Amount Invested in Virtual/Augmented Reality Companies Worldwide, Q1 2015-Q1 2016

Funding deals, mergers and acquisitions for companies building hardware, software and services for immersive experiences continue. But all the hype surrounding VR and AR means that investors should do their homework before placing their bets on what may or may not be the next big thing.

Since early 2014, more than $2.5 billion has been invested in VR and AR companies across more than 200 deals, according to calculations by venture-capital research firm CB Insights. Q1 2016 had the biggest funding round yet, exceeding $1 billion—in large part due to a $793.5 million Series C investment in secretive mixed reality startup Magic Leap.

An analysis by venture capital firm Digi-Capital from July 2016 came to similar conclusions, showing around $2 billion in VR and AR investments in the 12 months preceding Q2 2016, with another $849 million in acquisitions during the same timeframe.

In June, Vive headset maker HTC announced the formation of the Virtual Reality Venture Capital Alliance (VRVCA), a consortium of close to 30 venture capital firms with $10 billion in combined deployable assets. The group plans to meet bimonthly in San Francisco and Beijing, to vet startup pitches and determine where to place their bets in hopes of building out the necessary hardware, software, content and services to bring VR to the masses.

Media companies in particular continue to place bets on companies working to create and distribute entertaining, immersive content. The Huffington Post announced its acquisition of VR video production house Ryot in April 2016. It plans to incorporate the studio’s capabilities into the site’s news desks around the world, support immersive branded content creation via AOL’s Partner Studio and provide 360-degree video services to AOL’s other media properties.

Mobile Virtual Reality Users Worldwide, by Segment, 2015-2020 (millions and % of total)

Forecasting the size and growth rate for the VR and AR markets is still difficult given the hardware, software and content, which remain in flux.

Some researchers recently revised their numbers upward based on new data and changing estimates on adoption, particularly for VR. Though Deutsche Bank did not alter its underlying assumption from September 2015 that mobile VR users worldwide will outpace desktop VR users, its latest forecast from March 2016 included substantially increased estimates for the total number of users for both platforms and provided more granular data about daily active users and device-specific users.

The investment bank projects that there will be 22.5 million VR users worldwide by the end of 2016, up from nearly 6.5 million cited last September. By 2020, the firm expects more than 154 million people will use VR at least once per year, 135 million of which will be mobile VR users. But only 3.2% of those users (4.2 million people) will be daily active users of mobile VR by the end of the forecast period, which could limit the opportunities for advertising and paid content.

eMarketer PRO customers can view the full report here.

Get more on this topic with the full eMarketer report, “Immersive Media Update Fall 2016: Key Virtual and Augmented Reality Trends.”

eMarketer releases over 200 analyst reports per year, which are only available to eMarketer PRO customers.

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