The vision of augmented reality (AR) headsets replacing smartphones could become a reality sooner than expected in China. Advances in hardware and new AR commerce use cases are paving the way.

At a Glance

Countries mentioned: China, the US

Key companies: Alibaba, Baidu, Eintoo, JD.com, Nreal, TCL Technology, Xiaomi

Essential stat: VR revenues in China from hardware, software, content, and services will more than double that of AR in 2021—but AR revenues will overtake VR in 2024.

The opportunity: AR ecommerce is still nascent in China, but the technology is gaining traction among the country’s hundreds of millions of novelty-seeking online shoppers. It can help engage consumers and potentially improve sales conversions.

AR is growing faster than VR in China—both in revenues and device shipments

AR currently generates less revenue than VR in China, but it’s growing faster. AR revenues, including from hardware, software, content, and services, will reach RMB21.3 billion ($3.09 billion) in 2021—less than half that of VR, according to industry nonprofit organization the Internet Society of China. But by 2024, AR is expected to eclipse VR in revenues.

AR headset shipments in China will increase at a 109.9% compound annual growth rate (CAGR) between 2021 and 2025, compared with 69.4% for VR headsets, according to research firm International Data Corporation (IDC).