The arrival of the COVID-19 pandemic last year prompted enterprises to accelerate their digital transformation efforts. As such, the year 2020 marked the turning point for the AR/VR industry, with an increasing number of global enterprises now paying close attention to AR/VR headsets and applications. Two such applications which show the most significant short-term growth are “virtual collaboration platform” and “remote support”, particularly in the relatively small-scale AR headset markets.

TrendForce indicates that annual AR headset shipment is expected to increase from 580,000 units in 2020 to 1.3 million units in 2021; on the VR headset front, annual shipment is expected to increase from 4.43 million units in 2020 to 5.65 million units in 2021, with the key enablers of these shipment growths being entertainment applications from the consumer side and commercial applications from the enterprise side.

It should be noted that, however, as VR headsets have lower prices and technical barriers to entry compared to AR headsets, many companies are opting to purchase consumer VR headsets for use in commercial applications. Despite the growth of the AR/VR headset market in recent years, the ongoing shortage of semiconductor components is expected to put some downward pressure on these headsets’ shipments this year.

Enterprise demand is the primary driver of telecom companies’ efforts to combine 5G with AR/VR applications

With remote commercial applications generating an increasing demand for AR/VR headsets, use cases such as remote interaction and real-time sharing of 3D objects will require an enormous amount of network bandwidth. Likewise, the demand for low-latency and smooth user experiences will continue to drive 5G demand from the commercial sector, thereby compelling major telecom companies such as Ericsson, China Mobile, NTT DoCoMo, and Chunghwa Telecom to release dedicated 5G plans geared specifically for AR/VR applications in order to ensure the highest quality connections for these applications.

For telecom companies, building 5G infrastructure demands an enormous cost, but the current use of smartphones is unable to completely saturate the total 5G bandwidth. In other words, telecom companies are unable to recuperate their 5G investment costs, and this predicament is what led them to seek out other applications/products that can potentially make use of 5G connectivity, such as IoT, video streaming, and AR/VR.

What should suppliers that aim to enter the AR/VR markets pay attention to?

TrendForce believes that suppliers wishing to enter the AR/VR markets must take into consideration two factors, which are “cost” and “profit distribution”. First of all, both AR/VR headsets and dedicated 5G connections require enormous investment costs. Most companies involved in these applications are therefore still in the small-scale trial period at the moment.

Given the limited funding that these companies are allocating, real-life user experience has suffered as a result, leading to a reduced willingness by potential clients to continue adopting AR/VR solutions going forward. For instance, if network infrastructures do not provide sufficiently comprehensive coverage or sufficiently high bandwidth, the resultant latency or signal loss can lead to poor remote collaboration experiences on the user side.

The second issue that suppliers must confront has to do with profit distribution. Most AR/VR solutions are provided to users at a flat subscription fee which covers the costs of AR/VR headsets, 5G network connections, and software platforms. This type of flat fee structure is attractive for customers as it is relatively simple and straightforward.

However, on the supply side, the fair distribution of profits among AR/VR headset suppliers, telecom companies, and software platform vendors remains a critical issue. In particular, since AR/VR headsets and 5G networks are all extremely costly, along with the fact that the 5G rollout is still in its infancy, unfair distribution of profits can potentially lead to certain suppliers being unwilling to participate in the AR/VR market in the long run.

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