Enterprise XR’s Road to $39 Billion

The past year was volatile for XR. After an exuberant 2016, the sector’s temperature cooled when consumer hardware sales — a key leading indicator of industry health — fell short of expectations. So attention shifted to areas of nearer-term scale: mobile and enterprise.

Focusing today on enterprise (mobile AR is a separate analysis), its nearer-term opportunity is due to its addressable market. As is often discussed in XR circles, there can be more receptive buyers in enterprise contexts, due to measurable time and efficiency gains in AR-assisted job roles. This creates a clear ROI narrative.

To quantify that oft-cited benefit, companies like Intel and Coca-Cola demonstrate 15–45 percent efficiency gains today. This includes time saved in assembly, sorting and maintenance functions. Given that enterprise process management generally strives for single-digit efficiency gains, this XR impact is notable.

And unlike consumer markets, where mobile devices are the near-term play, head-worn XR devices are already penetrating the enterprise. This is due to one big variable: style. AR glasses don’t yet pass consumer markets’ stylistic requirements, but that’s not an issue in the enterprise.

By the Numbers

For all of these reasons, ARtillry Intelligence projects enterprise XR to grow from $554 million in 2016 to $39 billion by 2021, with an inflection point in 2019. Near-term revenue will be hardware- dominant as an installed base paves the way for recurring software revenue in later years.

A majority of that revenue will be from AR versus VR. Though VR’s place in the enterprise will be valuable and transformative, AR’s market opportunity is larger. This is due to its breadth of applicability across enterprise functions, and pass-through vision that enables more versatility.

It’s also important to note the 2019 inflection (see below), which will result from a tipping point for enterprise adoption. As often happens in tech revolutions, demand slowly builds while organizational resistance slowly recedes. We saw this most recently with enterprise smartphone deployment.

XR Revenue Outlook (year-by-year detail and AR/VR segmentation provided in full report)

The Guard is Up

But until then, the organizational resistance is enterprise XR’s greatest barrier. As with any organizational tech adoption, there’s red tape, inertia, sales cycles and complications of system integration. This will abate eventually but for now, the guard is up. So how do you get past it?

One way is through top-to-bottom advocacy, including the departments proposed to use XR. Conversely, a common mistake is over-reliance on innovation centers in organizations. They’re most receptive to new tech, but often deployment doesn’t make it past their departmental walls.

“As we look at the enterprise, we’re not integrating into the operational sides of the businesses that can really benefit,” Intel’s Chris Croteau said at an AR in Action (ARiA) event last year. “We’re selling to the geeks inside with titles called ‘advanced path finding’ or ‘technology leadership’.”

Though easier said than done, enterprise adoption stands a greater chance when you gain buy-in from budget influencers and individuals from the assembly like to the C-suite (sometimes in that order). That grassroots advocacy, if it reaches critical mass, can create powerful demand signals.

“Grass roots efforts turn into a general manager becoming an advocate because he now sees it,” said Newport News Shipbuilding’s Patrick Ryan. “Then the master ship builder says ‘I want this,’ in addition to the 18 year old that just started, and you get that top to bottom organizational adoption.”

The Bright Side

The good news is that organizational inertia is already breaking down to some degree, as XR familiarity grows. For example, there’s evidence that sales cycles are diminishing and project launches are growing. Challenges will continue into 2018, but the momentum is promising.

“An interesting trend we’re seeing from the sales side is that our sales cycle, from the original outreach to the start of a pilot or the execution of a contract, is shrinking drastically,” UpSkill’s Jay Kim said at the same ARiA event. “That I think is a good sign for the overall health of the industry.”

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