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July 18, 2016
Global: Technology
Augmented reality starts to
liven up the VR/AR market
Equity Research
Refining our framework as AR comes more into focus
Revise up VR/AR market size by $15bn to $95bn for 2025E
Since we published ‘Profiles in Innovation: Virtual & Augmented Reality’
six months ago, in which we laid out the case for virtual reality (VR) and
augmented reality (AR) to become the next big computing platform, this
nascent market has seen interest and uptake in R&D grow daily. After
incorporating the latest information like pricing, timing of new product
launches and wider use cases, we now forecast a 2025 VR/AR market of
$95bn ($50bn hardware, $45bn software) vs. our prior forecast of $80bn
($45bn hardware, $35bn software). Put in context, this compares to the
current $111bn hardware market for notebooks and $63bn for desktops.
Refining VR estimates by product; expanding our AR view
Changes to AR. We expand our forecasts to include consumer use and
broader enterprise adoption (such as the field technician use case and
mobile computing for the office professional), beyond the healthcare,
engineering and education vertical use cases in our prior forecast. In
the long-run, we believe AR has the potential to be as ubiquitous as
smartphones and forecast the broader adoption of AR by applying a
penetration rate to the high-end smartphone market. Early success of
Pokémon GO, the first mass adopted AR game, helps prove the
potential of AR, and we see similar ideas spreading to other content
quickly. We now forecast a 2025 AR market of $36bn (vs. $10bn prior).
Changes to VR. Looking out to 2025, we lower our VR shipment
forecasts by 11% as we now see AR playing a bigger role for both
consumers and enterprises. Further, we reduce our ASP assumptions
for VR hardware as we expect price points will need to decline to drive
adoption, with evidence of this already playing out in the market. We
now forecast a 2025 VR market of $59bn (vs. $69bn prior).
Competitive landscape and value of the VR platform
With additional product details out, we look at the opportunity created by
the major VR products and their competitive edge – PlayStation VR
(favorable cost of ownership and game content), Oculus Rift (first mover
advantage with VR platform), and HTC Vive (“room scale” capability).
Who are the VR/AR enablers?
In terms of tech stocks, we continue to highlight Buy-rated firms that are
positioning ahead of the VR/AR trend, including Alphabet, Facebook,
Goertek, HTC, Largan Precision, Nvidia, Qualcomm, and Sony.
Wei Chen
+886(2)2730-4185 [email protected] Goldman Sachs (Asia) L.L.C., Taipei Branch
Masaru Sugiyama
+81(3)6437-4691 [email protected] Goldman Sachs Japan Co., Ltd.
Heather Bellini, CFA
(212) 357-7710 [email protected] Goldman, Sachs & Co.
Marcus Shin
+82(2)3788-1154 [email protected] Goldman Sachs (Asia) L.L.C., Seoul Branch
READ THE ORIGINAL
Profiles in Innovation: Virtual & Augmented Reality (January 13, 2016)
In the first report of our Profiles in Innovation
series, we examine what VR/AR could
become, the evolving use cases and the
markets that could be created and disrupted.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision. For Reg AC certification and otherimportant disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed bynon-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 2
Table of contents
Virtual and augmented reality in 6 charts: An update 3
PM Summary: Evolving our views on the next big computing platform 4
Evolving our VR/AR forecasts, up $15bn to $95bn for 2025E 8
Augmented reality to become as ubiquitous as smartphones 10
Continued bullishness on VR, but lowering hardware ASPs 14
Exploring the opportunity within each key segment/product 20
1. Vive hardware – significant revenue opportunity 20
2. PlayStation VR – strong installed base to drive near-term share 21
3. Oculus – first mover advantage and high awareness via Samsung 22
4. GearVR – adding VR functions to Samsung smartphone 22
5. Other VR HMD – sizing the market for smaller VR brands 23
Appendices 24
Appendix 1: VR/AR software and hardware market forecast detail 25
Appendix 2: Competitive dynamics of the three major VR platforms 26
Disclosure Appendix 29
Analyst contributors
Wei Chen
+886(2)2730-4185 [email protected]
Masaru Sugiyama
+81(3)6437-4691 [email protected]
Heather Bellini, CFA
(212) 357-7710 [email protected]
Marcus Shin
+82(2)3788-1154 [email protected]
Toshiya Hari
(646)446-1759 [email protected]
Ricky Lee
+886(2)2730-4195 [email protected]
Daiki Takayama
+81(3)6437-9870 [email protected]
Shateel Alam
(212) 902-6785 [email protected]
Giuni Lee
+82(2)3788-1177 [email protected]
Lingling Hu
+86(10)6627-3520 [email protected]
Jim Liu
+65-6654-5385 [email protected]
Yusuke Noguchi
+81(3)6437-9894 [email protected]
Jack Kilgallen, CFA
(212) 357-9111 [email protected]
Simona Jankowski, CFA
(415) 249-7437 [email protected]
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 3
Virtual and augmented reality in 6 charts: An update
Exhibit 1: VR/AR unit shipments could initially ramp
close to smartphones
Exhibit 2: VR/AR could create a large hardware market
by 2025E
Notes: For additional detail on our ‘accelerated uptake’ and ‘delayed uptake’ scenarios please see Appendix 1. IDC data for smartphone, tablet and PC.
Notes: IDC data for smartphone, tablet and PC.
Source: IDC, Goldman Sachs Global Investment Research.
Source: IDC, Goldman Sachs Global Investment Research.
Exhibit 3: We revise our VR/AR hardware and software
market size forecast up by $15bn in 2025E Exhibit 4: Breakdown of our new VR and AR shipment
forecasts to 2025E
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Exhibit 5: Our new 2025E base case VR/AR forecasts Exhibit 6: Our 2025E VR/AR hardware and software
scenarios
Source: Goldman Sachs Global Investment Research. Source: Goldman Sachs Global Investment Research.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Un
it s
hip
me
nts
(0
00's
)
Base case Accelerated uptake Delayed uptake
PC shipments from 1995‐2011
Smartphone shipmentsfrom 2004‐2012
Accelerateduptake
Base case
Delayed uptake
Tablet shipmentsfrom 2010‐2016
TV$99bn Notebook PC
$111bn
Desktop PC$63bn
Tablet PC$65bn
Game Console$16bn
VR/AR Accelerated$89bn
VR/AR Base Case$50bn
VR/AR Delayed$22bn
0
50
100
150
200
250
300
350
0 100 200 300 400 500 600 700 800
Sh
ipm
en
t (m
n)
ASP($)
$0 $3
$7
$18
$27
$38
$49
$59
$72
$82
$95
$0 $2 $6
$13
$20
$28
$37
$49
$61
$70
$80
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
VR
/AR
HW
&S
W m
ark
et
($b
n)
New Old
0 9
19 33
46 57
72 82
90 96 109
0
1
1
3
4
7
10
12
19 25
32
0
20
40
60
80
100
120
140
160
2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
VR
/AR
sh
ipm
en
t (m
n u
nit
s)
VR AR
VR hardware, $31.1bn
VR software, $27.7bn
AR hardware, $18.6bn
AR software, $17.7bn
$95bn VR/AR market
VR market: $59bnAR market: $36bn
$22bn
$50bn
$89bn
$11bn
$45bn
$85bn
$0bn
$20bn
$40bn
$60bn
$80bn
$100bn
$120bn
$140bn
$160bn
$180bn
$200bn
Delayed uptake Base case Accelerated uptake
Hardware Software
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 4
PM Summary: Evolving our views on the next big computing platform
Since our initial ‘Profiles in Innovation’ report in January 2016, where we put forward our
view that virtual reality (VR) and augmented reality (AR) have the potential to become the
next big computing platform, we have seen multiple positive developments and have
gained greater insights on the use cases. As such, in this follow-up report we refine our
framework to incorporate the availability of new information (pricing, launch timing,
etc.) and better insight into software use cases.
While acknowledging that there is some hype around VR/AR, our January report identified
nine use cases for VR/AR technology which we see currently emerging (videogames, live
events, video entertainment, retail, real estate, education, healthcare, engineering, and
military) and looking beyond videogames our analysis showed that real estate, retail, and
healthcare are likely to be among the first markets that VR/AR disrupts.
Throughout this year, we have not only seen the interest level in VR/AR continue to rise,
but also the level of R&D companies are investing to enable the technology. Popular
mobile and PC games have been announced on VR platforms, such as Fruit Ninja,
Alternative Girls and Fallout 4. Recently, rapid adoption of the Pokémon GO AR game, with
over 20mn downloads in its first week of launch (without promotion), is a perfect example
of how content innovation on a new medium (i.e. augmented reality) can quickly have a
widespread effect. To provide further insights on this phenomenon, we include a Case
Study of Pokémon GO on page 13.
In aggregate, we raise our 2025 VR/AR industry forecast from $80bn to $95bn as we expand
our view of the AR market and incorporate new use cases in enterprise and consumer,
primarily offset by lower VR hardware ASPs (average selling prices) which we see as
necessary to drive adoption.
Exhibit 7: Our prior 2025 base case VR/AR forecasts Our prior forecast only included limited vertical-specific use
cases for AR
Exhibit 8: Our new 2025 base case VR/AR forecasts Our raised forecast is driven primarily by the inclusion of
new AR use cases, but somewhat offset by VR ASPs
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
VR hardware, $42.9bn
VR software, $26.4bn
AR hardware, $1.6bn
AR software, $8.6bn
$80bn VR/AR market
VR market: $69.3bnAR market: $10.2bn
VR hardware, $31.1bn
VR software, $27.7bn
AR hardware, $18.6bn
AR software, $17.7bn
$95bn VR/AR market
VR market: $58.8bnAR market: $36.3bn
Virtual reality vs. augmented reality VR uses an opaque headset (which you cannot see through) to completely immerse the user in a virtual world whereas AR enables users can see the real world and overlay information and imagery onto it.
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 5
Expanding the application set for AR
We now forecast a global AR market size (hardware and software) in 2025 of $36bn (versus
our prior estimate of $10bn). Our changed assumptions – as discussed below – result in an
AR market that is roughly evenly split between hardware and software at c.$18bn each.
1. Expanding our use cases of AR. In our prior model, we only included AR shipments
for vertical-specific enterprise use cases in engineering, healthcare, and education. We
now expand this to include consumer use and broader enterprise adoption. We believe
consumers have the potential to begin using AR devices as a supplement or even
replacement to the smartphone for day-to-day tasks. We have also broadened our
enterprise view to include use cases like field technicians communicating with the
home office or office professionals using AR for mobile computing (i.e. using a headset
that puts emails into the field of vision rather than using a smartphone). Incorporating
these use cases takes our 2025 AR shipment forecast from 3mn vertical-specific
shipments, adds 13mn shipments for broader enterprise use and 16mn for consumer
use, leading to total shipments of 32mn. For comparison, 2015 had ~250mn high-end
smartphone shipments and 1.9bn total mobile phone shipments.
2. Applying a penetration rate to high-end smartphones. In the long-run, we believe
AR could be as ubiquitous as smartphones and forecast broader adoption of AR with a
penetration rate linked to the high-end smartphone market. While we are bullish on the
prospects for AR, we believe we are tempered on the ramp of adoption, estimating that
AR penetrates just 15% of high-end smartphone shipments in 2025.
3. Lower software price points for non-specialized use cases. We note that the
consumer and expanded enterprise use cases of AR we now factor in have lower
software price points versus the vertical-specific use cases already included in our
forecasts (as we expect areas like healthcare and engineering will require specialized
software), hence the disproportionate increase in our AR hardware (up $17bn to $19bn)
vs. software estimates (up $9bn to $18bn for 2025).
Continued bullishness on VR, but lowering hardware ASPs
After updating our long term forecasts – as discussed below – we now expect the global VR
market size (hardware and software) in 2025 to be $59bn versus our prior estimate of
$69bn.
1. Accelerating hardware ASP declines. The decrease in our global VR revenue forecast
for 2025 has primarily been driven by lower hardware estimates (down $12bn to
$31bn) as we now assume a lower ASP for VR HMD (head mounted devices) of $286
by 2025E (vs. prior $352). The lowered ASP assumption reflects a faster pricing decline
which we believe is needed to drive higher adoption and lower mix of the integrated
form factor which carries a higher ASP. We have seen evidence of this playing out in
the market already with 50 of the non-branded VR hardware devices currently for sale
on Amazon.com showing prices discounted on average by 43%.
2. VR/AR overlap leads to slight reduction in VR shipment forecast. Although we
have expanded our AR shipment forecast for 2025 by ~29mn units, we decrease our VR
shipment forecast from 122mn units to 109mn units, with the reduction mainly
reflecting the rise in AR applications in consumer and enterprise which we believe
could cannibalize some of the VR demand.
3. Expanding usage within the installed base. On VR software, we slightly increase our
global revenue estimate from $26bn to $28bn for 2025, mainly driven by our view that
users will engage in a greater number of VR use cases, in particular to justify the high
price points of the product.
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 6
Exhibit 9: Summary of our global VR/AR unit shipment and ASP changes – 2025E (unit shipments in millions, ASPs in $)
Source: Goldman Sachs Global Investment Research.
Exhibit 10: Summary of our global VR/AR revenue changes – 2025E
($ in billions)
Source: Goldman Sachs Global Investment Research.
Prior New % change $ change
VR shipments (mns) 121.8 108.7 -11% -13.1
- Vertical-specific enterprise shipments 2.8 2.9 4% 0.1
- General-use enterprise shipments -- 13.1 -- --
- Consumer shipments -- 16.0 -- --
AR shipments (mns) 2.8 32.0 1033% 29.2
Total VR/AR shipments (mns) 124.6 140.7 13% 16.1
VR ASPs ($) $352 $286 -19% -$66
AR hardware ASPs ($) $581 $581 0% $0
2025
Prior New % change $ change
VR hardware $42.9 $31.1 -28% -$11.8
VR software $26.4 $27.7 5% $1.3
Total VR $69.3 $58.8 -15% -$10.5
- Vertical-specific enterprise AR hardware $1.6 $1.7 4% $0.1
- General-use enterprise AR hardware -- $7.6 -- --
- Consumer AR hardware -- $9.3 -- --
AR hardware $1.6 $18.6 1033% $16.9
- Vertical-specific enterprise software $8.6 $9.5 11% $0.9
- General-use enterprise software -- $6.4 -- --
- Consumer software -- $1.7 -- --
AR software $8.6 $17.7 106% $9.1
Total AR $10.2 $36.3 255% $26.0
Total VR/AR $79.6 $95.1 19% $15.5
2025
July 18, 2016 A
ugmented reality starts to liven up the VR
/AR
market
Goldm
an Sachs Global Investm
ent Research
7
Exhibit 11: Virtual reality and augmented reality enablers (Buy-rated)
Company Ticker Rating CCY Last
Close Company profile Exposure to VR/AR The opportunity
Alphabet GOOGL Buy* US$ 735.63
Alphabet is an online advertising pioneer with
$75bn in 2015 revenues (+13% yoy), of which 90%
is online advertising (referred to as Google) and
10% non-core revenue.
Alphabet is investing in both AR and VR platforms.
Currently immaterial.
AR and VR hardware and software sales.
In the long-run, we view AR and VR as new
platforms on which Alphabet can advertise.
Facebook FB Buy US$ 116.86
Facebook runs the leading social platform with over
1.5bn monthly active users (MAU) and 2015
revenues of $17bn (+39% yoy) of which 95% is
advertising.
In 2014, Facebook acquired VR hardware/software
vendor Oculus for $2bn.
Currently immaterial.
VR gaming with both hardware and software
sales.
In the long-run, we view VR as new platform
on which Facebook can advertise.
Goertek 002241.SZ Buy RMB 27.75
Global leader in acoustic components and core
supplier to Apple.
Design manufacturer for Oculus and Sony
PlayStation VR headsets, exclusive supplier in 2016.
We expect revenue from VR headsets to
contribute c.20%-30% of GoerTek's overall
revenue in 2016E-18E.
VR revenue from VR headsets by top global
brands as well as the emerging Chinese VR
platform.
HTC 2498.TW Buy NT$ 99.60
A rising VR platform company with legacy
smartphone hardware business based on Android
ecosystem.
We estimate revenue from VR headsets to
contribute 13%/21% of HTC's overall revenue
in 2016E/2017E.
HTC is building a VR ecosystem including VR
headset, software and application store.
VR revenue from hardware sales (VR headset)
and services (VR content distribution,
customization and support).
VR revenue opportunities include both
consumer and commercial applications.
Largan
Precision 3008.TW Buy NT$ 3,430
Global leader in miniature camera lens technology
used primarily in smartphones and tablets.
Largan’s major clients include Apple (73% of 2015E
sales), as well as major Android phone and
notebook PC brands.
Dual-camera design on smartphone
supporting AR applications (i.e. project Tango
from Google).
Camera lens on VR/AR headsets for computer
vision or user vision pass through.
Lens use in 360 degree cameras for user-
generated VR and/or professional VR content
creation.
Lens use in dual camera in smartphones to
support AR applications.
Nvidia NVDA Buy US$ 52.70
Leader in GPUs used for gaming/VR, deep
learning/AI, automotive, and high performance
computing applications.
We expect VR-related GPU revenue to
contribute 5%/8%/17% of Nvidia's overall
revenue in 2016E/2017E/2018E.
Nvidia manufactures GPUs, which are used to
render graphics in VR programs.
VR revenue from hardware sales (GPUs).
VR revenue opportunities include both
consumer and commercial applications.
Qualcomm QCOM Buy US$ 54.75
Leading smartphone cellular chipset and
application processor provider. Customers include
most major handset and tablet companies, and
many emerging handset vendors.
Owning most of the IP behind CDMA/WCDMA and
much of LTE, Qualcomm gets a royalty from every
device that uses its technology.
Has been investing in VR/AR for over five years, and
in the past year it launched a reference design
platform specifically designed for advanced
cameras.
Qualcomm stands to benefit from the
proliferation of connected devices.
Snapdragon 820 (introduced in March 2016)
supports immersive VR, and Qualcomm
introduced Snapdragon VR SDK in 2Q16.
VR and image capture devices could become
an adjacent market opportunity. We expect
Qualcomm to remain focused on chipset
processors and connectivity.
We expect VR to help Qualcomm's market
share and ASPs in the core smartphone
chipset market.
Sony 6758.T Buy* JPY 3,179
One of world's largest technology conglomerates
with annual revenue of $68bn in 2015. Portfolio
includes leading console platform PlayStation,
Hollywood film/TV studios, a media network, music
business, TV sets, smartphones, etc.
Sony plans to launch PlayStation VR (PSVR) in
October 2016.
Games and Network Services business is one
of the most profitable divisions of Sony and
we estimate it will contribute 36% to
consolidated earnings (pre-elimination) in
2016E.
We expect 1.5mn PSVR shipments in 2016,
rising to 3mn in 2017.
PSVR could become a major differentiator of
the PlayStation platform vs. its competitors.
Exclusive content such as Gran Turismo and
Star Wars also key.
We expect game business OP to remain at
peak level despite reaching mid-cycle for the
console.
Notes: *Denotes stock is on our regional Conviction List. AI = artificial intelligence; CDMA = code division multiple access; GPU = graphics processing unit; IP = intellectual property; LTE = long-term evolution; WCDMA = wideband code division multiple access. Prices as of close on July 15, 2016.
Source: Datastream, Company data, Goldman Sachs Global Investment Research.
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 8
Evolving our VR/AR forecasts, up $15bn to $95bn for 2025E
In aggregate, changes to our global VR/AR industry model in this report (raising 2025 from
$80bn to $95bn) are mainly driven by an expanded AR market view (updating shipment
forecasts) and a deeper understanding of the installed base by use cases (new use cases in
enterprise and consumer), but partly offset by lower VR hardware ASPs which we see as
necessary to drive adoption.
Hardware: We have extended our bottom-up analysis of the VR hardware market to 2025
(rather than top-down from 2020-2025 previously). Overall, we revise up our global VR/AR
hardware market revenue forecast for 2025 from $45bn to $50bn (+12%), driven by an
upward revision in our hardware shipment assumptions (2025 up by 13% to 141mn) after
incorporating our expanded view of AR and an upward revision in our GearVR shipment
estimates (due to limited-time free bundling with Galaxy S7 smartphones and the fact that
it is one of the first mobile VR products in the market).
Software: We revise up our global VR/AR software market revenue forecast for 2025 from
$35bn to $45bn (+30%), primarily driven by our inclusion of expanded AR user cases in
consumer and enterprise. By 2025, we expect the VR software market size to reach $28bn,
with video games, live events, and video entertainment making up ~75% of the mix. We
estimate the AR software market size will be $18bn in 2025, with enterprise, healthcare, and
engineering as the major components.
Exhibit 12: An expanded AR view boosts our hardware
market estimates Hardware: Revision to market size (base case in $bn)
Exhibit 13: We expect software market revenues to reach
$45bn in 2025 Software: Revision to our market size (base case in $bn)
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
In our accelerated uptake case, VR/AR could track like smartphones
The following chart lays out our new base, accelerated uptake, and delayed uptake cases
for VR/AR shipments vs. the adoption curve for smartphones from 2004, tablets from 2010,
and PCs from 1995 (see Appendix 1 for full details of the revisions to our VR/AR software
and hardware market forecasts). Our new accelerated uptake scenario in the initial ramp
stage is close to the adoption curve of smartphones and PCs.
$22
$50
$15
$45
$0
$10
$20
$30
$40
$50
$60
2015 2016E2017E2018E2019E2020E2021E2022E2023E2024E2025E
VR
/AR
har
dwar
e m
arke
t(U
SD
bn)
$15
$45
$13
$35
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
2015 2016E2017E2018E2019E2020E2021E2022E2023E2024E2025E
VR
/AR
sof
twar
e m
arke
t(U
SD
bn)
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 9
Exhibit 14: Putting our global VR/AR shipment estimates into context Comparing our new VR/AR estimates to the penetration of smartphones/tablets/PC during their ramp up
Notes: Our “accelerated uptake” scenario predicts VR/AR technology evolving from a niche device to a broader computing platform. Our “delayed uptake” scenario assumes VR/AR sees challenges in latency, display, safety and privacy, and the technology is used primarily for videogames. IDC data for smartphone, tablet and PC.
Source: IDC, Goldman Sachs Global Investment Research.
Exhibit 15: We expect VR/AR to become one of the major hardware markets by 2025 VR/AR hardware market scenarios for 2025E compared to other hardware market sizes currently
Notes: IDC data for smartphone, tablet and PC.
Source: IDC, Goldman Sachs Global Investment Research.
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
Un
it s
hip
men
ts (
000'
s)
Base case Accelerated uptake Delayed uptake
PC shipments from 1995‐2011
Smartphone shipmentsfrom 2004‐2012
Accelerateduptake
Base case
Delayed uptake
Tablet shipmentsfrom 2010‐2016
TV$99bn Notebook PC
$111bn
Desktop PC$63bn
Tablet PC$65bn
Game Console$16bn
VR/AR Accelerated$89bn
VR/AR Base Case$50bn
VR/AR Delayed$22bn
0
50
100
150
200
250
300
350
0 100 200 300 400 500 600 700 800
Sh
ipm
en
t (m
n)
ASP($)
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 10
Augmented reality to become as ubiquitous as smartphones
Augmented reality technology is en route to incorporating all the functions of a
smartphone (voice calls, text messaging, email, internet, and video) except the interface
will be viewed through glasses and controlled with gestures versus the smartphone that is
held and controlled with your hands. Across both personal and professional settings, there
are considerable advantages of a computing device that doesn’t require your hands to be
occupied. Further, the size of the display of an AR device would essentially be infinite
versus the physical display screens of a desktop computer or phone that are confined. As
such, we believe AR devices have the potential to be as ubiquitous as smartphones in the
long-run and that an independent framework is needed (separately to VR) to understand
this market opportunity.
Refining our AR framework
Applying a penetration rate to high-end smartphones
To forecast potential unit shipments of AR devices, we rely on high-end smartphone
shipments ($600+) as an input. While it could be more ubiquitous, we believe the
demographic that currently purchases high-end smartphones would be the mostly likely to
consider AR devices as they come to market. When considering the pace of adoption of AR
devices, we look at the adoption rate of smartphones as consumers transitioned away from
feature phones (Exhibit 16). What we believe keeps our AR unit forecasts conservative
relative to smartphone volumes is that high-end smartphones (the market we use for our
AR penetration rate) currently represent only 16% of the total mobile phone market. By
2025, in our base case we assume that the shipment of AR devices reaches a level
equivalent to 15% of high-end smartphone shipments, 30% in our accelerated uptake case,
and 7% in our delayed uptake case. As such, Exhibit 17 shows that our base case AR
shipment forecasts pale in comparison to the past trajectory of smartphones and tablets.
Exhibit 16: The AR adoption curve could be similar to
feature phones transitioning to smartphones The early adoption of smartphones was slow at first but
accelerated due in part to the 2007 launch of the iPhone
Exhibit 17: Our AR shipment forecasts relative to the
penetration of high-end smartphones We expect AR to penetrate the high-end smartphone market
which is currently only 16% of total mobile phone shipments
Source: IDC, Goldman Sachs Global Investment Research.
Source: IDC, Goldman Sachs Global Investment Research.
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
0
500000
1000000
1500000
2000000
2500000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E2017E
% smartphone pen
etration
Units shipped
(000s)
Smartphones Feature phones Smartphone penetration (% of total handset shipments)
The first 15% ‐ early adopters and innovators
The next 68% ‐the majority
The last 16% ‐the laggards
19,357 76,188 144,190
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
Accelerated uptake
Base case
2002‐2011 % of smartphone shipments vs total mobile shipments
Delayeduptake
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 11
Expanding the application set for AR
Across the three buckets of AR use cases (vertical-specific enterprise, general use
enterprise, and consumer) we maintain our hardware ASPs, with a starting point of $1,500
for an integrated head mounted device, declining at a 10% CAGR through 2025 to $581. We
note there is currently a wide price range for AR HMD in the market, from $400 for
consumer use cases to $4,000 for vertical specific-use cases. Widely expected consumer
product launches from Microsoft HoloLens and Google Glass could also lead to our
assumptions being refined.
In our prior model, we only included AR shipments for vertical-specific enterprise use cases
in engineering, healthcare, and education. We now expand this to include broader
enterprise adoption as well as consumer use. The tables below outline the unit
assumptions we incorporate to arrive at our 2025 AR hardware ($19bn) and software
($18bn) revenue forecasts, followed by a discussion of our framework for the three buckets
of AR use cases.
Exhibit 18: Summary of AR shipment and ASP changes –
2025E
(units in millions, ASPs in $)
Exhibit 19: Summary of AR hardware and software
revenue changes – 2025E
($ in billions)
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Vertical-specific enterprise use cases. With our new forecasts, there is little change
to our vertical-specific AR assumptions. For 2025, we model 2.9mn AR device
shipments (prior 2.8mn) driven by the healthcare, engineering, and education verticals.
We forecast that specialized AR software for healthcare and engineering will be similar
to specialized software we see today and note that computer-aided design (CAD)
software for architects and engineers can range from $1,000-$5,000 per year. For 2025,
we estimate healthcare and engineering AR software at $1,500 per seat and
educational software at $50 per seat versus an iPad K-12 curriculum currently priced at
$70. Our assumptions result in 2025E vertical-specific AR hardware of $2bn and
software of $10bn.
Broader enterprise use cases. In updating our AR forecast we now add expanded use
cases in enterprise, driven by our view that AR devices can be used in a similar way to
how PCs and smartphones are used now and as such we model AR unit shipments as
a function of high-end smartphone shipments. Our broadened view of enterprise use
cases includes field technicians communicating with the home office or office
professionals using AR for mobile computing. For enterprise AR software costs, we
anticipate the use cases will be similar to productivity suites as we know them today
and estimate annual software costs of $200, similar to the current price of the
Microsoft Office 365 professional edition. Our assumptions result in 2025E general
enterprise use AR hardware of $8bn and software of $6bn.
Prior New % change $ change
- Vertical-specific enterprise shipments 2.8 2.9 4% 0.1
- General-use enterprise shipments -- 13.1 -- --
- Consumer shipments -- 16.0 -- --
AR shipments (mns) 2.8 32.0 1033% 29.2
AR hardware ASPs ($) $581 $581 0% $0
2025
Prior New % change $ change
- Vertical-specific enterprise AR hardware $1.6 $1.7 4% $0.1
- General-use enterprise AR hardware -- $7.6 -- --
- Consumer AR hardware -- $9.3 -- --
AR hardware $1.6 $18.6 1033% $16.9
- Vertical-specific enterprise software $8.6 $9.5 11% $0.9
- General-use enterprise software -- $6.4 -- --
- Consumer software -- $1.7 -- --
AR software $8.6 $17.7 106% $9.1
Total AR $10.2 $36.3 255% $26.0
Total VR/AR $79.6 $95.1 19% $15.5
2025
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 12
Consumer use cases. In the long-run, we envision consumers adopting AR devices for
a use case similar to smartphones today. However, we believe our assumptions are
conservative as we forecast just 13mn consumer AR shipments in 2025 (8% of high-
end smartphones) versus 2015 high-end smartphone shipments of ~240mn. We note
that in FY15 Apple generated $31bn in software/services revenue from installed-base
related purchases (of its 1bn user installed base our Hardware team estimates 500mn
are iPhones). Using this as a proxy, we forecast consumer AR software revenue of $50
per user. Our assumptions result in 2025E consumer AR hardware of $9bn and
software of $2bn.
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 13
Case Study: How Pokémon GO’s catapult launch proves the case for AR gaming
On July 6, 2016, The Pokémon Company and Niantic launched the smartphone game “Pokémon GO” in the US and
Australian markets. We identify this game as the first mass adopted augmented reality game. Since its launch, the app
has seen very high levels of downloads (over 20mn in the US as of July 13) and in-app purchases, putting it at the top of
the ranking in both markets where it was launched. The game extensively uses GPS functions to overlay standard
features of Pokémon – catch, battle, and possibly exchange – into ‘real life’ (augmented reality). Also, using a phone’s
camera, the game allows users to catch and battle Pokémon depicted in real life.
Some of the publicly available information relating to Pokémon GO:
10.5% of Android devices in the US have the app downloaded as of July 13 (Source: Similar Web), suggesting an
installed base of over 20mn in the US alone.
Daily revenue of $1.6mn (Sources: Sensor Tower, Thinkgaming.com) in the US iOS devices.
3% of US Android devices were actively using Pokémon GO on July 8, with average daily use of 43 minutes per
user (Source: Similar Web).
Niantic commented that restaurants and retail chains could sponsor PokéStops and gyms (locations inside the app
where a wild Pokémon appears and battles take place). We believe revenues would likely be on a cost per visit basis.
Technological hurdles cleared for the first mass market ready AR game
The background for Pokémon GO’s success includes the clearance of some technological hurdles. Pokémon GO is not
the first augmented reality app using the mobile camera. Apps like Sekai Camera have been around since 2009,
attempting the first try at mobile AR long before Pokémon. Although those apps caught some attention, slow
processing speed meant the app could not be used easily. High smartphone penetration, greater computing power (the
iPhone 6S is 3x faster and has 15x more memory than the iPhone 3G), and a willingness to pay for in-game purchases
have all helped lead to the successful launch of Pokémon GO.
Dual camera, AR glasses, more IPs…AR gaming is getting started
We believe there is more to come for AR gaming. Although AR glasses may take a while to penetrate the gaming
business, technologies like dual camera allow greater depth recognition, which should enhance the AR rendering inside
games. Now that Pokémon GO has become successful, we believe there will be more console franchises willing to try
the new concept. In terms of similar ‘explore and catch’ type games, we point to Yokai Watch from Level 5 and
Nintendo, as well as Monster Hunter from Capcom.
Pokémon GO looks to have opened new doors to the next generation of mobile gaming, and just as the game industry
has proven repeatedly in the past, adaptation of new technology is the first step of proliferation.
Please see ‘Pokémon Go impact diluted, but boosts expectations for next titles’, July 12, 2016 for additional detail.
Exhibit 20: Pokémon is among Nintendo’s most popular
franchises Nintendo’s major franchises and maximum package units
sold in one edition (as of July 2016)
Exhibit 21: Getting hooked on Pokémon GO: DAU
reached similar levels to Twitter in the US, and average
usage time exceeds that of Whatsapp Daily average usage time for apps (min, as of July 8)
Source: Company data, VGChartz, Goldman Sachs Global Investment Research.
Source: Similar Web.
Maximum packages sold (mn)Mario Kart 34.3 New Super Mario Bros. 29.3 Brain Age 20.1 Pokémon 18.1 Super Smash Bros. Brawl 12.0 Animal Crossing 12.0 Mario Party 8.8 The Legend of Zelda 6.9 Donkey Kong 6.1 Kirby 2.9 Total 150.4
43
30
2523
13
05
101520253035404550
Pokemon WhatsApp Instagram Snapchat Messenger
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 14
Continued bullishness on VR, but lowering hardware ASPs
Recent developments in the VR space
We continue to be bullish on the outlook for VR technology to become the next big
computing platform, as laid out in our January 2016 Profiles in Innovation report. Since
then we have seen more VR content being created, significantly higher consumer interest
and media coverage, and ongoing venture capital activities.
During the Game Developers Conference in San Francisco in March 2016, Sony revealed
the consumer edition of PlayStation VR, as well as the launch date of October 2016 with a
retail price of $399. During the conference a number of major content companies also
revealed intent to launch VR versions of their content, such as Electronic Arts planning to
make Star Wars Battlefront compatible with PlayStation VR. However, recent
announcements have not just focused on upcoming new launches (Exhibit 22), as shown
by a February 29 release from HTC Vive stating it had sold 15,000 units within the first ten
minutes of the product going on sale for pre-order. More recently, during E3 (the largest
Games Expo) in mid-June, a number of popular mobile and PC games were announced on
VR platforms, such as Fruit Ninja and Fallout 4.
Exhibit 22: New product announcements – launched and coming soon
Recent VR headset announcements
Source: Company data.
Consumer interest and media coverage on virtual reality have both increased significantly
since the start of the year. As evidence of the increasing consumer interest, Exhibits 23-24
show that interest over time in ‘virtual reality’ has grown exponentially since 2H 2015.
Exhibit 23: The interest level in ‘virtual reality’ is rising
according to Google Trends
Exhibit 24: Rising media attention on ‘virtual reality’
Note: Numbers in the chart represent search interest relative to the highest point on the chart, not absolute search volume.
Notes: Data shown is the number of ‘virtual reality’ mentions in the news (Japan, per three months).
Source: Google Trends. Source: Nikkei.
Product name Company Launch Price
PlayStation VR Sony October 2016 $399
Oculus Rift Facebook / Oculus March 2016 $599
HTC Vive HTC / Valve April 2016 $799
Galaxy Gear VR Samsung ElectronicsNovember 2015
(consumer edition)$99
0
20
40
60
80
100
120
1/2
012
4/2
012
7/2
012
10/2
012
1/2
013
4/2
013
7/2
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10/2
013
1/2
014
4/2
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7/2
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10/2
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015
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7/2
015
10/2
015
1/2
016
4/2
016
7/2
016
Go
ogle
tre
nds
inde
x
Virtual Reality
Augmented Reality0
200
400
600
800
1000
1200
1400
1600
1800
6/2
011
9/2
011
12
/20
11
3/2
012
6/2
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9/2
012
12
/20
12
3/2
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6/2
013
9/2
013
12
/20
13
3/2
014
6/2
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9/2
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12
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15
3/2
016
Num
ber
ofre
sults
per
3 m
ont
hs
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 15
VC investment in VR/AR is gaining momentum
Investments in companies innovating in virtual and augmented reality has been robust
since our January 2016 report, with quarterly venture capital (VC) funding for startups in
the industry above $150mn in each of the past three quarters. 1Q16 saw a 27% qoq uptick
to an all-time high of $279mn, excluding the ~$800mn round for Magic Leap (a company
which has raised as much money as all other VR/AR startups combined since its first
capital raise in 3Q12) for a more meaningful funding trend. As shown in Exhibit 26, we also
note continued investment in the space from large tech/media players.
Exhibit 25: Funding for VR/AR startups continues on an upward trajectory Global VC investments in virtual and augmented reality startups
Source: PitchBook, Goldman Sachs Global Investment Research.
Exhibit 26: Recent involvement in virtual reality by large technology and media companies
Source: News sources, compiled by Goldman Sachs Global Investments Research.
10
20
30
40
50
60
$0
$200
$400
$600
$800
$1,000
$1,200
3/3
1/2
01
0
6/3
0/2
01
0
9/3
0/2
01
0
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/31
/201
0
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/201
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/201
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6
# o
f dea
ls
Cap
ital
inve
sted
in m
n
Capital Invested, ex-Magic Leap (LHS) Capital Invested in Magic Leap (LHS)
Deal Count (RHS)
Company Date Details
Qualcomm Jan-12 Raised seed funding for the mobile augmented reality startup, Blippar
Google Apr-12 Introduced the augmented reality glasses, Google Glass, to the public
Sony Sep-13 Announced its HMZ-T3, new head-mounted display
HP Mar-14 Launched Aurasma 3.0, its augmented reality platform that it acquired through Autonomy
Facebook Mar-14 Acquired Oculus, a virtual reality startup, for $2bn
Samsung Sep-14 Revealed its own head-mounted display, Samsung GearVR, partnering with Oculus
Google Oct-14 Invested $542mn in the startup, Magic Leap
Intel Apr-15 Invested in Series A funding for the virtual reality startup, WorldViz
Apple May-15 Reportedly acquired Metaio, the augmented reality software maker
Disney Sep-15 Led a $65mn funding round in Jaunt, a VR content startup
Microsoft Oct-15 Microsoft acquires Havok, a 3D physics engine used for videogames
Comcast & Time Warner Nov-15 Participated in a $30.5mn funding round for NextVR, which captures live events in VR
Apple Nov-15 Acquires Faceshift, a facial recognition capture and animation company
Fox Jan-16 Acquires minority stake in Osterhout Design Group, a VR/AR HMD maker
HBO, Discovery & Liberty Media Apr-16 Invested in Otoy, a cloud gaphics company developing entertainment experiences including VR and AR
AOL Apr-16 Acquired RYOT, a publisher of immersive media content using 360 degree and VR video production
HTC Apr-16 Launched Vive X, its $100mn VR accelerator program
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 16
Refining our VR long term forecast
We make the following refinements to our global VR forecasts up to 2025 versus the
January 2016 note:
1. Extending the bottom-up hardware units forecast by major categories (PSVR, HTC
Vive, Oculus, GearVR, Other VR HMD) for the period 2015-2025 (prior bottom-up
estimates only covered 2015-2020);
2. Adding a new category ‘Others VR HMD’ to capture the non-branded VR market;
3. Improving our forecast methodology for HTC Vive and Oculus Rift by adding a
framework to capture general consumers and commercial market demand (prior
methodology only captured core gamer demand); and
4. Incorporating replacement cycle and churn assumptions for each of the HMD
categories in our industry model.
Overall, we now forecast a global VR market size (hardware and software) in 2025 of $59bn
versus our prior estimate of $69bn. The decrease in our global VR revenue forecast is
primarily driven by lower hardware estimates (down $12bn to $31bn) after incorporating
faster pricing decline, lower mix of integrated form factor and potential cannibalization
from the rise of AR HMD. We expect price points will need to decline to drive adoption,
with evidence of this playing out in the market already with 50 non-branded VR hardware
devices currently for sale on Amazon.com with prices discounted on average by 43%.
Historical price reductions on major product cycles
Price declines have traditionally been the key catalyst for hardware adoption. Similar to
previous major technology cycles, we believe the cost of VR HMD could decline over time
as price elasticity impacts end demand.
We draw on the historical pattern of price declines from major end devices like desktops,
TVs, tablets, notebooks and smartphones as a proxy of how VR/AR HMD could see price
declines in future. We use the past pricing decline rates of existing hardware devices and
incorporate these in our long term HMD growth rates as we believe they could resemble
similar volume growth curves. We have seen major hardware devices experience pricing
declines in the range of 5%-13% annually over the past 20 years.
Exhibit 27: HMD price declines could resemble the historical pattern of desktops,
notebooks or smartphones Historical price decline of major computing platforms
Source: Goldman Sachs Global Investment Research.
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 17
Although we have expanded our AR shipment forecast for 2025 by 29mn units, we
decrease our VR shipment forecast from 122mn units to 109mn units, with the reduction of
13mn units mainly reflecting the rise in AR applications in consumer and enterprise which
we believe could cannibalize some of the VR demand.
Exhibit 28: Summary of VR shipment and ASP changes – 2025E (unit shipments in millions, ASPs in $)
Source: Goldman Sachs Global Investment Research.
Updates to our VR software revenue forecast
On VR software, we slightly revise up our global revenue estimate from $26bn to $28bn for
2025, mainly driven by our view that users will engage in a greater number of VR use cases,
in particular to justify the high price points of the product. For example, we believe more
gamers will adopt multiple consumer use cases of VR and now expect that 35% of the
installed base will view VR live events by 2025 (versus our prior assumption of 30%). Thus,
while we temper our overall VR shipment forecasts, we do expect VR users to engage in a
greater number of use cases to make their investment in the product worthwhile.
Exhibit 29: Summary of VR revenue changes – 2025E ($ in billions)
Source: Goldman Sachs Global Investment Research.
Extending the bottom-up hardware units forecast to 2025
By deepening our understanding of the go-to-market strategy, price point, launch schedule
and content availability of major VR brands (PlayStation, Oculus and HTC), we have
extended our bottom-up shipment forecast to 2025 (prior forecast period covered 2015-
2020). As such, we are able to indicate potential market share progression of the major VR
brands (Exhibit 30).
Exhibit 30: Market share progression for major VR brands
Source: Company data, Goldman Sachs Global Investment Research.
Prior New % change $ change
VR shipments (mns) 121.8 108.7 -11% -13.1
VR ASPs ($) $352 $286 -19% -$66
2025
Prior New % change $ change
VR hardware $42.9 $31.1 -28% -$11.8
VR software $26.4 $27.7 5% $1.3
Total VR $69.3 $58.8 -15% -$10.5
2025
Market ShareBase case 2015 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025EPSVR 0% 18% 17% 22% 20% 19% 18% 18% 18% 18% 17%HTC Vive 0% 5% 6% 10% 12% 13% 14% 15% 16% 16% 16%Oculus 0% 5% 6% 10% 13% 16% 16% 16% 16% 17% 17%GearVR 100% 48% 48% 38% 35% 36% 35% 38% 38% 39% 41%Other HMDs 0% 23% 23% 20% 20% 17% 17% 12% 11% 10% 9%Total shipments 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 18
Adding a new category: Other VR HMD
Outside of PlayStation, Oculus, HTC Vive, and Gear VR, there are a large number of smaller
VR brands producing headsets. Given the sophisticated nature of the content required, and
the integrated nature of hardware and content platforms, we believe smaller brands are
likely to face business challenges and growth restraints.
We estimate the size of this category by looking at the trends of the PC and smartphone
markets, which saw the shrinking of smaller players as the industry matured. In the PC
market, we have seen smaller players’ market share decline from c.50% to just c.20% in the
course of the past decade. Since we view the barriers of entry as higher for VR, our base
case estimates ‘Other VR HMD’ starting with 30% market share but falling to 10% by 2025.
In terms of price, we believe the ASP of the smaller players is likely to drop much faster
than for the major VR brands given their lower product quality. Having searched through
pricing for 50 of the ‘non-branded’ VR devices online, on average the current selling price is
43% below the original price. Additionally, the average ASP of $245 for discrete devices
and $29 for slide-on devices is markedly lower than that of major VR brands PlayStation VR
at $399 and Gear VR at $99, respectively.
Exhibit 31: Non-branded VR hardware products are currently discounted by 43% on
average Summary of 50 non-branded VR hardware products on Amazon.com (as of May 2016)
Source: Amazon.com, complied by Goldman Sachs Global Investment Research.
Improving our forecast methodology for HTC Vive and Oculus Rift
In our previous forecast methodology for HTC Vive and Oculus Rift, we accounted for the
demand from core gamers but didn’t explicitly consider demand from general consumer
and commercial users. Hence, we enhance our framework by adding consumer and
commercial segments for both. Moreover, we previously assumed that both Vive and Rift
would address the user base of the Steam installed base. We now modify this assumption
as we believe Oculus Rift can draw from the installed bases of not only Steam but also
Xbox and PlayStation and essentially develop its own ecosystem. We expect HTC to capture
the majority of the VR opportunity from Steam (as a partner of Valve, which owns Steam).
Exhibit 32: Key assumptions for HTC Vive’s total addressable market
Source: Goldman Sachs Global Investment Research.
Category Selling price Original price Discount
Overall $36.42 $64.15 -43.2%
Slide on $28.92 $57.95 -50.1%
Discrete $244.99 $244.99 0.0%
Cardboard $9.89 $36.52 -72.9%
HTC Vive 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E12/2016 12/2017 12/2018 12/2019 12/2020 12/2021 12/2022 12/2023 12/2024 12/2025
Assumptions1) Steam game active users (000s) 146,640 152,506 158,606 164,950 169,899 174,996 180,245 185,653 191,222 196,959
YoY 4% 4% 4% 4% 3% 3% 3% 3% 3% 3%2) PC annual shipment (000s) 261,812 253,958 246,339 238,949 231,780 224,827 218,082 211,540 205,193 199,038
High-end consumer mix 5% 10% 15% 20% 25% 27% 28% 29% 30% 30%High-end consumer PC shipments (000s 13,091 25,396 36,951 47,790 57,945 60,703 61,063 61,346 61,558 59,711YoY -5% 94% 46% 29% 21% 5% 1% 0% 0% -3%
3) Commerical VR shipments (000s) 205 920 1,425 2,375 3,826 4,620 4,961 5,840 6,064 6,026YoY 349% 55% 67% 61% 21% 7% 18% 4% -1%
86% 66% 71% 64% 51% 52% 55% 54% 53% 56%
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 19
Exhibit 33: Key assumptions for Oculus Rift’s total addressable market
Source: Goldman Sachs Global Investment Research.
VR software market estimates broadly unchanged
On VR software, our estimates are largely unchanged with 2025 going from $26bn to $28bn,
driven by a slight increase in entertainment use cases (i.e., expanded use cases in
consumer markets on top of the core gamer market).
Exhibit 34: We expect ~75% of the $28bn VR software market to be driven by consumer
entertainment in 2025E Breakdown of VR software market
Source: Goldman Sachs Global Investment Research.
Oculus 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E
12/2016 12/2017 12/2018 12/2019 12/2020 12/2021 12/2022 12/2023 12/2024 12/20250.3
Assumptions1) Steam game active users (000s) 146,640 152,506 158,606 164,950 169,899 174,996 180,245 185,653 191,222 196,959
YoY 4% 4% 4% 4% 3% 3% 3% 3% 3% 3%Active Playstation User base (000s) 53,934 71,862 85,988 97,280 101,908 107,003 112,354 117,971 123,870 130,063
YoY 55% 33% 20% 13% 5% 5% 5% 5% 5% 5%Xbox user base 89,765 92,457 95,231 97,136 99,078 100,069 101,070 102,081 103,101 104,132
YoY 3% 3% 3% 2% 2% 1% 1% 1% 1% 1%Gaming users 290,339 316,825 339,825 359,366 370,885 382,068 393,669 405,705 418,194 431,155Hardcore gamers (30%) 87,102 95,048 101,947 107,810 111,266 114,620 118,101 121,711 125,458 129,346YoY 10% 9% 7% 6% 3% 3% 3% 3% 3% 3%
2) PC annual shipment (000s) 261,812 253,958 246,339 238,949 231,780 224,827 218,082 211,540 205,193 199,038High-end consumer mix 5% 10% 15% 20% 25% 27% 28% 29% 30% 30%High-end consumer PC shipments (000s) 13,091 25,396 36,951 47,790 57,945 60,703 61,063 61,346 61,558 59,711YoY -5% 94% 46% 29% 21% 5% 1% 0% 0% -3%
3) Commerical VR shipments (000s) 124 456 720 1,248 2,070 2,415 2,537 3,045 3,027 2,921YoY 268% 58% 73% 66% 17% 5% 20% -1% -3%
75% 55% 65% 58% 51% 53% 52% 50% 52% 56%
Videogames46%
Live events15%
Video entertainment
14%
Healthcare4%
Education2%
Retail3%
Engineering7%
Military2%
Real estate7%
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 20
Exploring the opportunity within each key segment/product
The following section looks at the framework we apply for each key segment/product
driving our VR/AR hardware and software forecasts over 2015-2025.
1. Vive hardware – significant revenue opportunity
HTC has a partnership in place with Valve, known for the award winning PC games (Half-
Life and Counter Strike) and the largest PC game platform (Steam) operator in the US, to
deliver a high-end VR experience through best-in-class technology and content. They
jointly developed a VR platform called Vive with a proprietary software-and-hardware
approach and application stores for content/game distribution.
We believe there is significant hardware revenue opportunity for HTC by selling the Vive
(VR HMD). As discussed in our May 24, 2016 HTC initiation report ‘From hardware maker to
platform owner: Vive to revive HTC’, we developed a framework to assess the long term
opportunity of Vive shipments during 2016E-2025E. Our framework is broken down into
three categories: game, consumer and commercial segments.
Game segment
We used the Steam active user base as a starting point to understand how Vive shipments
could be drawn from this addressable market. In our VR/AR model we estimate around
140mn active users by the end of 2015 and for this to grow at a 3% CAGR to 2025E.
Since it requires high-end PCs to power the Vive, we assume the penetration rate of Vive
users in this installed base to be mid to low single digits initially, growing to mid to high
single digits after 5 years. Gradually, as more content (game titles) becomes available and
the price of the high-end PC comes down, we expect the Vive penetration rate to reach
around 30% by the end of 2025E. We think this is a fair assumption given the view that VR
should become successful in game applications and 30% of the mix from the Steam
installed base is considered hardcore gamers (we defined these gamers as users playing
over 15 hours a week).
In VR games, we think it could also capture casual gamers in addition to core gamers. We
believe Vive would capture a majority of the Steam installed base converting to VR given
the partnership. We estimate Vive to have 70% market share within Steam longer term.
Consumer segment
We believe there could be a meaningful amount of general consumers that would like to
use Vive as an entertainment, social networking, communication or productivity device
longer term. These users are not considered core gamers (not categorized in the game
segment) but could also purchase and play VR games.
To quantify the consumer addressable market for Vive, we used the high-end consumer PC
mix as a starting point. A high-end consumer PC is defined as a PC that costs over
USD$1,000 in the consumer space (not including commercial, government, education or
small-medium business segments). We estimated this segment to be around 5% of PC
industry shipment in 2015 (50% of PC industry shipments is consumer), growing to 30%-
35% by 2025E. Assuming that the consumer mix stays at 50% longer term, it implies that
roughly 15% of global PC shipments will be powerful enough to run VR applications by
2025E. We assume Vive will have a long term market share of 30% in this segment being
one of the earliest VR platforms.
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Commercial segment
In the first VR/AR thematic report in January 2016, we outlined use cases outside of games
that could be meaningful drivers of the market in the near-term: live events, video
entertainment, healthcare, real estate, retail, education, engineering, and military. We laid
out case studies of vendors implementing VR/AR today, including Volvo using Microsoft
HoloLens to sell cars, NextVR streaming live sports, and Atheer developing smart glasses
for deskless professionals including doctors and emergency medical technicians. We
conducted a bottom-up analysis to arrive at estimates for the potential market in each use
case, assessing the number of users and the existing and potential revenue pools. While
the videogame use case will likely take center stage in 2016, we see use cases in areas like
healthcare and education evolving to help drive VR/AR awareness. The enterprise was the
driver of the PC and the consumer was the driver of the smartphone, but we see both
forces at work to drive VR adoption, with consumer use cases driving the momentum in
the beginning.
HTC is working with many partners to use Vive in vertical markets, with a number of
announcements since late 2015, including Shunwang (VR for internet café), Gree (VR for
theme parks and playgrounds), Ikea (virtual kitchen walk through), Audi (VR virtual car
showroom) and BMW (use VR to design future BMW car models). We expect HTC Vive to
capture 20-25% market share (lower than consumer) of hardware sales with potential
service revenues across our forecast period, given the commercial market should be more
fragmented due to specialization in the verticals.
2. PlayStation VR – strong installed base to drive near-term share
We believe Sony’s PlayStation VR could gain significant market share in its first five years
of VR penetration (21% peak market share in 2018E, in our base case), due to attractive
pricing vs. peers and also the availability of various exclusive content, including Star Wars
Battlefront from Electronic Arts, and Gran Turismo Sports from Sony Interactive
Entertainment. However, we assume it will be a pure entertainment optimized virtual
reality headset, and in contrast to Oculus and Vive hardware we assume no enterprise
market or non-PlayStation associated usage to emerge.
PlayStation installed base
In our updated VR/AR model we forecast PlayStation VR shipments to 2025, which is
beyond the current console cycle. Given the recent initiative by Sony to base PlayStation
business on PlayStation Network accounts and to maintain relationships with the
consumer even outside of PlayStation hardware, we believe the current PS4 installed base
of 40mn and eventual 100mn by 2018 (based on GS estimates) will be transferrable to the
next console without significant attrition.
Attachment rate to PS4/5
Our PlayStation VR estimates are based on an assumption on the percentage attached to
PlayStation consoles. In our base case, we assume an attachment rate of 3% in 2016 (i.e.
1.6mn units from the announced October 2016 launch of the hardware), gradually climbing
to 30% by 2022 and then finding equilibrium around that level through 2025 taking into
account churn and replacement demand. In the accelerated uptake case, we assume this
attachment rate starts from 5% in 2016 (i.e. 2.7mn units), rising to 43% by 2022 and to 50%
by 2025. In the delayed uptake case, we assume the attachment rate to PlayStation
consoles hitting just 11% at the peak.
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3. Oculus – first mover advantage and high awareness via Samsung
As the first VR platform in the market (it was launched in March 2016), Oculus has the
largest endorsement by the developer community (estimated by Oculus at >200k
developers). Being the first mover, Oculus has the advantage of having more exclusive VR
game titles. In addition, through the partnership with Samsung to create GearVR, Oculus
VR technology is the first to be enabled on a smartphone device. Our framework to forecast
Oculus shipments in our VR/AR model to 2025 is similar to that of HTC Vive in that we
separately estimate shipments for the gaming, consumer and commercial segments.
Gamers
As Oculus doesn’t have an existing installed base of gamers to draw from, we aggregate
the installed bases of Steam, PlayStation, and Xbox and then: 1) make an assumption on
the portion of these users migrating to VR gaming in general, and 2) forecast the share we
believe Oculus could garner. As of end-2015 we estimate there were 140mn Steam active
users, 35mn PlayStation users, and 90mn Xbox users, aggregating to a ~265mn total
gaming population. As more VR content becomes available and the total cost of ownership
declines, the portion of the total gaming population migrating to VR could rise and our
penetration rate assumptions could prove conservative. In our base case we assume only
10% of total gamers will own VR HMD in 2020 and that this rises to nearly 40% by 2025.
Consumer segment
As mentioned above, we believe there may be a meaningful amount of general consumers
that would like to use VR as an entertainment, social networking, communication or
productivity device longer term. These users are not considered core gamers (i.e., not
categorized in the game segment) but could also purchase and play VR games. To quantify
the consumer addressable market for Oculus, we use the high-end consumer PC mix as a
starting point. High-end consumer PCs are defined as those costing over $1,000 in the
consumer space (not including commercial, government, education or small-medium-
business segments). We estimate this segment was c.5% of the PC industry shipment in
2015 (50% of PC industry shipment is consumer) and that this could grow to 30% by 2025E.
Assuming the consumer mix stays at 50% longer term, this would imply roughly 15% of global
PC shipments would be powerful enough to run VR applications by 2025E. As one of the earliest
VR platforms, we assume Oculus could have 30% long term market share in this segment.
Commercial segment
In our first VR/AR thematic report in January 2016, we outlined use cases outside of games
that could be meaningful drivers of the market in the near-term: live events, video
entertainment, healthcare, real estate, retail, education, engineering, and military. We
expect the majority of commercial user cases to go towards AR, we see areas like real
estate, education, and engineering using both VR and AR. We note that commercial use
cases of VR make up only ~10-15% of our total Oculus shipment forecasts over 2015-2025.
4. GearVR – adding VR functions to Samsung smartphone
In our view, Samsung Electronics has a rather different approach compared to other VR
makers, as we believe it is trying to utilize Gear VR to enhance product attractiveness for its
smartphone by expanding to VR functionality. While the current price point of Gear VR
($99) does not appear hefty, for a non-Samsung phone user the burden is likely to come
from the price needed to pay for a compatible Samsung high-end smartphone. In this regard,
while Gear VR has the potential to become a device that attracts new customers to Samsung
smartphones given the increasing content offered and the entertainment value it adds, at
the current stage we believe Gear VR is more of a product that enhances product loyalty for
current Samsung smartphone users. Accordingly, our framework for Gear VR shipment
estimates is based on our long term Samsung smartphone shipment estimates rather than
projections by different segments (i.e. gamers, consumer, and commercial segments).
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Goldman Sachs Global Investment Research 23
Samsung smartphone shipment estimates
As indicated in our April 11, 2016 report ‘Samsung Electronics 2025: Life after
smartphones’, we view that Samsung smartphone shipments would keep decreasing if the
company were to maintain its current strategic course. Accordingly, we assume that
Samsung’s smartphone shipment will gradually decrease to 218mn by 2025 from 320mn in
2015. In terms of product mix, we expect its high-end portion will sharply decline to 16% by
2025 from 27% in 2015, while the low-end portion will significantly increase to 74% by 2025
from 62% in 2015.
Gear VR attachment rate
In our base case, we assume that Gear VR will be compatible only for high-end
smartphones in the mid-term given the low-margin for Gear VR. However, if the VR market
evolves as we expect, then Samsung Electronics may expand its Gear VR compatible
models for mid-end smartphones as well in the long term. Under our base case, we
assume the Gear VR attachment rate will reach 17% by 2025, mostly driven by high-end
smartphone models.
In our accelerated uptake case, we assume that Gear VR will be used in Samsung’s mid-
range phone from 2018 in light of faster-than-expected demand growth for VR. In addition,
we assume that Samsung’s low-end smartphones will be compatible for Gear VR from
2022, albeit at a slow pace. We assume the Gear VR attachment rate will reach 30%, driven
by increasing attachment rates in both high-end and mid-range smartphones, under our
accelerated uptake case.
When it comes to our delayed uptake scenario, we assume that Gear VR will be available
only in the high-end smartphone models as a consequence of limited demand growth for
VR. Accordingly, we expect the Gear VR attachment rate is only 9% by 2025 under our
delayed uptake case.
5. Other VR HMD – sizing the market for smaller VR brands
Outside of PlayStation, Oculus, HTC Vive, and Gear VR, there are a large number of smaller
VR brands producing headsets. Given the sophisticated nature of the content required, and
the integrated nature of hardware and content platforms, we believe smaller brands are
likely to face business challenges and thus restrained growth.
We estimate the size of this category by looking at the trends of the PC and smartphone
markets, which demonstrated the shrinking of smaller players as the industry matured. In
the PC market, we have seen smaller players’ market share decline from c.50% to just
c.20% over the course of the past decade. Since we view the barriers of entry as higher for
VR, in our base case we estimate ‘Other VR HMD’ starting with 30% market share but
falling to 10% by 2025.
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Appendices
Appendices
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Appendix 1: VR/AR software and hardware market forecast detail
Exhibit 35: Revisions to our VR/AR software and hardware market forecasts Base/accelerated uptake/delayed uptake cases – Old vs. New, % Change
Notes: Our “accelerated uptake” scenario predicts VR/AR technology evolving from a niche device to a broader computing platform. Our “delayed uptake” scenario assumes VR/AR sees challenges in latency, display, safety and privacy, and the technology is used primarily for videogames.
Source: Goldman Sachs Global Investment Research.
2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025ESoftware revenuesNew ($mn)
Base case 447 2,557 6,378 10,524 15,334 20,994 26,323 31,781 37,589 45,381
Accelerated uptake 787 3,677 8,950 15,036 22,494 31,848 41,741 53,374 67,206 85,038
Delayed uptake 244 727 1,961 3,085 4,591 6,196 7,322 8,305 9,487 11,106
Old ($mn)Base case 467 1,954 5,261 8,719 12,698 16,301 19,323 22,582 26,562 31,467
Change (%)Base case -4% 31% 21% 21% 21% 29% 36% 41% 42% 44%
Hardware revenuesNew ($mn)
Base case 2,823 4,879 11,684 16,013 22,222 28,437 32,897 39,853 43,937 49,686
Accelerated uptake 4,174 6,428 15,795 22,099 31,929 41,950 52,088 66,551 77,323 89,381
Delayed uptake 1,741 2,918 6,938 9,424 12,613 15,182 16,341 18,755 20,759 22,019
Old ($mn)Base case 1,869 4,230 7,742 11,147 14,669 19,186 28,241 35,335 39,811 44,536
Accelerated uptake 3,702 6,563 13,067 17,575 21,360 26,708 40,090 59,905 86,786 110,347
Delayed uptake 1,049 2,223 2,848 5,817 9,266 11,355 13,198 15,097 15,170 15,387
Change (%)Base case 51% 15% 51% 44% 51% 48% 16% 13% 10% 12%
Accelerated uptake 13% -2% 21% 26% 49% 57% 30% 11% -11% -19%
Delayed uptake 66% 31% 144% 62% 36% 34% 24% 24% 37% 43%
Hardware shipmentNew (000)
Base case 9,488 19,435 35,601 49,566 63,869 81,797 94,317 109,169 120,604 140,712
Accelerated uptake 14,489 24,757 46,912 69,866 96,244 125,320 153,873 188,469 229,221 274,354
Delayed uptake 6,511 10,570 19,730 28,135 35,857 42,968 46,445 52,379 57,770 61,127
Old (000)Base case 3,779 9,393 19,963 30,694 42,701 53,376 66,187 82,071 100,948 124,166
Accelerated uptake 7,484 14,572 33,691 48,391 62,179 71,204 102,534 145,598 205,293 287,411
Delayed uptake 2,121 4,935 7,343 16,016 26,974 37,577 40,583 43,830 46,898 50,181
Change (%)Base case 151% 107% 78% 61% 50% 53% 43% 33% 19% 13%
Accelerated uptake 94% 70% 39% 44% 55% 76% 50% 29% 12% -5%
Delayed uptake 207% 114% 169% 76% 33% 14% 14% 20% 23% 22%
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Appendix 2: Competitive dynamics of the three major VR platforms
As discussed in our January 2016 Profiles in Innovation report, we identified three major
high-end VR platforms globally: Sony PlayStation VR, Oculus Rift and HTC Vive. We focus
on the high-end VR platform (PC or console based) because it has a much better user
experience over smartphone-based VR HMD; we think the high-end should lead VR
innovation and expand use cases. In the following section, we compare high-end VR
platforms with respect to their product performance, go-to-market strategy, cost of
ownership, business model and content availability.
Exhibit 36: Similar hardware specifications between the three major global VR platforms
Product comparison
Source: Company data, Goldman Sachs Global Investment Research.
Product name PlayStation VR Oculus Rift HTC ViveCompany Sony Facebook / Oculus HTC / ValveLaunch/Shipment October 2016 March 2016 April 2016
Installed base PS4: +60mn users in 2016No platform leverage; Address all PC gamers
Steam: +140mn users in 2016; Shunwang: +100k Internet Cafes in China
HMD Price (excluding tax) $399 $599 $799
Necessary accessoryPS Camera ($59); Move motion controllers ($49)
Xbox controller included. (Oculus Touch controller to be released 2H16)
Two light houses and two controllers (included in the set price)
Set price $399+$59+$49x2=$556$599+$59x2 (controller cost not officially released) = $717
$799
Host system USD$399 for PS4 USD$1,000 for gaming PC USD$1,000 for gaming PC
All-in-cost USD$955 USD$1,717 USD$1,799
VR Platform PlayStation 4 Oculus Vive
Device SpecificatonDisplay OLED Two OLED screens Two OLED screens
Screen size 5.7" 2.5-3" each 2.5-3" each
Resolution1920 x RGB x 1080 for two eyes
2160 x 1200 split over two displays 2160 x 1200 split over two displays
Max. refresh rate 120 Hz 90Hz 90Hz
Field of View 100 degrees 110 degrees 110 degrees
Room scale No No Yes
External camera No No Yes
Latency <18ms <20ms <20ms
Manufacturer Goertek Goertek HTC
ContentsNumber of titles 94 total, 25 exclusive 100 titles total for 2016, 20 exclusive >80 games and apps
Announced titles Gran Turismo Sports (Sony)* EVE Valkyrie (CCP Games)Vanishing Realms: Rite of Steel (Indimo Lab)
* indicate exclusivity Star Wars Battlefront (EA)* Rock Band VR (Harmonix)John Wick: The Impossible Task (Lionsgate & Starbreeze)
Ace Combat 7 (Bandai Namco)* Dreadhalls (White Door Games) Arizona Sunshine (Vertigo Games)
London Heist (Sony)* Radial G (Tammeka Games) Selfie Tennis (VR Unicorns)
Tekken 7 (Bandai Namco)* Chronos (Gunfire Games)The Brookhaven Experiment (Phosphor Games Studio)
etc… etc… Games of Throne from HBO
Number of developers 230 total, 34 in Japan 200,000 registered developersVive supported by Unity 5 and Unreal Engine 4, the two largest VR game engines
Platform Leverage
Pricing (USD)
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Go-to-market strategy
All three platforms are addressing the game market as the primary market initially. The
three hardware devices are not compatible, which means content being developed on the
PlayStation Virtual Reality (PSVR) platform will not run on Oculus or Vive and vice versa.
We think that PSVR and Vive could have the most direct game addressable market;
however Oculus Rift has a first-mover advantage and the highest awareness through its
partnership with Samsung.
We estimate that PS4 will be the bestselling console with over 60mn users in 2016E. We
also expect that PlayStation owners are more likely to adopt PSVR given their familiarity
with the console.
HTC Vive has two major partners to address the game market. The first one is Valve, co-
developer of Vive, which operates the largest PC game distribution platform in the US
called Steam, where we estimate 140mn+ active users in 2016E globally. HTC also signed
an exclusive partnership with Shunwang, the largest Chinese internet café operator with an
estimated +100k cafes operating in China. We think that Steam users are more likely to
choose Vive given the Steam integration, which offers functions such as community
interaction, social networking, cloud saving and ease finding/purchasing/installing games.
Oculus is the first VR platform in the market and thus has the largest endorsement by the
developer community (estimated by Oculus at >200k developers). Oculus was founded by
Palmer Lucky and Jack MacCauley in June 2012. Being the first mover, Oculus has the
advantage of having more exclusive VR game titles. We believe the availability of attractive
titles is one of the most important decisions for users in choosing which VR platform to
own. In addition, through the partnership with Samsung to create Gear VR, Oculus VR
technology is the first to be enabled on a smartphone device. Even though we think
smartphone hardware currently has limited horsepower to drive a great VR user
experience, this helps to increase the awareness of VR and Oculus technology. As such,
Galaxy smartphone users might favor Rift when choosing a high-end VR system.
Hardware performance comparison
Comparing hardware specifications, all three devices are quite similar. They all use OLED
(organic light-emitting diode) displays with about 1k resolution per eye. The refresh rate is
higher on PSVR at 120hz/sec but all three pass the threshold of >90hz/sec. In terms of FOV
(field of view), Rift and Vive are slightly higher at 110 degrees while PSVR is at 100 degrees.
The latencies are also similar across the three platforms at <20ms which is required to
avoid cyber sickness. In terms of manufacturing, PSVR and Rift are outsourced using
Goertek (a Chinese OEM) and Vive is manufactured by HTC internally.
One major difference in functions between the three is HTC Vive’s “room scale” capability.
Room scale means that users can physically walk around in a virtual space. Vive has two
laser base stations which can track the position of the user in a defined physical area. This
allows the virtual space to be mapped to the real physical space. In other words, the Vive user
can physically move around in a virtual environment. This is a unique tracking technology
developed by Valve. PSVR and Oculus Rift have positional tracking but are limited to sitting
down and standing up without the capability to physically walk around in the virtual
environment. However, the user could move in the virtual environment with game controllers.
Cost of ownership
All three platforms are high-end VR systems, which means they are connected to either a
game console or PC. From a cost standpoint, the user would have to purchase the host
system (either game console or PC) that is powering the VR HMD. It is worth noting that in
terms of the all-in cost of the three platforms beyond the cost of HMD, PSVR is the lowest
followed by Rift and Vive being the most expensive.
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The all-in cost for PSVR is around $955. This includes the PlayStation 4, two Move
controllers, a camera for positional tracking and the VR HMD. For Rift owners, the total cost
would be around $1,717. This includes a high-end gaming PC (around $1,000), the camera
for positional tracking, two Touch controllers (pricing is our estimate and not officially
announced) and the VR HMD. The total cost of HTC Vive at around $1,799 is the highest but
at a similar level to Rift. This includes a high-end PC, two laser base stations for “room
scale” tracking, two controllers and the VR HMD. Although HTC Vive has the highest all-in
cost, we think it offers the most interactive VR experience through its room scale capability.
Business models
We view the business models as different between the three platforms. For PSVR, we think
this should be similar to the PlayStation monetization strategy, which is to profit from
game sales while PSVR hardware could be sold at a very low gross margin. For Oculus Rift,
we are unclear about its monetization strategy, but we think it could be similar to PSVR for
the game segment while for the non-game segment (i.e. social networking) it could be
targeting ads revenue as a long term monetization strategy.
As for HTC Vive, we believe they will monetize from both hardware and service revenue.
For hardware, we think they could be positioned to make a gross margin of 20-25% longer
term as the hardware is differentiated with the Vive platform. For service revenue, we think
HTC can generate from software distribution through Viveport (its applications store, which
we assume is used mainly for non-game apps sales, games developed from China and
commercial markets.
Content availability
PSVR is focused mainly on games while Rift and Vive have non-game application offerings.
PSVR will likely have the most exclusive game titles followed by Rift. We estimate there
will be 94 VR games (with 25 exclusives) on the PSVR platform this year with +230
developers. Oculus has previously announced that over 100 game titles (with 20
exclusives) will be available in 2016. Oculus is also developing its own content through
Oculus Studio with short films.
HTC Vive originally plans to have around 80 games and applications by end of 2016, but so
far is tracking meaningfully ahead having reached ~250 VR contents in June 2016. The non-
game application that has attracted a lot of attention from the VR community is Tilt Brush,
a painting application that allows the user to draw in a 3D environment enabled by Vive’s
room scale capability. HTC is also working with many partners to use Vive in vertical
markets. Some of the recent announcements include Shunwang (VR for internet cafés),
Gree (VR for theme parks and playgrounds), Ikea (virtual kitchen walk through), Audi (VR
virtual car showroom) and BMW (use VR to design future BMW car models).
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Disclosure Appendix
Reg AC
We, Wei Chen, Masaru Sugiyama, Heather Bellini, CFA, Marcus Shin, Shateel Alam, Ricky Lee, Yusuke Noguchi, Daiki Takayama, Simona Jankowski,
CFA, Toshiya Hari and Lingling Hu, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject
company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to
the specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
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Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate
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yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.
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environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Wei Chen: Asia Pacific Technology. Masaru Sugiyama: Japan Internet and Games, Japan-Consumer Electronics, Japan-Media. Heather Bellini, CFA:
America-Software. Marcus Shin: Korea Technology. Shateel Alam: America-Software. Ricky Lee: Asia Pacific Technology. Daiki Takayama: Japan-
Electronic Components. Simona Jankowski, CFA: America-Consumer Hardware & Mobility, America-IT Hardware, America-Telecom Equipment.
Toshiya Hari: America-Semiconductor Capital Equipment, America-Semiconductors. Lingling Hu: China Technology.
America-Consumer Hardware & Mobility: Apple Inc., BlackBerry Ltd., BlackBerry Ltd., Corning Inc., Garmin Ltd., GoPro Inc., Qualcomm Inc..
America-IT Hardware: Aerohive Networks Inc., Arista Networks Inc., Brocade Communications Systems, CDW Corp., Cisco Systems Inc., EMC Corp.,
F5 Networks Inc., Hewlett Packard Enterprise Co., HP Inc., Motorola Solutions Inc., NetApp Inc., Nimble Storage Inc., Pure Storage Inc., Xerox Corp.,
Zebra Technologies Corp.
America-Semiconductor Capital Equipment: Applied Materials Inc., Keysight Technologies Inc., Lam Research Corp., SunEdison Semiconductor Ltd.,
Teradyne Inc..
America-Semiconductors: Analog Devices Inc., Broadcom Ltd., Intel Corp., Linear Technology Corp., Maxim Integrated Products, Nvidia Corp., NXP
Semiconductors NV, Qorvo Inc., Skyworks Solutions Inc., Texas Instruments Inc., Xilinx Corp..
America-Software: Adobe Systems Inc., Akamai Technologies Inc., Alarm.com Holdings, Alphabet Inc., ANSYS Inc., Atlassian Corp., Autodesk Inc.,
Citrix Systems Inc., Facebook Inc., Microsoft Corp., Mimecast Ltd., MobileIron Inc., Oracle Corp., Rackspace Hosting Inc., Red Hat Inc., RingCentral,
Salesforce.com Inc., Twilio, VMware Inc., Workday Inc..
America-Telecom Equipment: Acacia Communications Inc., ADTRAN Inc., ARRIS International Plc, Ciena Corp., Finisar Corp., Infinera Corp., Juniper
Networks Inc., Lumentum Holdings.
Asia Pacific Technology: AAC Technologies, Acer, Advanced Semiconductor Engineering, ASUSTeK Computer, Casetek Holdings, Catcher
Technology, Compal Electronics, Hon Hai Precision, HTC Corp., Largan Precision, Lenovo Group, Pegatron, Quanta Computer, Siliconware Precision
Industries, TPK Holding, Wistron.
China Technology: Accelink Technologies, Aisino, Anhui USTC iFLYTEK, Beijing Shiji Information, Beijing Ultrapower Software, Fiberhome Telecom
Tech, GoerTek Inc., Hangzhou Hikvision, Hermes Microvision Inc., Hua Hong Semiconductor Ltd., Hundsun Technologies Inc., Mediatek, NavInfo Co.,
Ningbo Joyson Electronic, Parade Technologies Ltd., Shenzhen Luxshare Precision Ind, Shenzhen O-Film Tech Co., Silergy Corp., SMIC, SMIC (ADR),
Sunny Optical Technology Group, TSMC, TSMC (ADR), United Microelectronics Corp., United Microelectronics Corp. (ADR), Wangsu Science &
Technology Co., Yonyou Network Technology, Zhejiang Dahua Technology Co., ZTE Corp. (A), ZTE Corp. (H).
Japan Internet and Games: Bandai Namco Holdings, Capcom, CyberAgent, DeNA Co., Gree, Kakaku.com, Konami, mixi, Nexon, Nintendo, Rakuten,
Sega Sammy Holdings, Square Enix Holdings, Yahoo Japan.
Japan-Consumer Electronics: Panasonic Corp., Sony.
Japan-Electronic Components: Alps Electric, Hirose Electric, Ibiden, IRISO Electronics, Japan Aviation Electronics Industry, Japan Display Inc.,
Kyocera, Mabuchi Motor, Minebea, Mitsumi Electric, Murata Mfg., NGK Insulators, NGK Spark Plug, Nichicon, Nidec, Nippon Ceramic, Nippon
Chemi-Con, Nitto Denko, Pacific Industrial, Shinko Electric Industries, Taiyo Yuden, TDK.
Japan-Media: Dentsu, Hakuhodo DY Holdings.
Korea Technology: Samsung Electro-Mechanics, Samsung Electronics, Samsung SDI Co., Samsung SDS Co., Seoul Semiconductor, SK Hynix Inc..
July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 30
Company-specific regulatory disclosures
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compendium can be found in the latest relevant published research
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As of July 1, 2016, Goldman Sachs Global Investment Research had investment ratings on 2,963 equity securities. Goldman Sachs assigns stocks as
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Goldman Sachs Global Investment Research 31
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July 18, 2016 Augmented reality starts to liven up the VR/AR market
Goldman Sachs Global Investment Research 32
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