“The consumer AR market is inherently better positioned than VR, because AR features are relevant to a wider cross-section of content and application categories,” said Piers Harding-Rolls, research and analysis director, IHS Markit.

“A smartphone-driven AR market offers a huge addressable audience, but this scale will be offset to an extent by the more limited use cases for handheld and small-screen dedicated AR experiences. Even so, consumer AR’s overall market potential will significantly outweigh VR over the next five years.”

The market for consumer VR remains relatively niche, but continued moderate headset adoption is expected over the next few years, as hardware prices drop, technology improves and content becomes more appealing. However, with limited adoption of high-end PC and console VR headsets so far, many independent VR content companies selling content directly to consumers have found it difficult to realize a return on their investments.

“Consumer use of AR technology will be dominated by smartphones over the next few years,” Harding-Rolls said. “AR headsets are making progress, but we expect to find early consumer traction within niche applications — such as training for sports and drone flying — but not as devices for general use.”

The consumer VR headset market continues to grow, but at a relatively sedate pace, the IHS Markit reported noted. Adoption of high-end VR headsets in 2017 was hampered by cost of the equipment and a lack of standout content, while the potential of the smartphone-based sector was undermined by limited support for Google’s new Daydream platform.

Additionally, smartphone vendors spent the year pushing other features to sell their high-end phones, particularly, the screen and camera technologies, and not VR headsets.

The global consumer VR headset installed base reached 28 million at the end of 2017, but by 2021 that number will rise to 75.7 million. Consumer spending on VR headsets reached $2.4 billion in 2017 and is forecast to rise to $5.9 billion by 2021.

“Consumer spending will be driven by continued adoption of PC, console and standalone headsets, offset by a reduction in headset prices,” Harding-Rolls said.