Disruptive Technology | US AR and VR Usage Forecast 2022

AR and VR usage will persevere, and drive retail growth and opportunities within ecommerce to increase visualizations and reduce returns.

People flocked to augmented reality (AR) and virtual reality (VR) during the pandemic. As technologies improve—in part from early investments in the metaverse—we expect both to continue growing, albeit at a slower pace.

Key Takeaways

AR and VR user numbers will grow steadily through 2025. AR figures will continue to grow more quickly partly because the technology is more accessible via smartphones. But investments in dedicated headsets should lead to increases in VR users, as well.

Social media remains a big driver for AR and VR user growth. The majority of AR users experience it in social media. Social platforms are also heavily investing in dedicated AR and VR hardware. In 2021 alone, Meta Platforms invested $10 billion into the metaverse, including new AR and VR devices.

AR and VR will provide opportunities within ecommerce to increase product visualization and reduce returns. But it’s not just the ecommerce shopping experience that can benefit—retailers are also finding that adding AR and VR in stores increases engagement and sales.

Brands are still feeling their way around AR and VR, but more marketing opportunities are emerging. The widespread use of AR in social media has made it an early advocate for AR advertising. At the same time, virtual worlds offer opportunities for sponsored avatars or immersive experiences.

AR and VR Continue to Attract New Users

Once the domain of gamers and young social media users, AR and VR are entering the mainstream. This year, more than a quarter of the US population will use AR and nearly a fifth will use VR. As device-makers improve VR headsets and AR spreads to new use cases, the number of AR and VR users will continue to grow over the next four years, with AR outpacing VR.

AR User Numbers Will Exceed 100 Million in 2024

We’ve lowered our estimate for current users to 89.4 million in 2022 because of access to better data—but we remain bullish on future growth.

We expect the number of AR users in the US to increase by more than 20 million people between 2022 and 2025.

Social media continues to drive AR usage. Many people first experience AR when they use a filter or lens in Snapchat, Instagram, or TikTok. And many of them are likely to be repeat users—56.0 million people in the US will experience social AR at least once per month in 2022. This year, 16.6% of the US population will use social network AR. That figure will tick up to 19.8% by 2025.

By the end of this year, 29.7% of US internet users will use AR. That percentage will rise to 35.5% in 2025.

Even so, the pace of social media AR user growth will lag behind the rate for overall AR users. As a result, the share of AR users who use it in social media is gently decreasing—although it will remain a majority for the foreseeable future.

AR in retail goes from novelty to mainstream. Some of the earliest applications of AR were in retail apps, such as Ikea’s. But with in-store AR expanding and more apps using AR for shopping—including social media apps—retail AR continues to grow rapidly.

There will be 35.0 million retail AR user in 2022, nearly double the 18.9 million using it just three years ago.
The number of US retail AR users will reach 49.0 million in 2025.

Retail accounts for a growing share of AR use.

In 2022, 39.2% of US AR users will use the technology for retail. That figure will rise to 44.5% by 2025.

VR Usage Will See Moderate Growth After Pandemic Surge

Improved headset technology and the pandemic combined to drive a big increase in the number of VR users over the past two years.

The number of US VR users will grow 8.6% in 2022 to 66.8 million. Their ranks will reach 75.4 million in 2025.
In 2022, 19.8% of the US population will use VR. This share will increase to 21.9% by 2025.

A key driver of this growth is more powerful VR headsets, such as the Meta Quest 2 (formerly marketed as the Oculus Quest 2).

The number of VR users will grow 9.6% this year to 34.8 million, a year after the pandemic boosted VR usage by more than four times that rate.
The pace will slow to single digits for the remainder of our forecast. But the annual growth rate of VR headset users will still exceed that of VR users.
Strong sales for VR headsets means that a slight majority of VR users in the US (52.0%) now are VR headset users. That share will rise slowly to 53.5% in 2025.

What Is Driving AR and VR Usage?

Several factors are pushing AR and VR into the mainstream. Better devices and developer platforms, more sophisticated applications for retailers and other industries, and increased consumer acceptance all contribute to more widespread and sophisticated AR and VR.

Technological Drivers: Metaverse Dreams Fuel Investments

As the tech world buzzes about the metaverse, most of the key players are pouring huge sums of money into AR and VR:

Meta reported $10 billion of investments in the metaverse. The company is developing more sophisticated VR devices (Project Cambria); AR smart glasses (Projects Aria and Nazare); a combined AR, MR, and VR developer platform (Presence Platform); and a social VR platform (Horizon Worlds).

Apple is rumored to be on track to deliver an AR/VR headset within the next year geared to developers and is also working on consumer smart glasses (Apple Glass). The iPhone 13 also includes Lidar, a depth sensing and mapping technology that makes more sophisticated AR possible, and ARKit, its AR developer platform.

Google has numerous AR and VR projects, including a rumored untethered MR device (Project Iris); smart glasses (from its purchase of smart glass company North); a holographic virtual conferencing system (Project Starline); and an advanced AR operating system.

Microsoft may continue to develop its MR HoloLens or other cloud-based MR devices.

Snapchat has Spectacles 3, an AR smart glass device geared to developers.

Amazon has largely released developer tools, such as Sumerian AR, but it invests heavily in computer vision technologies that may lead to consumer devices, as well.

Samsung has lagged other big companies but has publicly discussed future smart glasses, an AR headset, and windshield AR for cars.

Big Tech isn’t alone in AR and VR innovation.

Numerous smaller players, such as Vuzix, Solos, and Eversight, are also working on AR. And even newer companies are attracting big investments. Venture capital funding of VR/AR software and hardware startups set a quarterly record in Q4 2021, reaching nearly $1.9 billion, according to Crunchbase, driven by interest in the role VR and AR will play in the metaverse and improvements in VR technology.

Game and software platforms have taken a different track by bringing new developer platforms to market for AR and VR:

Niantic released Lightship, the AR and real-world 3D mapping technology behind Pokémon Go, for a larger developer audience in November 2021.

Nvidia offers VRWorks developer tools and the Omniverse 3D simulation platform for developers.

All these investments will lead to:

Smaller and more powerful devices. Better chips, edge computing, and 5G will all serve to shrink the size of the computers needed to generate AR and VR—as well as the latency or responsiveness of the devices. Better projection technologies will also shrink device sizes.

More realistic experiences. Lidar, projection technology with better field of vision and higher refresh rates, eye tracking, and new developer tools will result in sharper and more realistic virtual objects and layers with smoother movements and better depth.

Complementary devices. Numerous wearables, such as haptic gloves, eye-tracking glasses, and gaming vests now provide inputs that will include body movements in virtual experiences, or easier inputs for AR experiences, such as touchless scrolling for smart glasses.

Shifting Device Use

More AR and VR experiences are shifting from smartphones to dedicated AR and VR headsets. AR or MR headsets have mostly been niche products until now, and their numbers remain fairly small next to VR headsets—but that will likely change in the next few years. AR headset shipments will increase by more than tenfold between 2022 and 2025, and VR headset shipments will more than double, according to December 2021 research from International Data Corporation (IDC).

VR headsets are more established than AR headsets but will also see a steep increase in use. VR technology has gotten better, with newer headsets, such as Meta Quest 2 and Vive Flow, both lighter and untethered. These more powerful—and comfortable—headsets will double the worldwide installed base of VR headsets between 2022 and 2026, according to research firm Omdia.

Even so, most AR experiences will remain on smartphones, which have very high penetration rates in developed economies and widescale use even in emerging economies. Mobile AR revenues worldwide, for instance, will roughly double between 2022 and 2025, according to research firm ARtillery Intelligence.

Cars are the next battleground for AR. Automakers are adding head-up displays to project information onto windshields that can be seen while a vehicle is driven. Acura, Audi, BMW, Chevrolet, Hyundai Motor Co., and Toyota Motor Co. added this feature to their 2021 model year cars.

5G makes advanced immersive experiences possible. Although 5G networks already cover much of the country, most of these networks do not yet offer the low latency and high throughput speeds that will allow for edge-server based AR and VR experiences. Once they do, devices will get smaller, and experiences more immersive.

AR in Gaming and Retail

It’s no surprise that social AR is so popular—but so are AR games and product visualizations.

The next Pokémon Go hasn’t arrived yet, but AR games are still one of the leading way people engage with AR. Gaming was the most widespread AR content (although not necessarily the most regularly used), per ARtillery Intelligence and Thrive Analytics. More than twice the number of survey respondents had played an AR game as had used a social lens or filter.

In some ways, the next Pokémon Go is … Pokémon Go. The app brought AR gaming into the mainstream in 2015, but it had record earnings in H1 2021 with $641.6 million. That brought its lifetime revenues past $5 billion, according to Sensor Tower.

Retailers have long had an eye on AR, but it still has unrealized potential for shopping purposes. Only 3% of US adults used AR regularly while shopping, although another 10% used it occasionally, according to a February 2022 Insider Intelligence survey conducted by Bizrate Insights. An additional 39% of respondents were interested in using it, with the most use and interest among 18- to 34-year-olds.

Retailers might finally have the tools to take advantage of the untapped interest in AR shopping. The pandemic-induced surge in ecommerce forced retailers to accelerate investments in AR shopping tools and tool users.

Social commerce’s growth may also make AR shopping more accessible.

Snapchat had 200 million people per day engage with its AR tools in Q3 2021. It now has AR Lenses for trying on items. And in the 2021 holiday season, it created an AR marketplace in its Lens Carousel.

Pinterest has its own AR shopping tools, including ones for home decor and beauty brands.

Meta and TikTok are less advanced in AR shopping, but Facebook and Instagram have some try-on experiences in their Shops and ads.

Wild Cards in the Forecast

The metaverse is a glossy vision, but it will need buy-in from consumers. It’s an open question as to whether consumers view the metaverse as exciting or dystopian. And even if the metaverse takes off, another big question remains: Which version will consumers embrace?

Meta’s VR-centric version that will be based on VR headsets and interoperable virtual worlds
Or more AR-centric versions that companies such as Google, Niantic, or Snapchat are building toward.

Apple has moved product categories into the mainstream—will it do the same with smart glasses and AR and VR headsets? Apple’s MR headset is rumored to enter the market in 2023, with smart glasses possibly coming soon thereafter. Could companies like Snapchat or Google launch smart glasses?

Finally, will the spread of AR in shopping, driving, and working make consumers more comfortable in everyday AR or VR? With AR and VR developer platforms proliferating, will consumers embrace what designers think will be magical experiences?

In most of these cases, our assumptions are conservative. The upside is more likely for our forecast than the downside.

What Should Retailers and Advertisers Do Today?

As AR and VR become more widespread, retailers and advertisers have opportunities to improve the customer discovery and shopping experience.

Retailers

With nearly all shoppers now able to access AR experiences through their smartphones, retailers have an opportunity to improve the customer experience to boost sales and reduce returns.

The biggest opportunity is product visualization prior to ecommerce purchase. US ecommerce sales will exceed $1 trillion in 2022 and account for 15.2% of total retail.

Reducing return rates: The return rate for ecommerce sales hovers around 20%, according to the National Retail Federation (NRF). The value of returns exceeded $200 billion in 2020, and is likely to be higher for 2021. Better product visualization can save billions of dollars in return costs and damaged inventory.

Increasing conversion rates: Product visualization also improves conversion rates. Harvard Business Review, as cited by Snap, found that conversion rates increased 94% when AR experiences were involved.

Retailers will find tremendous opportunities in AR virtual try-on and AR shopping. That will be especially true in verticals like beauty, furniture, and apparel, where online purchases are difficult and can result in high return rates, according to Carolina Arguelles Navas, global AR product strategy and product marketing lead at Snap, Inc.

Virtual try-on technology generates lots of consumer interest. According to a 2021 survey by retail AR provider Vertebrae—since bought by Snap:

About half (49%) of consumers would be likely or very likely to buy from a brand that offered virtual try-ons.
Slightly fewer (44%) respondents had tried virtual try-ons, with most (75%) of those in the past year.

AR and VR can also improve the in-store experience:

Visualization of the product in use: Macy’s stores use VR goggles to test the furniture designs in-store. Furniture sales increased 60% at three pilot stores. Returns dropped below 2%. Vince Cacace, founder and CEO of Vertebrae, noted that AR performs best with high volume, higher consideration products, which require deliberation before purchase.

More immersive experiences: Tilly’s, which sells apparel, accessories, and shoes to younger people, launched an AR “window,” a screen that lets customers interact with AR creatures. In-store foot traffic increased 30% after the launch. Similarly, The North Face used VR headsets to give in-store customers a tour of Yosemite National Park and the Moab desert, with fellow hikers wearing North Face outfits.

More seamless shopping: Magic (AR) mirrors let customers try on clothes or beauty products in a fraction of the time required in a fitting room. AR can also help with in-store navigation.

Product customization: Automakers for years have offered AR or VR visualizations of different car options to aid auto dealers with limited stock. For example, BMW recently released an AR showroom for its plug-in hybrid vehicles.

Brands

AR advertising is growing very rapidly, according to ARtillery Intelligence, but it’s a small part of overall ad spending. The $2.86 billion spent on AR ads in 2022 translates to just 0.7% of mobile ad spending worldwide.

Even so, AR ads work in places where people are already having AR experiences, such as social media:

Snapchat has sponsored Filters and Lenses. Ulta Beauty, for instance, generated $6 million in sales and more than 30 million try-ons in its first two weeks of using Snapchat Lenses.

Pinterest and Snapchat have try-on tools for beauty, home goods, and clothes.

In October 2021, Snapchat launched Arcadia, a design studio for AR ads. Meta also has Spark AR Hub, a design tool for creating and publishing AR effects in ads.

Brands need to focus on the right audience. Although a significant number of people in younger cohorts use AR already, it remains a novelty for older demographics.

QR codes can launch AR effects in traditional advertising—or elsewhere.

Volkswagen of America put QR codes that started an AR experience on Amazon boxes during the 2021 holiday season to promote the launch of its new Taos crossover SUV.

Westfield Group used QR codes that launched AR experiences as part of a scavenger hunt for deals in its malls.

BON V!V Spiked Seltzer, a brand of Anheuser-Busch InBev, launched a Web AR out-of-home ad retail experience. Mural graphics, activated by a QR code scan, showed a 3D vending machine containing 3D animations.

Brands can also use geolocated games to connect with new customers or provide product visualization, navigation, or personalized services. Pokémon Go not only introduced geolocated AR to the world, but also geolocated advertisements, such as sponsored gyms or PokéStops. The Westfield example demonstrates how geolocated ads within a scavenger hunt can also work outside an AR game.

As metaverse platforms develop, there will likely be additional opportunities for sponsored avatars. Some examples already exist:

Ralph Lauren partnered with Snap, Inc. to allow Snapchat users to access Ralph Lauren apparel by outfitting their personalized Bitmoji avatar within the Snapchat app. In December 2021, Alice Delahunt, the brand’s chief digital and content officer, noted that tens of millions of avatars are wearing the brand.

Samsung created a virtual store in Decentraland at this year’s Consumer Electronics Show, which included sponsored experiences.

Definitions

AR enables a user to interact with virtual objects and other digital information overlaid on the real world. Examples of AR include filters of videos and photos (e.g., Snapchat Lenses); games (e.g., Pokémon Go); shopping (e.g., Ikea Place app, Sephora Virtual Artist); navigation (e.g., via head-up displays); and training via headsets (e.g., HoloAnatomy).
VR immerses a user inside a nonfixed 360-degree visual environment. Users interface with multimedia content via connected TVs, desktops/laptops, mobile devices, or headsets. Examples of VR include photos and videos (e.g., Google Earth VR); games (e.g., Horizon Worlds); and virtual simulations (e.g., product demos, virtual showrooms).

Mixed reality (MR) is a hybrid of AR and VR where you can manipulate physical and virtual items and environments.
The Metaverse allows users to interact with virtual objects and other digital information overlaid on the real or virtual world and immerse themselves inside a nonfixed 3D (lifelike) environment. Currently, the metaverse is accessed via games like Fortnite, Horizon Worlds, and Roblox.