Could 2016 be the year when augmented reality (AR) and virtual reality (VR) finally take off?

The launch of Pokémon Go in July took the world by storm, with downloads of the AR game reaching more than 100 million within a month, and 2016 saw the launch of several VR headsets.  Multiple studies have predicted significant growth for the industry, including a January 2016 report from Goldman Sachs projecting that AR/VR will be an $80 billion market by 2025.

But uncertainty with AR and VR remain—and those involved in the industry think a lack of compelling content, cost and the user experience are still pressing challenges.  Those key findings are revealed in a new survey of 653 AR/VR startup founders, executives with established technology companies and investors released today by Perkins Coie and Upload.

Content Demand and Legal Risks

The survey shows that, as the case has been with other successful technology products, the development of high-quality and robust content is key to moving the AR/VR industry forward.  Among a range of challenges facing AR/VR, inadequate content offerings was seen as the most significant obstacle by 37 percent of respondents.

In a sign that AR/VR is still a relatively young industry, only 4 percent of respondents said regulation and legal risks were the biggest challenge facing AR/VR.  However, executives with AR/VR startups and established technology companies did express concern about specific legal risks, technology and intellectual property licensing (19 percent), product liability and health and safety issues (18 percent), and consumer privacy and data security (15 percent).

Survey Report Highlights

Some of the other top findings include the following:

• Cost and UX. Cost and issues with user experience are the biggest obstacles to mass adoption of both AR and VR technology, respondents said.  For VR, 38% of respondents cited user experience (e.g., bulky hardware and technical glitches) and 32% cited cost as the biggest obstacles. In comparison, there was a larger delta between user experience (35%) and cost (25%) for AR technology, perhaps because AR has more practical uses that can justify a higher cost, in addition to the greater availability of low-cost AR games and apps.

• AR or VR in the Lead?  Two-thirds of respondents expect the AR market to surpass VR in revenue, but 82 percent expect it will take at least three years.

• Mobile VR.  Nearly 9 of 10 respondents (89 percent) said VR and smartphone manufacturers will focus on developing mobile VR technologies in the next two years, likely seeking to capitalize on the increasing amount of time consumers spend on mobile devices and the opportunity to provide less expensive options.

• Investment Targets.  In reflecting on the sectors expected to see the most investment directed to AR/VR technology or content in the next 12 months, gaming was selected by 78 percent of respondents, followed by movies and television (40 percent) and live events (34 percent).

One of the most telling indicators that AR and VR are gaining traction is investor willingness to bet bigger on the technology.  Twenty-two percent of investors surveyed said they planned to direct $6–10 million toward AR/VR companies in the next year, up from zero percent who said they had invested in that range in the previous 12 months.

The future for AR and VR remains to be seen, but the survey provides interesting insight on key challenges and opportunities from those who are currently developing, shaping and investing in technology and content.

To view the complete Perkins Coie and Upload Augmented and Virtual Reality Survey report, please visit: https://www.perkinscoie.com/vr.

Kirk Soderquist and Don Karl are co-chairs of Perkins Coie’s Interactive Entertainment practice, and Jason Schneiderman is a partner based in Palo Alto.  The practice represents several AR and VR market leaders in identifying, anticipating and resolving legal issues raised by this developing technology, including content strategy execution, commercialization, IP protection, product liability and corporate financings.