Report: VR And AR Developers Aren’t Making Enough Money To Justify Investments

Ocurus Update

Virtual reality and augmented reality are still in their infancy. But with hundreds of companies, tens of thousands of employees, and over $4 billion in investments to date, the industry is taking a big swing at the future success of VR and AR.

Despite this forward movement, there are signs that not all is well in the world of make-believe.

Today, the Brabant Development Agency (BOM) has released a survey that reveals a wide discrepancy between developers’ revenue ambitions and their financing needs.

According to the 34-page survey, 50 percent of VR and AR developers indicated that they will require more financing in the future, stating they will need additional rounds of more than $1 million. In order to raise this level of investment, companies typically need to have the ambition to achieve at least $10 million in revenue within five years. However, the average developer in the survey expects their firm to generate “only” $1.3 million.

“When the financials are not compelling enough, developers will have to show other reasons why investors should invest in them,” Coen Sanderink, business developer at BOM, told VentureBeat. “Investors will be looking for potential market leaders with focus and strong client relationships because it allows them to create additional revenue models and value.”

That wide gap between the needs of each business and their revenue-generating opportunity is a warning sign.

“That’s why developers should outline realistic strategies to build a significant position or become a leader in a specific market segment, such as training for offshore oil workers or active eSports,” Sanderink said.

The survey is a refresh of a study by BOM in 2016 that looked at whether VR and AR are “exaggerated hype” or have real potential. In this second edition of “Hype or Serious Business?” BOM surveyed 613 developers and users of VR/AR technology in the Netherlands, Belgium, and Germany on a range of issues, including budgets, revenue forecasts, and financing needs. The survey shows that developers, as well as users, define “unfamiliarity with the possibilities” and an “insufficient business case” as the main barriers to mass adoption.

“It’s always hard to predict how a new technology will be applied in your industry, which holds particularly true in this case,” Sanderink said. “VR/AR involves a virtual world. You need to experience it before you can understand its potential.”

There is hope, however, that the industry will become as important as many analysts and forecasts suggest.

“VR/AR is here to stay and we see strong signs in our research that it will be serious business in 5 to 10 years,” Sanderink said. “A key conclusion is that now is the time for potential users to start experimenting and explore their role in this rapidly evolving space.”

In addition to the funding gap, the study details the current sales of VR and AR displays, forecasts future sales, profiles the industry and its employees, and provides insight into how developers will spend their budgets. And while the survey focuses on the Netherlands, Belgium, and Germany, the data is relevant to most markets. The Netherlands, for example, is a popular mobile app “soft launch” location, due to its consumers having a similar profile to those in the U.S.

BOM has created a compact e-zine that shares the report’s most important observations and conclusions, and it includes a link to the full 34-page report, which is available from today.

This post by Stewart Rogers originally appeared on VentureBeat.