China has the potential to take more than $1 of every $5 spent on augmented and virtual reality by 2022, according to investment bank Digi-Capital.
Predicting AR smartglasses could approach an install base of 3.5 billion and gerate up to $90 billion in revenue by 2022 -- compared to a VR install base 50 to 60 million install base, and revenue between $10 billion and $15 billion -- Digi-Capital suggests VR could be pushed onto the sidelines.
The US has a significant install base of the PSVR and high-end VR compatible PCs, and the its user dynamics and economics could prove decisive if premium standalone VR takes off. By comparison, China has a much larger mobile install base and very strong VR trajectory built around that.
While Digi-Capital notes that the US could take around one-fifth of the global VR revenue by 2022, making it slightly larger than China, it would be a "small victory" when combining the markets of other asian countries -- particularly Japan and South Korea -- which could deliver just under half of global VR revenue in five years.
"The natural advantages of the Chinese AR/VR market are a golden opportunity (or threat) for domestic and international players," said Digi-Capital.
"Combine China with other major countries in the region, and Asia could deliver around half of AR/VR global revenue in 5 years' time. Western companies might need to adopt a 'we try harder' approach to compete at the same level."
Comparatively, AR looks very different, with a potential install base of billions and a "Cambrian explosion" of new use cases and business cases emerging from that. Digi-Capital also predicts a boom in ecommerce, hardware, ad spend, enterprise, and location-based entertainment around AR.
"So where VR looks like a subset of the games market, AR's long-term dynamics could be more like mobile," said Digi-Capital. "That's where China's natural advantages give it the edge over every other country on the planet (including the US)."
The combined market penetration of Apple's ARKit and Google's ARCore -- in addition to domestic Chinese mobile AR from Tencent, Alibaba and others -- could see China dominate the global AR and smartglass install base.
Taking into account certain notable figures regarding the Chinese market, its domination over the AR/VR space looks all the more likely.
According to Digi-Capital, China drives 40 per cent of global ecommerce and its mobile payment market is 11x bigger than the US. Additionally, 85 per cent of premium smartphone shipments in China in Q4 2017 were Apple and, since 2015, China has been ahead of the US in iPhone sales. This is especially notable with the predicted 2020 release of Apple's smart glasses.
Another notable factor is that since 2014, China's domestic Android app stores rivalled Google Play worldwide outside China, and iOS developers in the region have earned $17 billion so far, which is around 25 per cent of global App Store revenue.
"Installed bases, use cases and economics are great levelers in tech markets, and so it is for AR/VR," said Digi-Capital. "While the US might win VR, China could dominate much larger AR. So whoever wins AR also wins AR/VR globally - right now that looks like China by a country mile.
"This is not to say that the US and other western countries can't do very well from AR/VR long-term (indeed we forecast that they should). However Asia, China in particular, is critical to the future of the market. Global players need to find a way to compete, or risk being left behind. While Apple could do well as always, for everyone else it's all to play for."