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While virtual reality takes off, augmented reality stalls

While nearly all of the funding to AR goes to one company, VR deals more than tripled in 2015

Financial trends and news by Steven Loeb
June 6, 2016
Short URL: http://vator.tv/n/45ec

Though they are certainly related, augmented reality and virtual reality are two very different things. They have very different use cases, and different potential customers. Whereas VR is closed and fully immersive, and puts users inside virtual worlds, AR is open and partly immersive, and puts virtual things into users’ real worlds. Basically VR is something you wear on your face, while AR is like wearing something where you will still be able to walk around and see the real world around you.

Often, however, the two spaces are usually lumped together, with their funding raising and deals combined into one big number.

Now CB Insights has separated them out, to see which of the spaces is getting more funding, and the picture of what's happening in the spaces is quite interesting.

2015 saw virtual reality take a giant leap over augmented reality, with $465 million raised, as compared to only $85 for AR companies.

What's most revealing is what a complete reversal that was from the year before, when AR companies raised $671 million versus $95 million for virtual reality. It's almost as if the two sectors found themselves in one of those bodies switching movies from the 80s.

In just one year, VR funding grew by 391 percent, while AR funding fell by 81 percent in the same time frame. 

What accounts for the big disparity? Two words: Magic Leap. In 2014, the company raised $542 million, or over 80 percent of the investments made in the augmented reality space. That one company alone propelled the space to amazing heights. With no Magic Leap funding in 2015, it fell back down to earth.

That doesn't tell the whole story though, since virtual reality also saw a big increase in the number of deals as well, going from 24 in 2014 to 94 in 2015, a 292 percent growth spurt. Meanwhile, AR startups saw a 22 decline in deals in the same timeframe, dropping from 27 to 21.

You have to wonder if perhaps the failure of Google Glass to catch on with the public had anything to do with investors backing away from the space. Analysts at Business Insider had predicted sales in the millions by 2016 but the reality was much bleaker, with the real number coming more likely in the 250,000 range. Sales were halted in early 2015, and it began to seem like the world was not yet ready for AR technology. 

Meanwhile, virtual reality was getting all the buzz, with companies like Facebook making big bets and big acquisitions, like buying Oculus for $2 billion. That allowed the space to begin to mature, with AR basically flatlined. 

In Q1, it seems as though things started to look up for AR again, but when you look closer, you see that the space has the same problems it did for the past couple of year.s Magic Leap, once again, raised a huge funding round, $793.5 million, accounting for 93 percent of the $851 million raised by augmented reality space in the first quarter. Virtual reality raised $217 million, but in terms of deals, VR still wins hands down: 32 to only seven for AR.

This data shows that the big difference in the two space: while there's one really big augmented reality company that's driving nearly all the funding going to augmented reality, virtual reality has become a space with a diversified group of companies that investors see potential in. 

(Image source: richardwiseman.wordpress.com)


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