Metaverse report—Future is here
Global XR industry insight
The metaverse creates a new environment where users are virtually connected with their family, friends, pets, favorite items and experiences—the metaverse transports users to the next-generation of social interactions. The metaverse encompasses 5G, AI, blockchain, content creation and other elements. The core of metaverse is to continually optimize users' digital life experiences through XR (Extended Reality) and continuous iteration of XR technology and equipment. XR-based digital services will gradually penetrate various scenarios and drive breakthroughs in the disruptive immersive digital life experience of the metaverse, helping opening up the era of the metaverse. Deloitte launched the Metaverse report—Future is here: Global XR industry insight. This is the first report of the metaverse series, with focus on the XR industry trends and discusses the investment opportunities in XR market from the perspective of market demand and development.
Metaverse: unlocking imagination and embracing reality
- Mutual generation of the virtual and the real is a key feature of the metaverse, which is embodied in six core elements: immersion, virtual identity, digital assets, real experience, virtual-real interconnection and complete social system. In the future, metaverse will develop from real to virtual to realize digitalization of real experience, as well as from virtual to real to realize actualization of digital experience.
- The development of metaverse will form a dual-core ecosystem, with the industrial metaverse promoting the production efficiency of the physical world and the consumer metaverse enriching the personal spiritual world.
- Multi-system integration is the evolution trend of the metaverse: Due to the diversity and dispersion of industries, Deloitte believes that the metaverse needs to rely on the existing industrial base to develop and integrate from the bottom up, and it is difficult to build a complete system from top to bottom via a unified standard. Therefore, in the early stages of development, various industries are expected to form small decentralized, multi-centered ecosystems of the metaverse; then the small ecosystems will gradually share data and form unified standards, thus achieving integration. In the mature stage of metaverse, we don't know what it will look like, which is still full of all kinds of imaginations.
- XR is the entrance for exploring the metaverse: XR devices are the key equipment connecting the virtual and real worlds. At the early development stage, the priority is to construct and develop infrastructure and equipment. Currently, we need to develop the key products, i.e. XR devices, and apply their basic functions.
XR: linking the virtual and the real
XR refers to creating a virtual manmachine interaction environment by combining the real and the virtual through a computer. XR is a general term for VR (Virtual Reality), AR (Augmented Reality), MR (Mixed Reality) and other technologies. At present, VR devices account for nearly half of the market share, AR for about a third, and MR for the rest. As the development of 5G technology and network empowers more application scenarios, combined with the integration of AI technology with computational vision and the innovative functions of hardware, VR and AR technologies and applications will become more integrated and interoperable. It is here that the MR and XR concepts emerge.
Imagination of XR applications
XR will create a world where the virtual and the real are completely intertwined. It will be a completely human-centered world, where you need not to choose between the real and the digital world, rather, you can freely switch over between the real and the virtual. It will allow you to transcend space and summon objects and devices at will, and will greatly magnify your perception, memory and cognition. It will completely disrupt the way we understand man-machine interactions, achieving completely natural and scenario-based interactions anytime, anywhere.
Future is here
- XR steps into incubation period before rapid development. The development of XR can be divided into four stages: technological development, capital rush, trough, and recovery.
- XR is entering a rapid development stage similar to the smartphone. The current development of XR as carriers of next generation hardware is similar to when smartphones entered the inflection point of high-speed development. As the metaverse concept goes viral, relevant buzzy applications, and great hardware products have been launched. The market is approaching a turning point of rapid development.
- Tech giants are expanding deployment in the XR industry as they aim for the next generation of computing platforms. Looking at the XR environment, different tech giants have entered the market via varied development directions and paths, based on their comparative advantages, resulting in differentiated XR ecosystems.
The XR industry ecosystem is getting richer
- Continuous breakthroughs in technology will help improve the hardware experience and ecosystem. As the integrator of many cutting-edge technologies, the current industry development of XR is limited and is hampered by technological limitations. The XR industry includes five key technologies: near-eye display technology, perceptual interaction technology, network transmission technology, rendering and computing technology, and cloud content production and distribution. Each type of technology is the integration of multiple technologies or has multiple technology paths, which need to meet the demand of various application scenarios, especially B2C consumer experience demand.
- Downstream application scenarios are increasing. XR now has a wide range of downstream applications that continue to penetrate multiple scenarios. 2020 XR downstream applications with the most expenses are at the B2C consumer level, accounting for more than half global XR downstream application expenses, including VR/AR games, film and television, entertainment, education, etc. B2B level applications are mainly for industrial manufacturing, medical and retail.
- A positive content-hardware-ecosystem cycle has initially formed. With improvements in optical devices and other technologies and systems, a better product experience is being introduced to XR end-user hardware. The emergence of viral content and applications is driving increasing shipments of XR hardware and attracting more content producers and application developers to participate in the ecosystem.
It is time to invest in the XR industry
- Capital is rebounding, exit channels are gradually clear. After experiencing a trough in 2018, global XR financing has rebounded significantly. According to incomplete statistics, the compound annual growth rate of the global XR financing and M&A deal size from 2018 to 2020 reached 31%, from the industry low point of RMB 14.2 billion in 2018 to RMB 24.4 billion in 2020. The number of financing and M&A deals also increased from 109 in 2018 to 166 in 2020. In 2021, signs of rebound were more obvious, with global financing and M&A amounting to RMB 22.9 billion in the first half of the year, increasing by 108% compared with the first half of 2020.
- Investment opportunities across the entire industrial chain of hardware, software, content and application are emerging. In addition to the general focus on downstream applications and hardware devices such as headset glasses investment value, the industry chain of hardware, software, content, ecological segments are breeding a plethora of investment and strategic positioning opportunities.
- Global investment in key technologies to fix weak links. Although China is leading in global patent applications, it still lags behind the global leaders in forward-looking research, especially in key technology areas, such as perceptual interaction, rendering computing, and content production and distribution. Taking a global view on investment opportunities in XR can be helpful. Taking advantage of China's own strengths while absorbing the strengths of others, will help the industry prosper while winning investment returns.