Augmented Reality (often grouped with Virtual Reality, as AR/VR) has been championed as the ascendant consumer tech category since Niantic’s Pokemon Go was released in 2016. Just this January, Tim Cook celebrated augmented reality as “the next big thing,” citing its broad use cases in everyday life, such as in getting specific instructions from an AR app when changing the oil in a car. Cook’s declaration was widely interpreted as a dig at Facebook, which has invested massively into Virtual Reality with its Oculus product, but regardless, Apple has devoted a tremendous amount of resources into developer resources for building AR experiences, such as its ARKit API launched with iOS 11.
AR’s applications have been theorized and implemented for almost every form of content imaginable, from home decor to theme parks to guided tours to clothing and on. But despite the myriad ways in which AR can be applied to almost any experience, only really one has evolved into a meaningful business: games, and specifically, Pokemon Go.
Pokemon Go is a wildly successful mobile AR game, having generated roughly $3BN in lifetime revenues as of the end of last year. But Pokemon Go stands alone as a successful, mass-market, AR-centric consumer product, which invites the question: has AR been a disappointment as a consumer category, or has it been a success as a genre within mobile gaming?
Answering this requires first establishing a definition for “consumer category.” To my mind, a consumer category is a wholly unique format to which mass-market consumer products conform — instigated by some new technological innovation, hardware form factor, or business model — which spawns new consumer behaviors and which by definition features sub-categories. Mobile gaming itself is a consumer category, instigated by the proliferation of smartphones and the introduction (in the West) of the free-to-play business model. Online dating, messaging, ridesharing, real-time video chat, streaming video / music etc. are other examples of consumer categories.
New consumer categories tend to create hundreds of billions of dollars of value; the formation of categories is what venture capitalists base investment theses around, since most consumer tech is winner-takes-all, so the companies that “win” a new category often become extraordinarily valuable. Sub-categories tend to not be as valuable, since, by definition, they have smaller scope than whole categories.
If this seems like a distinction without a difference, consider the fact that AR has mostly underperformed as a category with just one significant product to speak of, whereas it’s by any measure a success as a genre (sub-category) within mobile gaming, still with just that one significant, mass-market product (Niantic’s Harry Potter AR game hasn’t done nearly as well as Pokemon Go).
Some might argue that AR is still in its infancy and that gaming tends to lead consumer tech innovation (a notion to which I wholeheartedly subscribe), but Pokemon Go become a massive cultural phenomenon from nearly its first day of launch in 2016 and there isn’t a single other AR game — much less app — that has approached its scale since. Compare this with the Battle Royale genre within mobile gaming, which conceived three billion-dollar franchises (Knives Out, PUBG, and Fortnite, although to be fair, these games aren’t mobile-only), all of which were released in 2017.
It’s interesting to consider AR through the lens of the category / sub-category division and within the context of the timeline of Pokemon Go’s success. Could AR, at some point, become a consumer category? Of course. But the fact that it hasn’t is not a terrible outcome: much in the way that Playrix owns the Puzzle & Decorate genre with Homescapes and Gardenscapes, having become a multi-billion dollar company on the success of those games, Niantic is still the undisputed leader of the AR gaming category with a valuation of many billions of dollars.
But it seems difficult to argue, nearly four years after Pokemon Go’s rise to cultural prominence, that AR is on the precipice of breaking out into a mass-market consumer category. Without any real traction outside of Pokemon Go, and with the amount of resources that have been applied by not only developers but of the mobile platform owners, which have aggressively invested into AR’s adoption, the path to category creation is unclear; that moment may have passed. Mobile gaming is a substantial enough consumer category — at $85BN in revenues in 2019, excluding China — to support many genres that themselves are worth billions of dollars.