Factors such as the rising popularity of topics related to the metaverse and UGC (user-generated content), as well as the rapid increase in AR/VR device shipment, will likely result in the creation of a growing body of virtual reality content in the market, according to TrendForce’s latest investigations. TrendForce expects annual global virtual reality content revenue to grow at a 40% CAGR from US$2.16 billion in 2021 to US$8.31 billion in 2025.
TrendForce further indicates that gaming/entertainment, videos, and social interactions comprise the primary categories of virtual reality content. Incidentally, as the construction of the virtual world and the development of virtual reality content are unlikely to be accomplished by only a handful of companies alone, companies in this space will therefore place an increasing emphasis on UGC instead. Leading companies will likely leverage the build-out of virtual reality platforms/environments and the provisioning of developmental tools/interfaces in order to not only lower the barrier to entry for content creation, but also raise user participation, thereby driving up the content market for virtual reality applications.
In consideration of profitability, most companies still adopt a wait-and-see approach towards the virtual reality market because content development for the virtual world entails substantial time and expenses. The vast majority of UGC, however, is not profit-driven. Hence, TrendForce believes that UGC is likely a more suitable point of entry into the virtual reality market for most companies that wish to do so. Furthermore, companies that specialize in metaverse applications will place increasing emphasis on developing platforms, building comprehensive ecosystems, and lowering the barrier to entry for content creation through the appropriate development tools and interfaces.
On the whole, factors that affect the development of the global virtual reality content market include not only the availability of platforms and their respective contents, but also the build-out of hardware equipment and infrastructures, such as high-speed computing chip adoption as well as 5G and Wi-Fi 6 deployment. On the other hand, as the virtual world places a high demand on instant, lifelike, and stable interactions, the ability to resolve signal disruptions has in turn become a topic that demands attention. With regards to end devices, the penetration rate of AR/VR devices going forward will primarily be determined by suppliers’ pricing strategies. In light of the growth of virtual reality application content, companies will look to expand their user base via low-priced hardware devices and compensate for their reduced hardware profitability through software sales. Finally, in response to the demand for more immersive and interactive user experiences, the integration of more sensors and better feedback design is set to become the next major trend of AR/VR device development.
In light of the metaverse’s ability to satisfy the demands of WFH, virtual reality, and simulations, the smart manufacturing industry will also likely capitalize on the rise of the metaverse and undergo an accelerated growth of related technologies, according to TrendForce’s latest investigations. Global smart manufacturing revenue is expected to increase at a 15.35% CAGR across the 2021-2025 period and surpass US$540 billion in 2025. This growth can primarily be attributed to several factors. First, industrial applications take place in closed environments, and companies that utilize such applications have generally made good progress in terms of digital transformation. Furthermore, by utilizing simulation technologies, companies are able to significantly cut down on their labor costs, project time, and wasted resources. Simulation technologies, if developed as an industry 4.0 application, also serve as the backbone of CPS (cyber-physical systems). TrendForce therefore expects the smart manufacturing industry to be perfectly positioned with innate advantages and motivations as one of the main enablers of the metaverse.
Regarding the diverse mainstream smart manufacturing tools, digital twins, which major adopters believe to be a significant application of industry 4.0, empower the simulation of the physical world through digital data, bridge the virtual world with the real world, and subsequently serve as a key technology shaping the metaverse during its infancy. In particular, Microsoft has included digital twins in its metaverse technology stack due to their ability to generate rich digital models. It should be pointed out that the vast majority of digital twins currently used for industrial applications deliver digital simulations for either a single product or a single production line primarily because the reliability of simulated models requires a database containing sufficient data from the modeled product itself. Some examples of digital twins in action include Boeing utilizing digital twins to build engines, Unilever using simulated production lines to cut down on waste production, and Siemens Energy and Ericsson respectively leveraging Nvidia’s Omniverse platform to operate power plants and perform predictive maintenance as well as simulating equipment allocations for 5G networks.
Digital twin technologies will progress towards wider deployments and deeper operations in response to the rise of the metaverse and to the growing complexity of digital simulation models used for constructing products. Hence, relevant digital twin technologies will also begin to emerge in the market. In terms of width of deployment, digital twins need to model more comprehensive and extensive virtual objects and spaces that form the operating environment in the metaverse in order to achieve better predictive accuracy. Relevant technologies include 5G, WiFi 6, cloud and edge computing, smart sensors, as well as more resilient communication environments/computing platforms, and more diverse sensors. In terms of depth of operation, developments in technologies used for industrial drones, cobots, and machine vision feature improved precision and operability that enable AI-based decisions made in the virtual space to be applicable to decision-making scenarios in the real, physical world.
On the whole, taking into account the rapid development of AR/VR and HMI technologies, as well as other factors including economic outcomes, feasibility of operation, and the overall industrial environment, TrendForce believes that the direction of metaverse-based digital twin application development for industrial purposes will focus on human resource training, remote diagnostics, energy monitoring, and predictive maintenance in the short and medium terms. For instance, Rockwell, Siemens, ABB, Advantech, Ennoconn, and Delta are some of the companies that have made good progress in this area. In the long term, on the other hand, individual companies will likely be able to construct virtual factories in the collaborative industrial metaverse and thereby connect their various factory locations or even engage in cross-industrial collaborations. With regards to long-term applications, then, companies that are competent in industry 4.0 development and possess various lighthouse factories and vast databases will likely to be pioneers in the industry; leading examples include Bosch, Schneider Electric, Haier, and Foxconn.
Nvidia hosted its fall GTC (GPU Technology Conference) in early November, during which the company shared details regarding the progress that it had made on products and services such as AI software, data centers, automotive applications, and healthcare. In particular, Nvidia’s foray into virtual worlds and digital twins, both of which are closely tied to the metaverse, garnered significant attention from the public. By leveraging diverse simulation tools that reflect real-life circumstances, Nvidia has extended the application of virtual worlds from the local scale to the planetary scale, thereby reflecting the metaverse’s pioneering qualities and developmental progress.
Along with the ongoing metaverse craze, Nvidia also released its Omniverse Avatar technology platform as well as its Omniverse Replicator, which is a “synthetic data-generation engine” according to the company. Both of these releases are based on the Nvidia Omniverse, a platform that specializes in virtual collaboration. Whereas the Omniverse Avatar platform enables the creation of interactive virtual characters through synergies among voice AI technology, machine vision, and NLP (natural language processing), the Omniverse Replicator constructs more realistic, lifelike virtual worlds by training DNN (deep neural networks) using such synthetic data as velocity, depth, and weather conditions.
Digital twin-based virtual factories are starting to show the first hints of the metaverse
The metaverse value chain primarily revolves around commonly seen infrastructural backbones formed by telecommunications and cloud/edge computing. The virtual space that is then built on top of this infrastructure comprises HMI (human machine interface), decentralization, application creation, and user experiences. More specifically, HMI produces an AI-empowered immersive experience by combining multiple interactive technologies with an AR/VR base layer. At the moment, companies such as Nvida, Meta (formerly known as Facebook), Microsoft (including Xbox), and Vive are heavily invested in HMI development. Application creation, on the other hand, refers to mechanisms that make the metaverse more lively, reliable, diverse, and attractive. Some examples include graphical tools and cryptocurrency technologies. Representative groups focusing on this field include Roblox, IBM, Google AI, Epic, and Unity.
Regarding the content of Nvidia’s presentation during GTC apart from the Omniverse Avatar and Replicator, the company also released CloudXR, Showroom, and other Omniverse-based tools used for optimizing immersive experiences. As well, Nvidia also released the Modulus neural network model, which is accelerates the build-out of digital twins. These releases, in turn, demonstrates Nvidia’s competency and leadership in creating AI-driven software tools for the metaverse value chain. With regards to real-life use cases, digital twins currently represent most of Nvidia’s applications. For instance, BMW and Nvidia have partnered to construct a digital twin-based factory via the Omniverse platform capable of connecting ERP (enterprise resource management), shipment volume simulation, remote-controlled robots, production line simulation, etc. This partnership is indicative of promising early-stage growth of the metaverse.
Nvidia is extending its simulation application from factories to planets
While smart city development has remained one of the main use cases of simulation in recent years, Nvidia has further extended its simulation applications from use cases previously limited to singular offices or factory facilities. For instance, BIM (building information modeling) specialist Bentley Systems has teamed up with Nvidia to apply digital twins to public property management and maintenance. Ericsson, on the other hand, is utilizing Nvidia’s technology to construct a digital replica of an entire city for the purpose of checking 5G signal coverages, optimizing base station placement, and improving antenna designs. During the GTC, Nvidia unveiled the Earth-2 system, which is a supercomputer that generates a digital twin of planet earth for weather forecasts.
As a matter of fact, most products and services announced by Nvidia during GTC represent either a partial or entry-level application of the metaverse. However, as the post-pandemic new normal continues to drive up the demand for contactless and digital transformation applications, strengthening CPS (cyber physical systems) will remain one of the most significant trends in the market. As real-world environments become increasingly complex due to interactions among an increasing number of tools and use cases, Nvidia will aim to create a comprehensive framework for metaverse development through products/services based on more intelligent, comprehensive, and instant virtual worlds. Hence, TrendForce believes that Nvidia will need to address certain major challenges going forward, including lowering its tools’ usage barriers, strengthening its ecosystem, and attracting new users.
Microsoft announced in early November that it will release the preview of Mesh for Microsoft Teams (henceforth referred to as simply “Mesh”) in 1H22 as a chat and collaborative platform for the metaverse. By providing a virtual meeting space, in which Teams users can conduct meetings, chat, work collaboratively, and share documents, Mesh is set to become an entrance to the metaverse.
Community interactions will serve as a starting point for metaverse development
Microsoft first unveiled Microsoft Mesh during its Ignite 2021 event in March. This platform supports applications including HoloLens Mesh and Altspace VR, with more Microsoft Teams services to be released in the future. By announcing ahead of time that the preview version of Mesh will be released in 2022, Microsoft is hoping to leverage the recent emergence of topics related to the metaverse in order to increase its customers’ engagement with the new functionalities of Mesh. Hence, the company is positioning Mesh as an entrance into the metaverse by first attracting users through functions such as teleconferencing, collaboration, and chat. Microsoft will then gradually add to the number of applications and services in the virtual reality, thereby eventually constructing a complete virtual world.
Judging from the current progress of development, TrendForce believes that social communities, teleconferencing, and virtual meetings will become AR/VR applications most attractive to consumers. That is also why companies currently developing AR/VR solutions regard these applications as the starting point of metaverse development. These applications’ trending importance can primarily be attributed to the two reasons of demand and supply. Regarding the demand side, not only has the emergence of the COVID-19 pandemic brought about significant growths in teleconferencing and remote interaction usages, but there has also been a gradual change in how people interact in internet-based communities. More specifically, this change refers to a shift in interactions from texts, images, and videos to virtual avatars. As a result, the consumer market is expected to have a relatively high acceptance for AR/VR-driven community interactions and teleconferences. Regarding the supply side, on the other hand, service providers that operate social media and teleconference platforms drastically differ from the typical hardware brands in terms of product strategy, since these providers generally aim to first create a massive user base rather than deriving profits from a single product. As such, these providers are comparatively more willing to invest massive resources into expanding their presence in the market during the initial phase even though doing so may potentially incur financial losses.
R&D and release of device hardware will become the most significant challenge for platform service providers
For Microsoft, Mesh represents a starting point, not only towards the development of the metaverse, but also one that requires investment in more areas, since the metaverse requires the realization of a virtual world that is more immersive and lifelike. Apart from Microsoft’s existing competencies in cloud services and OS software, the company still needs to achieve a sense of realism in the virtual avatars and interactions that it creates, and these creations need to reflect changes made by the user. For instance, the mouth and facial expressions of virtual avatars need to be able to instantly adapt as their users speak, and this process involves not only software adjustments, but also the integration of sensors and other hardware devices. As long as hardware brands require that their individual products remain profitable, Microsoft will find it difficult to hand over the responsibility of hardware-related technological R&D and product releases to the hardware brands. Unless Microsoft is willing to provide sufficiently high subsidies and absorb all financial losses, it will inevitably release its self-designed consumer AR/VR devices – for the same reason that Meta (also known as Facebook) acquired Oculus, and ByteDance acquired Pico. On the other hand, crossing over to the hardware market represents entering an industry that is yet to mature and that requires investment into multiple technologies. Platform service providers will therefore need to invest more resources into hardware development, and this remains one of the challenges Microsoft faces after entering the metaverse.
The growth of the metaverse will drive an increasing number of companies to participate in the build-out of the virtual world, with use cases such as social communities, gaming/entertainment, content creation, virtual economy, and industrial applications all becoming important points of focus in the coming years, according to TrendForce’s latest investigations. Apart from increases in both computing power of semiconductors and coverage of low-latency, high-speed networks, the metavere’s development will also depend on the adoption of AR/VR devices by end users. TrendForce expects global AR/VR device shipment for 2022 to reach 12.02 million units, a 26.4% YoY increase, with Oculus and Microsoft each taking leadership position in the consumer and commercial markets, respectively.
TrendForce further indicates that the success of AR/VR devices in the consumer and commercial markets will be determined by their retail prices and degree of system integration, respectively, while these two factors are also responsible for leading companies’ continued competitive advantages. However, gross and net profit considerations regarding AR/VR hardware have made it difficult to not only price these devices competitively, but also increase the volume of AR/VR device shipment.
Even so, the growing popularity of the metaverse will drive more and more hardware brands to enter the AR/VR market and push online service platform providers to either directly or indirectly propel the growth of the hardware market in 2022. Regarding the consumer market, AR/VR device suppliers may look to expand their user base and increase their market penetration via low-priced yet high-spec devices, while compensating for their reduced hardware profitability through software sales. Oculus, for instance, has adopted such a strategy to maintain its advantage in the market, thereby raising the market share of the Oculus Quest products to a forecasted 66% next year.
Regarding the commercial market, there has been a growth in applications ranging from remote interactions and virtual collaborations to digital twins; hence, enterprises have become increasingly willing to adopt AR/VR devices. Compared to the consumer market, which is mainly driven by products with low prices and high specs, the commercial market is comprised of enterprises that are more willing to choose high-priced and high-performance products, although such products must be paired with a full system integration solution or customized services. Possessing substantial competency in the industrial ecosystem, Microsoft enjoys a relatively large competitive advantage in the commercial market, as the company’s HoloLens 2 became one of the few commercial AR devices with an annual shipment exceeding 200,000 units this year.
It should also be pointed out that, given the rapid advancements in high-speed 5G networks, video-based remote assistance applications enabled by low-priced AR glasses and 5G smartphones’ computing and networking functions will become yet another commercial AR/VR use case. TrendForce believes that these applications can serve as a low-cost, easily deployable early trial that will not only raise enterprises’ willingness to adopt more AR/VR commercial applications going forward, but also accelerate the development of commercial services related to the metaverse.