Augmented Reality's Industry Prospects May Get Very Real, Very Fast


Augmented reality applications for smartphones and mobile computers are about to go far beyond the "gee-whiz" phase -- very far.

Augmented reality allows a mobile-phone or tablet-computer user to hold up the device's camera to a certain scene and have maps, addresses, user comments and other information funneled onto the screen -- among other things. The technology has been largely a curiosity since companies such as user-review site Yelp made its first so-called AR applications available on Apple's (AAPL) iTunes app store two years ago.

"A lot of AR stuff has been cute, but you use it once, you never use it again," said Theo Fanning, president and creative director of San Francisco-based advertising firm Traction, speaking at a digital-media conference in Los Angeles last month. "AR has some great potential, but right now, it's pure novelty."

Sponsored Links

Not for long, apparently. As smartphone deliveries continue to increase and sales of tablet-computers such as Apple's iPad explode over the next few years, more businesses will use augmented reality to market their products while entertaining their more tech-savvy customers. As a result, worldwide mobile-computer owners will buy about $1.5 billion worth of augmented-reality applications in 2015, up from less than $2 million last year, U.K.-based Juniper Research said in a recent report. The average AR application will cost about $1 in 2015, down from almost $2 last year, according to Juniper.

"High-profile companies such as Carlsberg are integrating branded AR apps into wider campaigns, while others . . . are using B2C (business-to-consumer) applications . . . to facilitate AR content," said Dr. Windsor Holden, who wrote the report for Juniper, in a statement. "These initiatives are indicative of a growing desire amongst brands to use AR as a key tool to engage with the consumer."

A "Socially Awkward" Technique

So far, the hype for augmented reality has exceeded the impact. AR has gained little traction among apps buyers because of a combination of technical challenges involved in having a mobile phone relay accurate enough location-based information to generate relevant data, and the strangeness of pointing a phone or iPad in the air in order to enact such features.

"Holding up a phone, or worse a tablet, in front of your face is just not that convenient and is socially awkward," said Sriram Thodla, strategist at Chicago-based consultant Gravitytank, adding that Juniper Research's revenue projections were "quite aggressive." Thodla said devices such as special glasses or contact lenses that can exchange location-based information with the mobile device would make AR more user friendly, but they're still about five years away.

AR Apps for Retail Customers

Still, with a rapidly expanding user base and the prospect of a surge in mobile-based product purchases, companies are starting to foot the bill to develop AR applications for sectors such as retail and travel. For instance, retail customers and store clerks alike may soon be able to point a mobile device at a certain item or price tag and immediately get sent information ranging from user reviews to inventory levels.

Companies will be more willing to invest in these features because of such a rapidly growing mobile-computing user base. Apple, which introduced the iPhone in 2007 and unveiled its fourth generation last June, regularly ships more than 15 million units per quarter. And Android smartphones will be used by more than 250 million people worldwide in 2014, up from less than 7 million people last year, research firm Gartner said in a September report.

Overall, almost 66 million Americans owned smartphones in January 2011, up 8% from three months earlier, ComScore said in a report earlier this month.

Meanwhile, IHS iSuppli said last month that global consumers will buy 242 million iPads and personal-computer type tablets in 2015, up from about 20 million last year.

Such growth has already turned mobile applications stores into cash cows. Worldwide mobile-phone users bought $2.2 billion worth of mobile applications from companies such as Apple, Research in Motion (RIMM) and Google (GOOG) last year, more than double the $828 million in applications sold in 2009, iSuppli said in a report last month. Apple, which launched its apps store in mid-2008, had 83% of the market, though that number slipped from 93% a year earlier as applications for Research in Motion's BlackBerry and Google's Android platform gained ground.

Expect that rising tide to eventually reach AR, especially if there's commerce involved, according to Thodla.

"Retailers are constantly looking for a way to take advantage of the smartphones that people are bringing into their stores," said Thodla. "Consumers might be willing to pull out their phones in the stores if they know they are going to get a deal."

Get info on stocks mentioned in this article: