IAB Compass: Navigating Augmented Reality & Virtual Reality

AR & VR advertising forecast

AR and VR are already large markets and are expected to see high growth, with AR advertising becoming a significant market.

The global market for AR was estimated to be worth c.£12bn in 2021 and VR worth c.£8bn, covering hardware, software, advertising, and entertainment. With investments in technology and applications, and interest across many sectors of the economy, the market is expected to see rapid growth, with AR reaching £40-65bn and VR reaching £15-25bn by 2026.

Within this, the global AR advertising market was estimated to be worth c.£2.5bn in 2021 and is expected to grow to up to c.£7.5bn by 2026. Assuming the UK takes a similar share of this to digital advertising more generally, the UK AR ad market stood at c.£100-150m in 2021 and is set to grow to c.£250-350m by 2026. This forecast considers that ad budgets may be constrained in the near term, given macro-economic challenges slowing experimentation in new areas like AR and VR. Investment in VR advertising is negligible at present.

Speculatively, the mobile AR ad market could grow faster than this. This could be driven by a new app that sees much higher user adoption, and/or new campaign tactics that are successful and widely adopted by advertisers. In VR, significant improvements in hardware and/or reductions in price - possibly driven by large industry players investing in the space - could drive rapid consumer adoption (increasing the number of VR headsets installed globally to 60-70m by 2026, up from 20-25m in 2021), with advertising opportunities following.

To find out more about the forecasting please see page 19 of the full report, which contains more detail.

The AR & VR opportunity & what to do next

Immersive AR and VR experiences offer innovative ways to engage consumers. As we have established, AR adoption is already relatively high, particularly among younger audiences. Tapping into this, advertisers can - and are - creating engaging, interactive experiences that work across the marketing funnel.

As technologies improve and consumer adoption rises, this opportunity is set to grow and VR advertising will also emerge. Although nascent today, immersive experiences will become an increasingly important way for advertisers to stand out and get results.

What should advertisers & agencies do?

We recommend that advertisers new to AR and VR identify ways to use AR to support marketing and, when it comes to trying these out, plan carefully and partner with specialists to support creative.

Building on this, advertisers should explore different uses of AR that focus on offering utility to consumers, as well as tracking how the market (including VR) develops.