THE VIRTUAL REALITY REPORT: How the early days of VR are unfolding and the challenges it must overcome to reach mass adoption

This is a preview of a research report from BI Intelligence, Business Insider's premium research service. To learn more about BI Intelligence, click here.

The virtual reality (VR) market has made significant strides throughout 2016.

New VR headsets like the Oculus Rift and the HTC Vive debuted amid great consumer anticipation, while VR content launches kept pace, with Batman: Arkham VR and Chair In A Room garnering encouraging download totals.

At the same time, industry groups and conferences brought developers, investors, and content producers together, helping to further ramp up buzz in this nascent space.   

BI Intelligence forecasts shipments of VR headsets to spike by 1047% year-over-year (YoY) to 8.2 million in 2016. This growth will help propel the virtual reality space to exceed $1 billion in revenue for the first time, according to research by Deloitte. Powering that growth is an estimated 271% increase in investment in AR (augmented reality) and VR companies from 2015, according to estimates from CB Insights.

But while 2016 has indeed been an important year for the VR market, it hasn’t necessarily been a big one — at least not compared to its future growth potential.

VR headset shipments will continue to grow in the years ahead, driven by the introduction of new content that will appeal to a broad swath of users. 

In a new report, BI Intelligence explores the highly fragmented and volatile VR market that emerged in 2016. It lays out the future growth potential in numerous key VR hardware categories, as driven by major VR platforms. And it examines consumer sentiment and developer excitement for VR, presenting which headset categories and platforms are most poised for success in the near- to mid-term.

Here are some key takeaways from the report:

• This has been an important foundational year for the VR market. New hardware and content have brought more options to market to appeal to a wider set of consumers. 
• But the growth seen this year is merely a foreshadowing of the future. The highly fragmented VR market today will eventually narrow as the market grows and matures.
• After considerable progress in 2016, the VR market is ripe for transformation in 2017. Developers, consumers, investors, and hardware makers have a host of options from which to choose, each with their own strengths and shortcomings.
• The environment is poised for the first killer VR app to hit the market sometime in 2017, which will be a major catalyst for consumer adoption of VR hardware.
• Not all headset categories and platforms will emerge as winners in the near future. More immersive headsets that offer the best VR experiences are too expensive for most consumers. Alternately, affordable headsets that rely on smartphones as processors offer sub-par experiences that can induce sickness.

In full, the report:

• Identifies the major players in today's VR hardware and platform markets.
• Estimates future growth of each of the major VR categories.
• Explores barriers to mass market consumer adoption for each of the VR hardware categories.
• Considers how developer sentiment is driving the growth of various platforms. 
• Assesses how the market will shake out over the next five years in terms of size and the success of various VR hardware categories. 

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