Shipments of augmented reality and virtual reality (AR/VR) headsets dropped 67.4% year over year in the first quarter of 2024 as a result of an evolution in the market, new data from International Data Corp. (IDC) reveals.

"The decline in shipments was expected as the market transitions to include new categories such as Mixed Reality (MR) and Extended Reality (ER)," IDC noted Tuesday. "Despite the decline, the average selling price (ASP) rose to over$1,000 as Apple entered the market and incumbents such as Meta focused on premium headsets such as the Quest 3."

The future of such products in the enterprise is in flux, with Microsoft pulling back and laying off workers from its HoloLens division last year, while Apple is clearly targeting the enterprise market with its Apple Vision Pro.

However, IDC's projections for shipments and selling prices may be thrown off by news that broke later the same day: Apple is reportedly abandoning plans to build a Vision Pro 2, concentrating instead on developing a lower-specced, lower-cost model for release in late 2025.

The research firm said that it recently revised its taxonomy of headsets to incorporate two new categories: "Mixed Reality which occludes the user's vision but provides a view of the real world with outward facing cameras, and Extended Reality, which employs a see-though display but mirrors content from another device or offers a simplistic heads-up display."

Headset market in flux

Meta again led the market in the first quarter in terms of share, while Apple's recent entry into the market enabled it to capture the second position. ByteDance, Xreal, and HTC rounded out the top five, IDC said.

When online pre-sales of Apple's Vision Pro AR/VR headsets began on Jan. 19 they sold out quickly, but as Computerworldnoted soon after, stable delivery dates could indicate limited demand for the$3,500 device.

Fast forward to April, and Apple said that it had cut Vision Pro production due to low demand, according to Ming-Chi Kuo, an Apple analyst at TF International Securities.

Jitesh Ubrani, research manager for worldwide mobile device trackers at IDC, said that with mixed reality on the rise, "expect strictly virtual reality headsets to fade in the coming years as brands and developers devise new hardware and experiences to help users eventually transition to augmented reality further down the line. Meanwhile, extended reality displays are set to garner consumer attention as they offer a big screen experience today while incorporating AI and heads-up displays in the near future."

Meanwhile, Ramon T. Llamas, research director with IDC's augmented and virtual reality team, said that although ASPs for the overall market crested above the$1,000 mark, this is not representative of all products.

"ASPs for augmented reality (AR) headsets have almost always been above this price point, but ASPs for VR, MR, and ER headsets have typically been lower," he said. "Apple's Vision Pro drove ASPs higher for MR headsets, but the addition of lower-cost devices from Meta and HTC have kept those ASPs from going much higher. Meanwhile, there were many devices for VR and ER priced below$500."

Return to growth

Looking ahead, Llamas said that IDC is anticipating ASP erosion across all products: "Because the overall market is still in its early stages with more expensive first- and second-generation devices, prices will be high even as early adopters buy them. In order to reach scale in the mass market, vendors will need to reduce prices on later and upcoming devices."

IDC is forecasting that "headset shipments will return to growth later this year with volume growing 7.5% over 2023. Newer headsets and lower price points will help with the turnaround expected later this year. Beyond that, headset shipment volume is expected to see a compound annual growth rate (CAGR) of 43.9% from 2024-2028."

Updated on June 19, 2024, to add report that Apple is abandoning development of the Vision Pro 2.