McKinseyTechnology Trends
Outlook 2022
Immersive-reality technologies
August 2022

Immersive-reality technologies

What is this trend about?
The immersive-reality space has 4 key components
TechnologyBlending technology intothe world …

to see the world differently …

Spatial computing

Mixed reality (MR)

Augmented reality (AR)Virtual reality (VR)Software enables interaction

Graphics linked to reality

Information not linked to reality

100% computer graphics

Description

Interprets physical space andintroduces virtual 3-D objects,
allowing users to interact withenvironments that feature
virtual elements

Modifies the real world through adevice, augmenting or diminishing
the user’s view of the world

Interacts directly with andoverlays onto the dynamic
external reality (eg, AR glasseswith live translation); runs
interactively in 3-D and real time

Replaces the real world (eg, viaheadsets) by placing the user inan entirely digital experiencethat uses external cameras/
sensors to render movements in
virtual worlds

Experience

N/A

Merging of reality and MR:
User’s sense of being immersed
is gonePartly immersive: User holds a
sense of presence in the realworld with digital overlay

Fully immersive: User’s visualsensation is controlled by thesystem inside the virtual world… or see a different world

Immersive-reality technologies will have a significant role to play in the metaverse
Source: McKinsey analysis

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What is this trend about? (continued)

Immersive-reality technologies

Most mature immersive-reality solutions fall under a few key themesNot exhaustive

Learning andassessment

Product design anddevelopment

Enhanced situationalawareness

B2C use cases (eg, gaming,fitness, retail)Learning and training: Hands-on skills andprocedures training—especially useful for
simulating unusual or dangerous edgecases that are difficult to simulate safely inreal life, thus building muscle memory

Product design: Creation of digital twins toenable virtual walk-throughs of a physicalenvironment (eg, construction site) or aphysical product (eg, new space satellite),enabling more efficient product prototyping andtest simulations

Overlay of data visualization enables
more productive assessment of situations

Live events: Gaming, virtual workouts, andother virtual events mimicking real-life
experiences such as concerts, conferences,
sporting events, and fashion shows

Assessment: Use of the same infrastructure(eg, 3-D models, procedure rules) to stress-test
the workforce’s knowledge, skill, and capability
in safety and efficiency and target further
training needs

Development: Simulation of process design,
such as a software engineer “grabbing” blocks
of code overlaid virtually onto factoryequipment to redesign the process flow, thenpushing the equipment back into production

Manufacturing example: Lead engineer
conducts factory operations and maintenanceremotely; VR tech enables workers to conduct
virtual walk-throughs, with visualized data andpop-up decision options for areas requiring
maintenance or repair

Source: McKinsey analysis

Retail example: Store manager observes
store while wearing AR glasses that display
sales data overlaid on sections and products

Virtual showroom: Shopping by virtually
walking through stores, trying on newproducts, etc

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Immersive-reality technologies

Why should leaders pay attention?
Overall trends~$1.2 trillion
market size by2035
Global immersivereality market size
is expected togrow at a CAGR of~24% until 2035,
facilitated by several
factors, including
increased use ofsmartphones andconnected devices
and rising adoptionof 5G networks

Increasing functionality across industries

Increasing
innovation
2× growth inimmersive-reality
patents from2018 to 2021

Growing
venture capital
investments~$3.9 billion ofventure capital
investments madeinto VR/AR startups in 2021, thesecond-best year
historically (after~$4.4 billion in 2018)as venture capitalinterest recovers
from COVID-19
pandemic
2.2× growth inaverage ticket size
from 2020 to 2021;
1.3× growth from2018

Growing B2B
adoption~66% CAGR inenterprise adoptionof AR through 2026
Need for morecollaboration
platforms (eg,Virbela, ARuVR)
triggered by
COVID-19 pandemic
to enable remote
work

Product andservice
enablement

Development
and training
scalability

Rapid prototyping(eg, driven by earlystage amendments
and powerfulvisualization)shortens time tomarket and reduces
costs drastically

Scalability oftraining expands
across all sectors,
particularly for nondesk workers (eg,situational/emergency training
without risking
users), while
ensuring
standardization inquality of training

New services
unlocked byengagingconsumers innew ways

Source: “Demand for augmented reality in enterprise and consumer markets to create US $175 billion AR market by 2026,” ABI Research, June 10, 2021; Chris Metinko, “VR/AR investments increase just as
metaverse talk heats up—but that may not be the only reason,” Crunchbase News, Jan 21, 2022; “Extended reality market size, share, trends, by type,” Emergen Research, Feb 2021; McKinsey analysis

Process
improvement
Faster and more
efficient processes
possible via earlywarning-detection
mechanisms, riskmanagement,
improved quality
assurance, reducedassembly/
construction efforts,and reduced
guesswork inmanual labor

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What are the mostnoteworthy technologies?
AR Augmented reality (AR) is a partly immersive experience inwhich users interact directly with a 3-D overlay onto theexternal reality in real time Examples of AR technology devices include AR projections
from phone devices, AR windshield on cars, AR glasses
 Capabilities needed to advance this technology include
common use higher resolution displays (eg, 8K), more precise
eye sensing and tracking technology to reduce lags and errors
in display overlay, etc

VR Virtual reality is a fully immersive digital experience in which
computer-graphics-rendered virtual worlds replace thereal world
 Examples of VR technology devices include headsets for a
fully immersive VR experience Capabilities needed to accelerate this technology include
specialized lower-latency hardware, improved sensors thatallow for full-body virtual tracking, etc

Source: McKinsey analysis

Immersive-reality technologies

Significant advancements are stillrequired for AR/VR and are 8–10
years out
While some capabilities are technicallypossible today in isolation, device
makers need to consider features suchas battery life, weight, and ergonomics,
which adds challenges (eg, 8K displays
exist but are too heavy and expensive forcommon use)
AR requires technology that issignificantly superior to that of VR
Unlocking scalability will require reducing
prices by >50%

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What are the most noteworthy technologies? (continued)
A diverse set of sensors and input will be needed, expanding the peripherals market 10−20× from today
TypeOverview

On-body sensors

On-body sensors are tools to track and identify users and the objects around them toaccurately reflect their limb movements and the physical objects around them inthe virtual world (eg, devices that are handheld or concealed in wearables)

Off-body sensors

Off-body sensors allow for more precise recreation of elements of the physical worldin virtual spaces with consumer applications like Nintendo Wii or enterprise applications
such as spatial-mapping hardware

Haptics

Haptic devices (eg, haptic gloves or vests) convey the sense of touch to the user withvibrations to augment virtual experiences

Holography andvolumetric video

Holograms and volumetric video diffract light across multiple wave fronts to display highquality, 3-D representations that can be seen without using a headset (eg, MicrosoftMesh or Google Project Starline)

Electromyography(EMG)

EMG is a neuro technology that detects and records electrical activity from muscles
to control movement and manipulate objects in virtual spaces and is being used inwearables to augment AR/VR headset devices

Microelectromechanicalsystem (MEMS)

MEMS uses midair ultrasonic waves to allow users to physically feel tactile
experiences without any wearables
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What disruptions could the trend enable?
Maturity level

Near term

Medium termLong term/end state

0–3 years

3–10 years

10+ years

ARAR exists mostly as a proof
of concept with few
enterprise use cases;
experiences occur within
narrowly definedenvironments (eg,warehouses) and overlay low-fi
visuals over the real world

Consumer AR is introduced as a
low-fi experience while
enterprise AR improves, withaugmented visuals interacting
more fluidly with external inputs
and usability expanding out of
preprogrammed spaces and use
cases

Consumer AR shrinks and use
cases proliferate, with aseamless digital layer acting as anoverlay to the real world; as users
navigate fluidly throughout theirday, external sensors interpret,interact with, and enhance thephysical environment

VR

Medium-fidelity VR
experiences offer limited
virtual worlds andexperiences; avatars aremanipulated using external
peripherals that limit
immersion

High-fidelity and comfortable VRexperiences are available atscale; avatars are manipulated via
body movements captured bysensors

Virtual worlds in VR are almost
indistinguishable from real life,and haptics have improved to givea realistic sense of feel across thebodySource: McKinsey analysis

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Immersive-reality technologies

High expected impact
Insignificant impact

2.7 billion~80%

The world’s
deskless workers, representingof the global workforce, areconcentrated in 8 industries and present huge potential for scaling immersive-reality technology

What industries
could be mostaffected by thetrend?
Overall, industries with a higher
proportion of non-desk workers
are leading in adoption

226M

497M

858M

148M

Agriculture

Retail427M

Manufacturing265M

122M

Education
Healthcare

Restaurants/
hospitality

Construction/real estate

189M

Transportationand logistics~75% of deskless workers
spend most of their time at work
using some form of tech, with>60% reporting lack ofsatisfaction or feeling the needfor improvement in the tech
they use

Source: “The rise of the deskless workforce,”
Emergence, 2018; McKinsey analysis

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What industries could be most affected by the trend? (continued)
Use cases are emerging both horizontally and vertically across industries
Not exhaustive

Automotive and assembly;
aerospace and defense

RetailHealthcare systems
and services

Industry

Education

Exampleuse cases

Learning and development
Remote collaboration
Field-worker assistanceConferences and events

Digital twins/operations
Factory design
Product design
Training
Remote assistance
Safety3-D catalog
Virtual store/digital showrooms
Interactive try-on
Store layout and design
Warehouse optimization

Surgical assistance (AR)Telemedicine (mental health,pain management, etc)
Imaging/pathology
Training
R&D/simulations

Significance

63% of companies that are~100% of design of physical~33% of customers who

metaverse adopters haveundertaken learning anddevelopment for employees in
the metaverse

products/spaces (eg, factories,warehouses) could be simulated ina synthetic environment

are active on the metaverse
have purchased real-world
items there

Increasing efficacy of
immersive-reality solutions
in treating mental disorders

Source: Nilufar Baghaei et al., “Extended reality for anxiety and depression therapy amidst mental disorders: A systematic review,” ResearchGate, Mar 2022;“Value creation in the metaverse: The real business of the virtual world,” McKinsey, June 2022

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What industries could be most affected by the trend? (continued)
Immersive reality could change the way energy and materials industries operate
Not exhaustive

Construction andbuilding materials

Real estateElectric power, naturalgas, and utilities

Aviation, travel,and logistics

Media andentertainment

Creating immersive,
virtual environments,
giving architects a
better sense of aspace before it
physically exists

Designing interior
spaces along withfloor and furnitureplanning, andproviding virtual
tours of properties toenhance customer
experience

Using AR to view
overlaid visualizationof underground assets
and complex
components for
improved operationalsafety (eg, advising
field technician onwhat actions to take)Diagnosing flow
constraints inwarehouses andmanaging vehicle
fleetsParticipating invirtual events
mimicking real-life
experiences such asconcerts,
conferences,
sporting events, andfashion shows

Source: McKinsey analysis

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10Who has successfully created impact withimmersive-reality technologies?

Immersive-reality technologies

Many industries have started to experiment with AR applications
Information
technology andelectronics

Fujitsu uses AR in the sales process to allow customers to see all productcharacteristics

Aerospace anddefense

Boeing leverages AR to improve manufacturing process efficiency and has achieved
a 90% quality increase and 30% speed increase on its pilot projects

Aviation, travel,and logistics

Japan Airlines is experimenting with Microsoft HoloLens AR as a technical training
tool for its maintenance technicians

Automotive andassembly

Porsche has shortened operational time spent on addressing issues by 40%
through the use of AR headsets to simulate virtual models of problem vehicles

Source: Company websites

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What should leaders consider
when engaging with the trend?
Not exhaustive

Benefits

Risks and uncertainties

More efficient product prototyping and test simulations throughthe creation of digital twins to enable virtual walk-throughs of physicalenvironments or new physical products

Pace of hardware improvements to enable miniaturization/weightreduction, ruggedness; sensor advances for increased precision,
nausea mitigation, etc

Process improvement through early-warning-detection mechanisms,
risk management, improved quality assurance, on-the-job visual
guidance, and more

Cost reductions required to make many more applicationscommercially viable and scalable

Introduction of new products and services by engaging consumers
in new ways and enhancing customer experiences
Increased collaboration by facilitating more engaging virtual-teaminteractions, without the need of being physically present
Scalability of trainings by allowing users to develop hands-on skills,
especially when simulating unusual situations, all while ensuringconsistency in the quality of training provided
Cost savings as a result of effective product development, improved
processes, and scalable, quality-assured trainings

Source: McKinsey analysis

Uncertainty on whether consumer applications will target niche
customer segments or focus broadly on mass markets

End-user devices could take multiple forms, from independent
platforms to peripheral accessories for smartphones or a mix of both
Exposure to complex security vulnerabilities must be mitigated, as
typical AR/VR applications need access to many technologies (eg,smartphones, body sensors, glasses) and may be linked with socialmedia accounts and external applications
Concern about user’s ability to control what data are collected
and how data are processed or shared with third parties (eg, to whatextent will users be surveilled?)
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What are some
topics of debate
related to thetrend?

of1 Waysworking

2 Scalability

Will immersive reality shift the new wave of (remote) work?
Many business are reconsidering their remote vs in-person work operating models as
COVID-19 measures are relaxed. As immersive-reality tech boosts collaboration andfacilitates remote operations, will remote work be here to stay?

Will initial ideas continue to stall at proof of concept—orbegin to break through to scale? What will be the triggers forbreakout success?
Significant tech advancements still required for AR/VR are approximately 8–10 years out.
Although some of the required individual capabilities are technically possible today, device
makers still need to produce these features (eg, battery life, weight, ergonomics) inconjunction with each other to improve sensory precision, mitigate security and privacy
concerns, and broaden consumer applications, among other factors.

Not exhaustive

3 Enterprisearchitecture
integration

4 FalseinformationHow will consumer-oriented pioneering platforms integratewith enterprise tech architectures?
Adopting immersive-reality solutions puts a strain on tech architecture. Enterprises will haveto evolve their capabilities to integrate with these new technologies while mitigating privacy
and security concerns; the investments required to do so are unclear.

To what extent can immersive reality facilitate the spread offalse information?
Deepfake technology and mixed reality facilitate misrepresentation (eg, facial-swap features),which could have social implications such as cultural appropriation or the spread of “fakenews” for targeted political influence or any other malicious intent.

5 Virtualcrimes
Source: McKinsey analysis

How can virtual crimes be mitigated and regulated?
Ethical questions are emerging around the potential psychological effects of immersivereality technologies, raising questions around how to deal with different forms of harm,such as virtual violence, bullying, and trespassing.

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Immersive-reality technologies

Additional resources

Related reading
Augmented and virtual reality: The promise and peril of immersive technologies
Product development gets a makeover—with virtual reality
Meet the metaverse: Creating real value in a virtual world
Value creation in the metaverse

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