Spatial Computing and AI Can Revive the XR Industry

How naming consistency and experience-first descriptions could restore investor and user confidence.

The XR market is clearly struggling, and it's deeper than just a funding drought. The narrative surrounding Extended Reality has become so fractured that both investors and consumers are suffering from belief fatigue.

The numbers confirm the slump: Venture capital investment in VR and AR plummeted from $18.9 billion in 2021 to $5.8 billion in 2022, and headset shipments dropped 19 percent in 2023. Now, only tech giants like Meta and Apple, with deep pockets outside of XR, can afford to sustain the heavy R&D.

To reignite funding and drive real user adoption, the XR industry must pivot: focus relentlessly on the actual user experience and radically rethink how those experiences are labeled. That's the critical shift I explore in this post.

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The Term 'Spatial Computing' Can Revive XR

In my opinion, one of the key issues affecting XR investment is the inconsistent terminology used to describe the technology. The lack of a unified term leads to confusion and the perception that each term is merely a buzzword, rather than a description of a viable technology with a future. This inconsistency impacts investors' willingness to continue funding XR ventures.

The persistent creation of exclusive terms by leading tech companies has fragmented the XR landscape, complicating investors' ability to discern promising opportunities and potentially impeding sector growth.

Here is how the naming battle has unfolded over the years:

• In 2016, Microsoft unveiled the HoloLens, coining the term 'mixed reality' to set its offering apart from AR, particularly after the lukewarm response to Google Glass.

• Around 2017, 'extended reality' (XR) emerged as a collective term for AR, VR, and MR, striving to consolidate diverse immersive technologies.

• In 2018, Microsoft introduced Windows Mixed Reality, a VR platform featuring passthrough capabilities to blend virtual experiences with real-world awareness.

• In 2021, Facebook rebranded to Meta and popularised the term 'metaverse,' although its meaning varied widely due to Meta’s development of VR devices.

• In 2023, Apple sought to assert its dominance by adopting and enforcing the term 'Spatial computing' to describe the metaverse/AR/VR/XR landscape, this brought a mixed reaction.

• In December 2024, Google brought out Android XR - they have not referred to AR/VR/MR or spatial computing by name and are using XR as their term of choice. However they talk about the experience and context in which you would use a headset vs glasses which is a nice way to think about it, rather than leaning on different terms.

To address these historical issues, the industry must shift its focus from technology to the experience. This is why 'spatial computing' works as a first step. It describes the technology, but also the experience. By making this seemingly small shift in language, it will shape how investors interpret readiness, and how users imagine value.

The next shift to consider is focussing on the experience, rather than the technology.

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Reframe the Tech Around the Experience

Spatial computing gives the industry a way to move beyond naming battles and focus on what truly matters, which is how the technology feels and performs for the people who use it. It captures a wearable computer's ability to interact with and understand the physical world.

To make this shift real, XR companies need to classify products by the type of experience they deliver, not the technical stack that powers them.

Headsets = Immersive

Digital-first experiences that may or may not take place in the real world (e.g., Meta Quest, Apple Vision Pro).

Glasses = Additive

Experiences that overlay digital content onto the real world (e.g., HoloLens, Nreal).

This approach shifts the conversation away from technical jargon and toward tangible value for the people who use these devices. For example:

• Immersive experiences are ideal for gaming, training simulations, and virtual collaboration.

• Additive experiences excel in productivity, navigation, and real-time information overlay.

By adopting this framework, the industry can help investors, developers, and consumers alike see where real value sits. The principle is similar to what I covered in How to Master Your XR Go-to-Market Through Storytelling, where clarity begins with the experience itself. In XR’s case, that same clarity starts with how we describe what users actually feel and do.

Next, XR can learn from how AI has managed to unify complex subfields under one clear story.

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AI Shows How Clarity Builds Confidence

While XR has struggled, Artificial Intelligence (AI) has surged ahead, attracting substantial private investment. The US is leading private investment in AI with €62.5 billion in 2023, followed by China with €7.3 billion.

ChatGPT has democratised AI, and suddenly the world can see a future where their jobs could be replaced, and investors can see a path to untapped revenues. New and old companies alike are jumping on the AI train, whilst XR companies are either going under, or making massive cuts in staff and spending.

Like XR, AI is a broad term, but it has remained well enough understood to serve as an umbrella term for various subfields. Gartner’s 2023 Hype Cycle for Artificial Intelligence illustrates this well, maintaining clarity despite the rise of terms like “Generative AI.” This clarity has helped sustain AI investment.

AI has taken over, and now it has become such a broad definition that it even has its own hype cycle. Where has XR got to on that curve?

If the XR community could adopt a clear, unified term like spatial computing and focus on user experiences, it would likely see similar benefits. Moreover, the integration of AI and XR presents a significant opportunity. For example:

• Computer Vision (CV), which is nearing the Plateau of Productivity on Gartner’s hype cycle, is crucial for XR functionality.

• AI-powered spatial computing devices can deliver smarter, more intuitive experiences, from real-time object recognition to personalised content delivery.

To attract investment, the narrative should shift from "invest in XR" to "invest in spatial computing powered by AI." This rebranding could revitalise XR by highlighting its relationship with AI, making it a more attractive investment opportunity.

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How to Turn Clarity into Confidence

Whether you are building tools, content, or investment cases, the same principle applies: clarity converts curiosity into confidence. Consistent language helps founders tell a believable story, helps developers align around user experience, and helps investors see traction before it appears in data.

The path forward is clear:

1. Spatial computing can revive XR as the unifying term.

2. Focus on user experiences and device types (e.g., headsets for immersive experiences, glasses for additive experiences).

3. Leverage AI to enhance spatial computing devices, making them smarter and more user-friendly.

4. Collaborate as an industry to establish a unified terminology standard, reducing fragmentation and confusion.

By shifting the narrative from technology to experience, the XR industry can rebuild investor confidence, attract new funding, and pave the way for mainstream adoption. The future of spatial computing is bright, but only if we can agree on how to talk about it. 

If you are leading a startup or scaling a product team and want to reposition your strategy around user value and investor confidence, let’s talk. I help founders and product leaders translate technology into inspiring, believable, and fundable stories. Reach out at info@crwburgess.com.