How Spatial Computing & AI Could Revive the XR Industry

It is official, the XR market is struggling.

According to GlobalData, venture capital investment in VR and AR plummeted in 2022, following a record high in 2021. Investment volumes in 2022 totaled $5.8 billion across 283 deals, less than half of the $18.9 billion invested the previous year over 311 deals. Additionally, XR headset shipments dropped by 19% year-over-year in 2023, as reported by Counterpoint Research.

Currently, only companies with substantial revenue streams from other sources, such as Meta with its $131.95 billion in advertising revenue in 2023, or Apple with over 230 million iPhones sold that year, can afford to continue investing in XR. The industry needs immediate action and I believe spatial computing and how we describe experiences can revive XR.

The Problem: Buzzwords and Fragmentation

Spatial Computing can be the new term to 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.

This naming battle has been brought about due to the following:

• 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 popularized 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 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.
  

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. To address this, the industry must shift its focus from technology to experience and device types.

Revive XR: Spatial Computing & User-Centric Language

Spatial computing is the most descriptive and unifying term for the XR landscape. It emphasises the technology’s ability to blend digital content with the physical world, creating immersive and additive experiences. However, to truly resonate with consumers and investors, the industry must go a step further and focus on end-user experiences and the devices that enable them.

Instead of debating whether a device is AR, VR, or MR, we should classify them based on the type of experience they deliver:

• Headsets = Immersive: Experiences on headsets are digital first experiences, which 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 the value these devices provide to users. 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 create a clearer narrative for investors and consumers alike, helping to rebuild confidence in XR’s future.

The rise of AI: A lesson for XR

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

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. If the XR community could adopt a clear, unified term like Spatial Computing, I believe it would likely see similar benefits.

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 personalized 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.

How Do We Change the Perception of XR?

The path forward is clear:

1. Adopt "spatial computing" as the unifying term for the industry.

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.