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Market researcher Strategy Analytics said it expects global virtual reality headset revenues will reach $895 million in 2016.

About 77 percent of that value will be accounted for by newly launched premium devices from Oculus, HTC, and Sony. These three brands however will only account for 13 percent of volumes in 2016 as lower priced smartphone-based devices will dominate share of the 12.8 million unit virtual reality headset market. Strategy Analytics said it sees 2016 as a pivotal year for virtual reality given a confluence of factors and also one where managing expectations will be paramount given a dearth of available content and the technical limitations of entry-level virtual reality.

Oculus VR launched the $600 Oculus Rift on March 28, and HTC launched the SteamVR-based HTC Vive this week. Sony plans to launch the PlayStation VR headset in October. Meanwhile, Google Cardboard has been distributed for free far and wide, and Samsung launched its mobile-based VR device, the Samsung Gear VR, last November.

Strategy Analytics predicts that high-end virtual reality headsets tethered to PCs and game consoles will barely exceed 1.7 million devices shipped globally in 2016 due to prohibitively high pricing. However, awareness of — and actual exposure to — such state-of-the-art systems will build rapidly in 2016. At the same time, smartphone toting consumers are being bombarded by low cost and often bundled-in VR viewers.

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With proper ecosystem management, Strategy Analytics’ analysts believe that smartphone-based VR can serve as an effective “gateway drug” to upsell users to higher quality VR experiences down the road while locking them into early but potentially sticky ecosystems.

Cliff Raskind, director of Strategy Analytics’ Wearable Device Ecosystems service, said in a statement, “Consumers will soon be exposed to an incredible diversity of virtual reality options ranging from ultra-low cost to super premium. While we expect smartphone-based viewers to take the lion’s share of VR headset volumes in 2016 at 87 percent of shipments, PC and Game Console powered headsets will absolutely dominate value share commanding 77% of revenues.” He went on to say, “Additionally, we believe VR has the potential to fuel a new tech spec race in hardware areas such as display resolution, GPUs, storage and 360-degree cameras.”

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