The ultimate vision for AR/VR is that the medium replaces screens altogether. When the screens are gone, we are essentially left with what we’ve had since the beginning—things like board games, puzzles, live action role-playing (LARP), laser tag and traditional sports. But with a powerful virtual layer, these games, along with simulation and massive multiplayer online (MMO) games, become “connected” and “smart” experiences. The implications for user experience, content creation and monetization in gaming are enormous. We are many years away from AR/VR ubiquity, but on our way there, technology and consumption behaviors will continue to shift, and at a rapid pace. So where are we today, and what can we expect in the not-too-long-term future?

In the near-term, consumer adoption of premium VR will be (and has been) driven mostly by gaming. The current hardware requirements and setup limit the market to mostly the PC/console gamers. The other monetization opportunity for consumer VR will be in location-based entertainment (LBE) experiences, such as those launched recently by Survios, The Void and Dreamscape Immersive. We hope to see continued growth in adoption by more types of gamers as major HMD makers release another iteration of their devices this year, including stand-alone VR headsets.

With its lure of scale, mobile AR has attracted much industry attention in the past year and will continue to see wide adoption by developers and consumers. However, most mobile AR games will face the same challenges in user acquisition and retention, monetization, and competition that other mobile apps do. Mobile AR developers will have to focus on building or acquiring a great brand and creating a truly unique AR experience. According to SuperData, Pokemon Go earned 84% of 2017 AR revenue (its second year in the market), demonstrating how hard it has been for other developers to monetize. Expectations are high for the upcoming Harry Potter AR game by Niantic.

While this is great for AR/VR overall (getting immersive content into the hands of consumers), the full potential for most games in AR/VR will be realized only with user-friendly, hands-free devices on native platforms. The long-awaited headset from Magic Leap will be released later this year, and we expect to hear from other big players, including the seemingly dormant Apple, on the release of such devices.

As we head toward mass adoption of AR/VR—or the combined XR—hands-free goggles or other types of devices, here are the some of the biggest, longer-term implications of the new medium in gaming.

A new kind of gamer

Mobile and social grew the market by attracting new gamers into the casual gaming market segment. One of the promises of immersive is the embodiment of ourselves in virtual/augmented spaces. We can walk around and engage within a game environment and around the characters. This creates a new kind of gamer who embodies the virtual characters in games that can range from role-playing games to more traditional sports. This will take esports, sports and gaming video content to the next level. The recently launched NFL Experience by the NFL and Cirque du Soleil does not use AR/VR devices but demonstrates the potential of these types of experiences. In it, a visitor becomes a quarterback in the middle of a play or a player in a team huddle. This is not unlike the hours and the level of commitment people spend in LARP games or interactive immersive theaters. The revenue model for such immersive experiences today is typically an upfront fee or ticket price, sometimes combined with the price to purchase costumes or equipment.

More frequent, longer play

Artificial intelligence will enable dynamic narratives and interactions with virtual objects. The player’s body (gestures, eye gaze, voice) will be the inputs into the game. With this level of immersion, players will be more engaged and will spend more time in game play. As avatars become more lifelike, social experiences in virtual environments can further increase game play (think Ready Player One). As we have seen with the web and mobile, consumer brands will start to view AR/VR as a key touch point (or a collection of touch points) in their customer journey and to invest both advertising and customer experience dollars into native AR/VR formats. The complex set of inputs and potential outputs will allow developers to design creative pricing models based on features, access to worlds and other factors.

From screens to environments

In AR games, where the environment is the anchor of the experience, game developers will find new strategic partners in brick-and-mortar locations that want to extend experiences and time spent in store or on premises. Whereas developers may charge for access to virtual worlds in VR, the revenue model in AR could be a combination of tech licensing fees, ticket fees and revenue sharing on sales within stores.

Unlike on our five-inch phone screens, in an AR/VR game, the only restriction on real estate is our field of view. This makes room for more creative content and UIs, including the overlay of relevant content, such as maps or character details, within the gaming environment. Elements of sports, such as spatial awareness, can now be integrated into game mechanics. Unsavvy advertisers will see this as more ad space, but would users really want to see ads on their living room wall in an AR game? The IAB is working with developers to design less-intrusive formats for the medium. Companies like Trivver are developing ways to seamlessly insert branded, native 3-D objects into environments. The technology automatically scales an object, adjusts its orientation and lighting/shading, and uses AI to dynamically place the object across immersive experiences where it makes sense.

More data, more money?

Unlike previous devices, AR/VR devices will have biometrics and environmental awareness. AR/VR devices will be able to track our gaze, process our voice, and recognize the objects and sounds around us. This intelligence enables a truly interactive and dynamic gaming experience. The content becomes relevant not only to you, but also to what you are looking at or listening to. Physical objects or sounds can trigger events in the game. In TendAR, an experience that premiered at this year’s Sundance, users train and care for an AI-based fish character using emotion and object recognition. The volume and types of data collected can be used by developers in game optimization, enhancements and in-game offers—and potentially, for precisely targeted advertising. Of course, the privacy implications are huge, but we’ll save that for another article. Consumers, developers and brands will have to evaluate the trade-offs between protecting personal data and creating the most immersive gaming experiences.

By understanding the potential of AR/VR in gaming, companies can take advantages of the user experience and monetization opportunities AR/VR brings to today, and define what the technology will look like in the future.