A couple of months since the beginning of the Russia-Ukraine War, supply chain disruptions, shifts in demand in Eastern Europe and sanctions against Russia have hit the ICT market. Many Western technology providers have either shut down their offices or paused their operations and sales in Russia, wiping out many millions in tech spending in Russia in 2022.
As the Russia-Ukraine War is leaving Russia isolated, the country will have to become self-reliant and leverage domestic businesses or new partnerships to access technology products. On the other hand, human augmentation technologies have proven to be key for individuals’ identification, conflict information visualisation and war fact-checking programmes.
This blogpost analyses the impact of the Russia-Ukraine War on the human augmentation market in Europe, focusing on augmented and virtual reality (AR/VR), wearables and biometrics.
Companies Pulling Out of Russia Will Generate a $200 million Spend Loss in AR Headsets
According to our Worldwide Black Book Live Edition, the impact on hardware will be strong, with $13 billion of spending in general hardware lost in 2022 in Russia and Ukraine due to the conflict.
Our Quarterly Augmented and Virtual Reality Headset Tracker shows that AR headset spending will generate a spending loss of $220 million in 2022, as companies pulling out of Russia will affect technology availability, creating a gap that will take a few years to bridge.
While Microsoft HoloLens dominates AR market share in Europe, the company has suspended sales in Russia. This will hinder Russia’s vision to become a country built on smart city projects. AR headsets in the market are old and expensive; most of the devices target enterprises, so they are less accessible to the public. The lack of consumer accessibility will lead to the gradual fading out of current brands.
European countries will be impacted at different levels. In Western Europe, AR will maintain its momentum with brands such as Nreal launching new products. As the region is more open to new technology, consumers will be more likely to purchase.
In Central and Eastern Europe (CEE), AR is a slower and more price-sensitive market. According to IDC’s Quarterly Augmented and Virtual Reality Headset Tracker, AR growth will be half of what was previously forecast, with a slow and gradual recovery from 2023.
As for VR, Facebook Oculus continues to take the lion’s share as it is mostly a consumer-focused device. With higher spending power in Western Europe, the impact will not be noticeable.
CEE will suffer in the short term as companies such as Facebook, which accounts for 36% of the Russian market, pull out of Russia. Popular products such as Quest 2 will not be accessible to consumers in Russia and Ukraine, and this will significantly affect the market, creating an opportunity for Chinese vendors to step in.
New VR launches such as Apple VR headsets and PSVR 2, which are expected to accelerate adoption, will also not be able to reach Russian and Ukrainian consumers due to economic sanctions and loss of consumer power.
Currency Fluctuations Disrupting the Wearable Market in Eastern Europe
Russia is the wearable market leader in CEE, so the impact of the war on the market is huge. Russia has a 38% market share in CEE, and more than 70% of watches are smartwatches from Apple and Samsung.
Due to inflation, sanctions and companies pulling out of the region, Russia will be hit hard and the wearable market is expected to lose $1.2 billion in 2022.
Ukraine is a key bridge between Western and Eastern Europe, with many companies having distributor partners in the country. The war has forced many businesses to shut down and many Ukrainians to seek refuge abroad.
This is expected to result in a decline in the wearable market of more than 90% this year. The seasonal lockdown of warehouses and the impact of COVID-19 will add further uncertainties to market supply, limiting growth over the next few years.
When Apple announced it had terminated its operations in Russia, the Russian smartwatch market lost its biggest player. This was exacerbated when ApplePay was banned in Russia after some Russian banks had been cut off from the payment system.
In addition, Google stopped Russian smartwatch users from making payments through GooglePay. GPS satellite tracking functionalities for outdoor activities have also been disrupted. Polar, for instance, which manufactures sports training computers, experienced movement tracking problems in CEE.
On top of economic constraints and political instability, the usability of wearables has been compromised in Russia. Issues around accuracy and performance have impacted the smartwatch market, and this has been exacerbated by Western market leaders pulling out of Russia. On the other hand, this offers an opportunity to Chinese companies to fill the gap, as the ruble and the yuan have stabilised.
From Identity Recognition to Border Surveillance, Biometrics Have Become a New Type of War Weapon
Controversies about biometrics have hampered mass adoption of the technology, raising privacy, security and bias concerns. The Russia-Ukraine War has spurred the “weaponisation” of biometrics solutions across Eastern European governments, which are deploying the technology as a self-defence tool against Russia and for citizen ID.
US-based artificial intelligence company Clearview AI has offered the Ukrainian government free access to its platform to leverage facial recognition to uncover Russian spies, combat fake news, identify the dead and help reunite misplaced families. The company is facing many lawsuits in the US for violation of privacy rights from gathering pictures from the web and its practices are considered illegal in the UK.
Nonetheless, the Ukrainian defence sector is deploying this free service, with more than 200 user accounts across five Ukrainian government agencies being created.
On the other side of the border, a Russian antiwar and human rights activist has said facial recognition is being used by the Russian government across public squares and the subway to intercept human rights activists and dissidents attending protests or rallies. With over 125,000 surveillance cameras watching the streets of Moscow, the weaponisation of biometrics as a tool for public safety in Russia will be questioned again in the years to come.
In Western Europe, many countries are stepping up their defence spending and pledging to increase investments in security and defence technologies to protect borders and tackle the massive inflow of refugees. Germany plans to increase its defence budget by €100 billion to provide better equipment and technology, including greater spending on border surveillance and security technologies.
The surge in Ukrainian refugees will put European immigration authorities under pressure to collect biometrics from refugees. Adoption of biometric mobile kits and temporary biometric pop-ups will increase in Poland, Austria and Romania, where efforts to streamline the asylum-seeking process will lead to greater investments in biometric-enabled hardware devices.
The current crisis in Eastern Europe will not affect spending on biometric solutions, but it is increasing awareness of the “pros” of the technology (rather than the “cons”), especially across law enforcement. It’s also paving the way for new use cases targeting identification and misinformation when contextualised in a framework that preserves individuals’ right to privacy.
Human Augmentation Providers Must Focus on “People-First” Use Cases
Although the ICT market is experiencing turbulence in Eastern Europe, the war has proven that human augmentation technologies can play a key role in warfare and can have a significant impact on conflict management and awareness. A Spanish broadcaster, for example, is using AR to simulate aspects of the war.
Military use of AR can also help the military with training on both the battlefield and in the air. Consumer VR solutions, such as Aftermath VR: Euromaidan and PrisonersVoice, recreate gamified scenarios and immersive documentaries about the war to create empathy and draw the world’s attention to the Ukrainian situation.
AR/VR, wearable and biometric vendors face challenges in Eastern Europe, but they must put people first and focus on use cases that provide value to people involved in the war, raise conflict awareness across the globe and help people empathise with the situation in Ukraine.
For more information, please contact Andrea Minonne or Kyla Lam, or head over to https://www.idc.com/eu and drop your details in the form on the top right.