Virtual reality just became more lucrative for Facebook Inc. (FB), Alphabet Inc. (GOOG), Amazon.com Inc. (AMZN), and other tech behemoths, if one were to believe a Citigroup analyst report released yesterday. According to the report, Virtual Reality/Augmented Reality (or, VR/AR) will become a $674 billion market by 2025.

In case you are wondering, virtual reality is the construction of an alternate reality through external devices. Think Oculus Rift, the headset maker bought by Facebook for $2 billion. On the other hand, augmented reality enhances existing reality by superimposing images or information through external devices. Think Google Glass, the wearable headset that debuted to much controversy in 2012 and is now being used in medical applications.

The Win-Win For Virtual And Augmented Realities

Augmented Reality will win big in the future. "We believe augmented reality technologies are likely to penetrate the e-commerce and mobile commerce markets. AR has potential uses facilitating work in factories and manufacturing plants, in operation of machinery and electronic equipment, and in such areas as material handling in warehouses and at distribution hubs," the Citigroup analysts write.

At $401 billion, the Augmented Reality (AR) commerce market will account for the largest chunk of this market. Amazon, an e-commerce powerhouse, has already filed a couple of patents relating to tracking objects in a room and, also, using projectors to transform a room into a kind of holo-deck. This could potentially lead to more markets and users for products on the e-commerce platform. Although Google Glass failed as a concept, the report predicts a booming market for augmented reality headsets worth $79 billion in the future. Perhaps they will be used for communication purposes, such as making audio/video phone calls, a market worth $45 billion.

Virtual Reality is not far behind. The report assigns market valuations of $39 billion and $58 billion to the entertainment and gaming possibilities for virtual reality. This should be good news for Facebook, which is already in talks with major film studios such as 21st Century Fox to create Oculus experiences for its headset. (See also: Microsoft Gets Into The Virtual Reality Business.)

Finally, the report also tackles a big impediment to widespread adoption of the technology: costs. "We are optimistic regarding the cost problem. In the technology world, innovation has repeatedly reduced the cost of realizing the required functionality and performance. In addition, the PlayStation4 will be used as the CG processing computer for the PlayStation VR headset to be launched in 2016, and the price cut in 2015 means that a machine with 1,830GFLOPS (single precision) of processing power can [be] bought for $349," the report's authors wrote.

The Bottom Line

Reality will be suffused with equal amounts of virtual and augmented versions in the coming years as major technology players roll out products to capture market share.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.