HAMPSHIRE, UK -- Smart toys will represent an $18 billion hardware and software market by 2023, up from an estimated $6 billion in 2018, a new report from Juniper Research says.

The increase will primarily be driven by the growing popularity of smartphone connected toys and related in-app purchases, which are projected to grow by 69% annually over the next five years.

In-app purchases will become the main driver for growth, with content revenues reaching 25% of the total industry by 2023. For example, Merge’s Augmented Reality Cube toy highlights the potential of the smartphone working alongside an established platform for successful content distribution and monetisation.

This growth coincides with the stagnation of the console-based "Toys to Life" sector. The report recommended that vendors incorporate smartphones into their proposition to drive new innovative games.

Privacy issues continue to hamper overall growth. It posits the recent prosecution for VTech’s breach of data security as a watershed moment, demonstrating the FTC’s increasing control over data protection violation which issues a warning to all vendors.

In addition, the new GDPR (General Data Protection Regulation) rules will mean that vendors will be at further risk of fines. However, Juniper cites the increased focus on security as an opportunity. A ‘safe’ reputation is a unique selling point for a vendor, in an industry blighted with security issues.

The research found that as connected toys become more affordable, educational toys will find a place in the school curriculum in developed markets. Osmo, for example, has been a leader in this area, with more than 25,000 schools embracing its learning kits. Juniper forecasts that the market will be worth over $1.5 billion by 2023.

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