With the recent breakout success of Pokemon GO, the Virtual Reality vs. Augmented Reality argument has gotten the spotlight treatment. However, VR and AR are not direct competitors and ultimately will have a symbiotic relationship.
VR and AR, for the most part, do not fill the same needs. VR is a complete digital substitution of reality while AR is a partial substitution or overlay. The things we will do in VR - watch movies, play AAA games, travel virtually to places and experiences - just don’t work as well in AR. For these experiences, we want to be completely immersed in the virtual world. AR will be hugely useful as well, but now it’s better suited for mainly commercial applications (Google Glass, Hololens, DAQRI).
While there is a considerable amount of overlap in VR and AR high-level use cases, when you get into the details, they are really still quite different. Pokemon GO has clearly proven that AR mobile games can do well and have a lower barrier to entry than VR mobile gaming (you don’t need a new AR device), but they each have unique user experiences. Just because you play a AR mobile game doesn’t mean you won’t play a VR one and vice versa. Brands use VR and AR for distinct types of marketing - immersive vs. contextual. Redesigning an existing home (AR) or building a new one from scratch (VR) are disparate processes. Remotely walking through a virtual store and standing in front of an augmented mirror have nothing in common.
VR and AR are fundamentally different, so one will always be better suited than the other for a certain application. In the long run, it doesn’t matter if VR, AR, or Mixed Reality wins. Eventually, one device will be able to provide experiences all along the immersion spectrum, and these technologies will only be competing for our attention.