Augmented reality mobile apps market is expected to generate $300m revenue in 2013, with companies and retailers are keen to use augmented reality (AR) in the apps and marketing materials, according to a new report.

According to a report by ‘Mobile Augmented Reality: Entertainment, LBS & Retail Strategies 2012-2017’, about 2.5bn AR apps are expected to be downloaded to smartphones and tablets per year by 2017.

Out of the total AR apps downloaded, games will account for the largest share, though the traditional pay-per-download payment model would continue to account for the largest share of revenues in the medium term.

The report revealed that that adspend has increased dramatically in 2012 and is expected to grow further next year.

The report also revealed that many retailers now perceive that AR as a primary means of increasing customer engagement to provide additional product information in the form of branded virtual games and activities.

There will be further growth avenues, with AR increasingly being deployed in prototype wearable devices like Google Glass.

Key hurdles in the growth could be lack of consumer awareness while technological limitations of AR-enablers such as the phone camera, GPS, digital compasses and markerless tracking leads to AR failing to live up to consumer expectations.