The AR Show: 2023 Kickoff: The Year of VR with Video Pass-through

5:57AM Jan 3, 2023

Speakers:

Jason McDowall

Keywords:

ar

devices

optics

vr

display

technology

glasses

company

acquisition

apple

startups

early

apps

hardware

enterprise

bought

micro

acquired

tech

case

Welcome to the AR show where I dive deep into augmented reality with a focus on the technology, the use cases and the people behind them. I'm your host Jason McDowall. Today I'm kicking off 2023 with another annual monologue. Hope you and your family were able to have a safe and relaxing holiday even in the face of another arctic blast or spate of viral diseases and everything else that seems to be going on and challenging our lives. This is the sixth such annual kickoff episode, if you can believe it six times you've done something like this. And we're looking back at my notes from last year. The big surprise when flying 22 was a resounding commitment shown by metta and others to continue investment in VR and AR technologies. Despite heavy financial losses and Wall Street pressure. That commitment is necessary to see our industry through its slow progress for AR technology, and it's still nascent growing pains. I'm going to share my take on some of the highlights from from 22. And what we might see in 2023, as it relates to augmented reality, and maybe a little bit about VR pass through VR as well. For those that are newer to the show, let me reintroduce myself. And for those that are already familiar, please skip ahead 90 seconds. I studied electrical and computer engineering at Carnegie Mellon, where I earned a BS and MS. I also studied business at UCLA, Anderson Wright received my MBA. Following my time at CMU, I spent four years as an active duty officer in the US Air Force and a part that is now the US Space Force. Working on the development and deployment of large scale computing and communication systems and sort of satellites flown by the Department of Defense and other agencies. I got to travel the world and work on some really fun projects after my service in the Air Force and began my entrepreneurial journey during the early days of the smartphone revolution. And by early I mean very early, well before the iPhone before Facebook even in that time before the iPhone I was the co founder and CEO of two startups before joining the mobile product management team@salesforce.com. Four years later, I was drawn back to entrepreneurship and co founded a mobile focused enterprise software startup that was acquired by another CRM company. Then over six years ago, I took a step back and reassessed how I wanted to spend the back half of my career. Since my days at CMU, I've been enamored with the idea of having a computer in our pocket connected to the internet. And so much of my career has been about making that device contextually aware and supportive, helping the user become more informed, more effective, or more entertained. When I looked ahead, the next frontier that embodied those same principles was AR glasses. Knowing my proclivity to jump into things way too early, I joined a very promising hardware technology company that is solving one of the biggest hurdles for AR glasses, delivering a high visual quality experience with a truly wearable device that companies are standout and I'll share a bit more about them later. On side I'm also an angel investor and a venture partner at W XR fund a female founder focused early stage VC investing in AR VR and AI. And of course, I also get to do this podcast. I feel so fortunate to engage and learn from the world in this way. I'm grateful you take the time to listen, rather than the interview. Today I'm going to share my flawed, incomplete and biased perspective on what happened in 2022. And what I expect in 2023. With that, let's dive in.

Starting with meta, when I read about the antitrust lawsuits filed against the company as it pursues the acquisition of within, I was perplexed within as a developer of VR apps and content, including the popular fitness app supernatural, the government is arguing that as acquisition reduces competition, and the potential quote unquote killer app category of fitness apps for you are is going to have is table stakes of essential apps. And it seems fitness may be one of them. In the early days of personal digital assistants. That's what we call the batch of early smart devices that we could fit into our pocket for those PDAs. The standards included contacts calendar to do lists and notes. As the smartphone gained acceptance we added phone email, text messaging in a web browser. In terms of information that people looked up from their smartphone stocks, news, weather and sports dominated meta in the VR industry more generally, is still figuring out that core set of apps or experiences that will motivate users to buy and keep using a VR device. That is acquisition of beat Sabre and supernatural suggest these types of apps may be among them. I believe a platform providers such as metta, one of several major players, including Sony, PlayStation, Pico, HTC, and valve should have the opportunity to build or acquire these types of apps. The argument seems to be that the fitness category is too important and meta should be required to build its own. While supernatural is a great app and 3d offers a different set of challenges than 2d. We can also see both the multitude of these fitness app alternatives on mobile, and highly capable VR development studios. You combine those things together, I think we're gonna see more competition. Also, I believe a successful sale of within two meta is healthy for the industry. It's good for the founders, the investors, and in this case, the broader ecosystem. This may create space in the market for another app developer to develop a VR appropriate fitness experience. And I don't believe the users will be hurt by the acquisition whether we include the current users or the potential future users who want to experience a variety of alternative fitness apps. Regardless of whether the acquisition goes through meta needs to figure out the right bundle of experiences where they reached an installed base of time. 10 million quest users there are reports of slowing sales and rumors of poor retention for consumers. Plus, former Oculus CTO, John Carmack is apparently frustrated with the slow progress in decision making, and would rather dedicate himself to more fully developing artificial general intelligence. As an aside, I'm a little bit terrified by the attention on artificial general intelligence and recent progress on generative AI and Greek mythology, Prometheus gifted his amusing little creations with fire, which sent humanity on a collision path of the gods. In retaliation Zeus sentence Prometheus to an eternity of vicious punishment and burdened humanity with a multitude of miseries. However, punishing the creator and slowing the progress of advancement did not ultimately derail humanity from supplanting the gods, at least in the storyline. Let's hope we can learn from these stories and proceed with caution. And more near term a practical note, as generative AI takes the crown of the latest tech hype bubble, it'll be interesting to see what types of tools will be built to solve real problems, and what types of business models were emerged from things developed on top of the models from open AI and others. Anyway, back to our world and horizon worlds. If people are the real killer app for VR then met it is justifiably investing and trying to create a more immersive social experience. But as the Wall Street Journal recently reported in October usage was below 200,000 monthly active users, which is less than 2% of the installed base of roughly 10 million quest devices. That's a single data point, but it seems that matter really hasn't cracked the nut on that one. However, the place where VR continues to shine is as an education and training tool. enterprise focused companies such as tailspin, secondary education company, prisons are reality, and the consumer focus to tribe XR are all demonstrating strong growth, which collectively bodes well for this category. I recently had the chance to use tribe XR with a quest pro using the video pastoral capability and I found it to be an even better experience, I think, because I felt safer and maybe less anxious. I've long held the belief that putting video cameras on VR devices does not make them AR glasses. It does make them better VR devices. Though, they become safer to use in our homes or offices, their ability to bring some of the real world into the virtual experience can make them better for some training scenarios, or for some gameplay or for personal productivity. I think these video pass through VR devices can work well as long as motion is kept to a minimum. By this I mean, the user should not be expected to move around the room much. And similarly the real world objects that could harm them, it shouldn't be moving around much or at all. So for someone with normal vision, I don't recommend skateboarding down the street or walking around the warehouse floor with forklift flying about while wearing one of these. I say this despite the impressively low latency some companies are achieving between the video capture and the display. That low latency really helps video processing for virtual overlay and reduces motion sickness. But it doesn't solve for peripheral perception. The cameras aren't in the same place as their eyes, and it isn't instantaneous. That said I am excited to see what developers do differently with these capabilities. In some ways these devices will offer the best quote unquote mixed reality experiences. This is because the real world is processed and presented as another digital layer that with the right compute and software can be mixed and manipulated very cleanly with the virtual, Pico and HTC are both trying to stay competitive on the hardware side with their own video passive devices to challenge the quest Pro. But in particular, I'm looking forward to catching up with Lynx founder Stan the rohc. An early version of the links r1 started shipping last month and a fully baked version is expected soon, we'll dig into his approach to technology privacy, openness and more. The flip up flip down design links could be a good approach to moving through the real world without visual obstruction, and then engaging with the virtual content when and where it makes sense. On a different note, one of the highlights for me in 2022 was the waning of the metaverse hype. As Dave Haines principal at fo V ventures and supporter of this podcast recently mentioned, he is still seeing a huge amount of talent starting new companies. And rather than being in it for a quick exit, these founders are inclined to we're forced to focus on solving real problems. For those folks on the hardware. The biggest barrier to creating truly wearable air glasses is the display an optics. Of course, that's not to say there aren't additional hurdles around user interaction in motion to photon latency and some other things, but they aren't the biggest barriers today. And while they are separate areas of innovation that display an optics address a tightly related set of problems. As a brief review, light needs to be generated in full color. Ideally, that full color light needs to be controlled meaning needs to be turned on or off or brightness adjusted for each pixel. Or in the case of a scanning displays getting laser display each area representing a pixel that switch light needs to be stuffed into the lens of the glasses. This is where you might hear the term eaten do which is at the crux of the challenge of stuffing light from a display panel through a relatively small hole. The job of the lens is to transport the image across its surface and then redirect it towards the eye, combining it with the light from the real world. Ideally, an undistorted and undiminished view of the real world. This lens is often called a combiner optic. Each of these elements has its own basket of trade offs and getting them all to work together is very challenging. And to be clear, we as an industry have not yet solved this problem set in a way that can yield consumer grade AR glasses. I'm not even convinced we've solved them in a way that can yield broad adoption within the enterprise at least those solutions that are publicly known. However, a number of innovative startups have been pushing different display or optics technologies in the hopes of coming up with the right formulation. It seems that as these startups begin to show meaningful promise and progress, one of the big tech companies comes in and buys them up. For example, previously, snap bought wave optics, a waveguide optics company, and then compound photonics a maker of key components for micro displays, including L cos or liquid crystal based micro displays. Mehta has also effectively purchased micro led micro display tech company Plessy. Along with other optics and display tech companies over the years. Micro LED is considered by many to hold the most promise for AR glasses. Metal also bought imagine optics about a year ago to acquire optics tech for its VR hardware and maybe AR to Apple is typically more subtle with their acquisitions, but we know they bought micro LED technology company Lux view many years ago. More recently, they purchased a Konya holographics and optics company. In the first half of 22, Google bought Raxiom, another company that was working on micro LED technology. Very recently, there's been a couple of additional bits of news about companies officially or unofficially getting acquired. One of them was that meta bought Lux XL, I had a chance to interview Guido grote, the Chief Strategy Officer at Lux XL back in the middle of 2021. They have some great technology for 3d printing optical quality lenses. That's really useful when you want to encapsulate a waveguide into lenses that incorporate standard optical prescriptions. That has the potential to be some important technology. Another optics company that is now off the market is Olympic. I haven't spoken to or about them on the podcast before but they have some impressively complex and compact optical solutions for video pass through XR devices, such as the Lynx r1 limit also makes other optical designs that could make sense for VR or C through AR. Brad Lynch from sadly, it's Bradley reports. Apple is the big tech company that bought limbic. I'm also aware of a couple of other acquisitions of startups in the AR hardware space that aren't yet Publix is all of the acquisitiveness good for the progress of consumer grade AR smart glasses. On the whole, I don't think so in this case. On the one hand, a big tech company can incorporate the promising technology into a highly integrated solution. And I believe for a viable product to emerge, the display, optic sensors and other technologies need to be very tightly integrated. And as I argued about Metis acquisition of supernatural earlier, I believe it's helpful for the investment side of the startup ecosystem when these acquisitions happen. On the other hand, AR hardware is hard. For the many software and content folks out there. Let me highlight that this problem set is hard enough that many 10s of billions of dollars of funding and 1000s of really intelligent and capable designers and engineers haven't yet produced a device that sells in meaningful volumes. In terms of actual dollars, we've already far exceeded the Apollo space program costs from 1960 to 1973. That's when we first sent humans to the moon. On an inflation adjusted basis, we might have already spent maybe a third maybe half of the $257 billion spent on the space program in total. I mean, that seems to be the scale of the investment and the innovation necessary to ultimately succeed here. It's a big hard problem. finding innovative and viable solutions to some of these displaying optics challenges is rare. The barriers to create an equivalently good solution is often very, very high. While it is of strategic value for big tech to acquire these startups. I believe the ecosystem suffers in the short and medium term. One reason is many of these technologies never see the light of day after getting acquired by a big tech company. They get absorbed by the large political and operational machinery of these companies, which often grinds up and under utilizes the people and intellectual property of the acquired, possibly more impactfully. At this stage of AR hardware development is there's no longer an opportunity for other innovative companies to utilize this core ingredients to make something unique and push the ball forward. In fact, this creates a significant disincentive for tech companies to partner with startup suppliers of innovative and critical components for fear the supplier will get acquired and potentially destroy their business. Due to the loss of a key dependency. It's very expensive and time consuming to redesign and rebuild the solution with alternative display or optics ingredients. And startups usually don't have an excess of money or time. That said, I get it. It's hard to raise money, particularly for designers and manufacturers of new kinds of optics, as well as silicon or compound semiconductors for using Compute displays or sensors. The vast majority of investors either don't understand it, don't value it, or don't have the patience for it. So when a big tech company comes knocking and they're carrying a big suitcase of money, or they simply are offering food and shelter when you've been desperately struggling for so long. It's hard to say no. But from an insider's perspective, there's one company that I know that's not for sale, that's I'll stand out. My day job is with us. Tendo, a company that at its core is a semiconductor technology company developing and manufacturing quantum technologies for the photonic era. I typically attempt to describe the company as one with a deep understanding of how to precisely control the exchange of energy between electrons and photons. The first demonstrated capability around this insight is the quantum photonic imager, which from a semiconductor tech perspective is a truly monolithic hybrid 3d semiconducting device. Think of it as a display on a chip with To recall, the cube API is the world's first and only full color micro LED based micro display suitable for AR classes. And still isn't only innovating in micro led tech, but also in C through optics, as well as packaging everything together into a complete system that looks good, really good. I don't want to get in the way of the marketing team from doing their thing, but I can say we've started showing the latest prototype to a few select partners and prospective customers. I look forward to bringing you an in depth interview with our standards founder and CEO, Dr Hussain algorri In a few months, also among these innovative core technology companies, I'm looking forward to interviewing Ari Grossman of Loomis to discuss their latest innovations in the state of the market. This one isn't set yet, but I'm hoping to speak with Miriam savour of Niantic to discuss their second generation reference design unveiled at a recent Qualcomm event. And also on the list is David Jiang from Visscher. To discuss the vitriol won a pair of AR glasses focused on gaming and media consumption. On the surface it looks like it has a similar set of components as the Enrile with a tethered compute pack integrated into something you wear around the neck. The Enrile uses OLED displays and birdbath optics and has underwhelmed so far. I'm excited to learn how Vitra is taking a different approach. In general though, once the hardware is good enough, I believe AR glasses enter broad consumer usage through specialized use cases. I really liked the approach taken by the company micro OLED and their end goal product line, you can check out the interview with Eric Marcion T bone and Mark prints from a couple of months back. They focus on endurance sports, such as running and cycling, and they've created a product to optimize for that use case. Outdoor gaming is another great use case and that's where Niantic is focused. I also really love language translation, which Google showcased in 2022. I can see others focusing on sports such as golf or personal fitness or driving. Anyone creating a pair of Air glasses is forced to deal with a bunch of unpleasant trade offs. by constraining the use cases, designers and engineers can make those trade offs in a way that optimizes for that case. For example, in the case of micro OLED and NGO, you don't need a wide field of view or full color when delivering paste duration and heart rate information to a runner. In the case of outdoor gaming, you don't need all day battery life to satisfy 60s 90 minute play session. These constraints give glasses a chance of hitting the mark for a particular audience in use. The innovators and early adopters will be the ones buying these and seating the market for exponential growth. We're not going to get all day use general purpose glasses until after an iteration or two of glasses with narrower capabilities. Pulling from enterprise software nomenclature we might call these point solutions. As a reminder for those waiting for the iPhone moment in AR Apple didn't enter the smartphone market until there were already more than 3 billion mobile subscribers and about 100 million smartphones being sold by other makers each year. Those included rim who found a ton of success with a Blackberry as a portable email machine. Apple really set the standard for general purpose mobile computing device, but they set that standard A decade after the first smartphones were introduced. And well after 10s of millions of alternative devices being sold by others each year. We're not there yet with AR. If Apple follows a similar playbook for AR then both the technology and the consumer adoption are a long way from being ripe enough for Apple. While Apple may be getting a lot of pressure to release the next big thing as soon as possible from Wall Street. Can you imagine how hard they will be hit of the device they released isn't on a clear path to significant volumes. They take a lot more risk by being too early. That said I expect Apple to continue to iterate on prototypes internally as they have for the past seven 810 years. With their large internal investment I would anticipate Apple is playing with a variety of form factors use cases and technologies, including the optics from the rumored purchase of Olympic. But I don't think that acquisition or other rumors of spotted prototypes is an indication that Apple is close to releasing AR glasses. Instead Apple will start with a device meant to be used at home. It'll be a video pastor VR rig that will incorporate high quality audio and display probably o led it will also incorporate some apple design silicon for local processing and integrate with Apple TV three high bandwidth low latency wireless connection. Entertainment will be a major focus, but so will fitness. It will integrate with Apple Watch for fitness tracking and eventually gesture recognition. I wrote that last paragraph in late 2020. And as of early 2023, there are still no rumors from content developers about an imminent release from that device. But I can see it happening later in the year. A company that is already selling AR glasses to enterprise customers is music's digging into the numbers their sales are actually down year over year. Maybe that's because there was a COVID inspired boon to AR device sales during 2021. I don't know the whole story. Another interesting tidbit from musics is they signed an agreement with a micro led tech company named atomistic. The deal includes music licensing atomistic technology, including some backplane technology, which is the part of a display that you attach and use to control all of the individual LED pixels. It appears they've committed $30 million of cash along with some equity for this tech if atomistic can hit his milestones where they are seeing some growth and where the business model seems to be shifting is to the components specifically waveguide and display engines. In addition to their deal with atomistic. They've invested in ramping up production capabilities for them effectively LibGuides they also bought an enterprise software company late in the year. My guess is the enterprise software solution gets them revenue, and a more complete offering in the near term. And the increased focus on selling components gets them an opportunity to participate in larger purchase orders or an acquisition from one of the major players. One of the big tech companies that everyone has tried to court is Microsoft. Microsoft has been the vanguard in this industry for a number of years. And while they have the highly capable and relatively successful HoloLens two, there are several conflicting rumors about whether there will be a HoloLens three that is made by Microsoft, etc. Winning Microsoft's current challenge is the exodus of a lot of talent to Google and others. Maybe we'll see a concerted attempt by Microsoft to convince the Samsung's of the world to build the hardware while they focus on Azure and hope they can successfully establish windows on third party headsets. We should remember though, that they lost mobile in part because they tried to miniaturize the PC and Windows operating system of that day, rather than rethink the product from the bottom up. And I don't believe the HoloLens itself is the winning architecture. We observed across the PC and mobile eras that the consumer grade device wins. Even though it's not obvious early in the cycle, enterprise for us devices begin to satisfy the needs of enterprises. They show us the use cases, they show the need, they create the opportunity for investment, but they don't break through to consumers. Instead, it's underpowered consumer grade devices that become pervasive. And then they become cheap, and they get upgraded over time. These are devices and architectures that come to dominate both consumer and the enterprise. What's the architecture that dominates the internet, it's not the mini computer. It's not anything that came before. It's the personal computing the desktop era architecture dominates the internet today, we have different form factors when it runs on a server than it is maybe in your laptop. But that's the architecture was the architecture that dominates mobile. It's not Windows PC, it's not Pocket PC. It's the iPhone has been upgraded over time to be enterprise grade. So I believe any company not committed to social acceptance and true wearability isn't on the right path. It's why I'm excited by the work at Qualcomm to develop a new chip that is more optimized for wearable glasses rather than VR devices. It's also why I'm looking forward to seeing updates from meadow with a rebound camera glasses as well as snap with their spectacles. I also love the way that snap has made AR a natural extension of that Snapchat app, and how they've extended that to ads and now commerce. Snap is setting the stage for great consumer AR glasses experiences when the hardware becomes good enough. I'm also curious to see what comes out of Google Next. It's been two and a half years since Google acquired north and their focus product. It's been more than a year since they hired a bunch of amazing people from Microsoft. I'm curious to hear how the strong and likely divergent opinions from the original Google Glasses team, the North focals team, the Microsoft team and the Raxiom team are being managed into one or maybe a small number of complementary devices. The last of the big names I mentioned is Magic Leap. It's one thing to hear about the billions of dollars being invested by the metas apples and Google's. But it's another when those billions are raised from outside investors. Magic Leap has raised more than a billion dollars in equity and debt just since the start of 2021. The recent news is the Saudi public investment fund put an additional $450 million in which together with earlier investment gives them a controlling stake in the company. On paper. That's a crazy amount of money with which to invest and innovate. But with that latest investment and the potential change in board control, I would expect we'll be hearing about more changes within the company. And while the Magic Leap two is an improvement on the original, it also is not destined for consumer adoption, but I hope for their sake that enterprises are adopting. So let's recap. 2023 will see continued acquisition and consolidation among core technology providers, but it will not see the unveiling of Apple's AR glasses. 2023 will see the continued introduction and adoption of good video paths through VR devices including possibly from Apple later in the year. These devices may compete with enterprise focused AR devices. But we will not see these devices move outside of the living room or enterprise. And I'm hopeful to see new devices and announcements from Google Metis, snap and others. But any inroads that AR glasses make with consumers will be around very specific use cases not general purpose utility. The bulk of the meager sales volumes will continue to be within enterprises in 2023. And when you see one of these devices, I encourage you to judge the efforts of the large tech companies or the startup hardware makers based on what has come before, as well as the intended purpose of the device. Not on some computer generated visualization presented in a Marvel movie. We still have a very long way to go. Let me close with one last thought I had the pleasure of being interviewed for podcasts earlier this year. And one of the questions that was left on the cutting room floor was about the biggest impact AR will have within the next 50 years. In a nutshell, I believe hands free heads up just in time contextually relevant information will be amazing in its own right. But one of the greatest superpowers that we as humans possess is creative collaboration. I believe that AI enhanced AR technology will take collaboration to the next level by allowing me to more directly synchronize, integrate and explore As my creative intention with yours, this could appear in a musical Symphony of the sports field in a product design meeting in the kitchen, and elsewhere. Fundamentally, I believe AR can help humans be better humans.

I look forward to continuing to learn more about where we are and where we're going through the conversations I have with others here on this podcast, the entrepreneurs, executives and investors. I'm just grateful to be part of this industry. Thank you for listening. And please consider contributing this podcast@patreon.com slash V AR show that's th e AR sh O W. Thanks again and Happy New Year.