Why Aren't VCs Backing Augmented Reality?
Some people believe that Augmented Reality (AR), the class of technologies that place images or data on top of other views of the physical world, could be the web browser of the future. AR has rocketed out of the research labs and is catching mass market interest fast - from mobile phones displaying restaurant reviews when you look through your phone's camera to next month's Esquire Magazine, which you'll be able to hold up to your webcam to see marker-based 3D "holograms" in your hands telling you jokes.
The International Symposium on Augmented and Extended Reality this month had major sponsors from all around the world, including Qualcomm, Volkswagon, Intel and Nokia. Despite all this energy, media darling startup Layar is reported to have raised...a mere $1 million investment from venture capitalists. Why are VCs not investing more in Augmented Reality? Here are three reasons why we think investment in this sector has been slow so far.
Layar is the media darling in this space, thanks to the company's easy-to-use consumer product and dazzling demonstration videos. Earlier this week, VentureBeat broke the news of the company's funding by European investors. (Layar declined to comment for this story.)
Total Immersion, the company that made those awesome interactive 3D baseball cards (video below) has raised two rounds of funding over the last eight years. Metaio has forthcoming consumer apps but is a major B2B business in AR already - it wouldn't be a surprise if they've raised some money.
But for all the hype, this doesn't seem to be a field that investors are rushing to fund. Why is that? There are a number of theories.
AR is Just Hype, It's Not Useful
Lots of people are excited about AR, but is it just eye-candy? Mobile AR, the implementation most accessible to consumers today, is a little disappointing to use once you get past the initial Wow-factor.
Not everyone agrees, though, that there's no utility here. IT analyst firm Gartner named Augmented Reality one of its Top Ten Disruptive Technologies for 2008-2012.
It is early days. People have been hoping that AR will help with things like auto repair for years and the US Marines have seen big efficiency gains in tests of AR vehicle repair with an Android phone hooked up to a pair of goggles.
Advertising and marketing seem like the low hanging fruit but there's interest in medicine as well. Imagine anatomical models you could hold in your hand, turn around to look at and interact with or read about.
"The real impact of AR on business," consultant Tracy Sheridan says, "is money saved in manufacturing, training, etc. [and that] has been overshadowed by its role in digital marketing."
Since when have investors been shy about backing advertising technology, though? None the less, the perception that AR lacks real utility is undoubtedly mitigating some enthusiasm. There are other arguments that are more compelling, though.
It's a Feature Not a Product
Companies like Yelp and UrbanSpoon have seen a lot of press coverage for adding AR views of data on top of their existing customer review iPhone apps. Companies in all kinds of verticals where location data is used will no doubt roll out AR features in coming months.
This critique makes sense. Can services like Layar, Wikitude or Tonchidot really become effective browser plays, used by millions of people to browse a wide variety of AR data sets? Or will AR simply appear as features in other, stand-alone mobile applications? Only time will tell.
Neither marker-based AR, the lesser-known but more established form of AR, nor mobile AR may prove difficult enough as technology to present a meaningful barrier to entry.
Markerless AR that processes live video? That's a whole new story that may offer plenty of technical challenges.
Either way, the "feature not a product" concern was something we've heard from several people, including one VC who preferred not to be quoted.
It's Too Early
David Hornick of August Capital offered perhaps the most convincing explanation why VCs aren't investing more in AR.
"I'd be happy to invest in the space if there was a near term opportunity," he told us. "The challenge for investing in emerging markets is to not get too far out ahead of the market (there was a ton of money lost getting too far ahead of the mobile market, etc.). And I think that venture firms are being particularly cautious about getting out too far ahead of trends these days."
That makes sense. AR isn't new, it's been developing in academic labs for ten years or more, but effective commercial applications of it really are. These are the very early days of a new paradigm. User experience, utility and monetization strategies remain in their infancy.
The market has evolved a lot over the last 12 months, though, and answers to some of these questions will likely emerge soon. What better time could there be for daring investors to get in early?
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1) Cowardliness? There's a big element of that in Hornick's comments - that they're not willing to move until the mob has spoken, by which time of course the really great opportunities will be gone.
2) As per previous conversations and above: it's a feature, not a product. Particularly with location based AR. There's an element of Layar that's playing with fire, as we're not really talking about a concept that's far away from just implementing it with KML and making it available in Google Maps and Google Earth.
3) Location, and especially non-location based AR (i.e. like little popups on business cards) are really going to depend on some sort of headset technology. I'm not saying this isn't going to happen, but we've been waiting for it since the mid-90s. And AR is not predicated on having great displays with great resolution and fast refresh rates, but also incredibly precise knowledge of how that headset is oriented: another tough problem.
As hyper-local search and real time search goes so goes AR... AR won't be a valuable investment till search engines that support it are developed and deployed. Until then AR's viability is neutered.
I sure wish RWW could give more coverage to the development of hyper-local search technologies...
I mean If I'm walking down the street and I activate a search engine via an AR app regarding a store ---> the current search options won't tell me jack... But if Hyper-local and real-time search is not only deployed, but optimized to my exact interests, as well as my favorite friend's interests --> then AR is valuable.
The bottleneck to all of this is the creation of an army of neighborhood "Director's of content." As in the same job that Marshall has is the same job apartment buildings, cul-de-sacs, schools and business's associations need to have.
What's most complicated is how to parse out / optimize the use of geographically relevant data from non-geographically relevant data.
I truly hope that one day Marshall will lead whole armies of people who call themselves: Director's of Content!!! Maybe I could be one of his field generals?
GPS/e-compass based solutions on the market right now just not practical enough. They are not "real" AR - video feed contribute nothing and they may not use camera as well, losing nothing in functionality. They are not precise enough, not robust enough and don't provide any run-time environmental information. Than stable and robust markereless tracking arrive on smartphones situation will change.
Posted by: mirror2image.wordpress.com
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October 30, 2009 1:28 AM
The problem is that 95% of the AR implementations out there are just flash tech demos or entertainment for children.
Layar is the first example of any substance and even then it's just the application of search to location (which has been done to death) with an AR veneer.
There are other things coming, other applications coming, other platforms emerging and at some point it's going to have to move beyond search because search is boring.
I agree that the biggest reason is that AR is a feature, not a product. It could become a "given" down the road for local mobile apps and some others but it will be the value that the apps themselves bring that still makes the difference, not the shiny new overlay.
Because even the very best implementations have a lack of commercialisation about them.
http://deancollinsblog.blogspot.com/search?q=augmented
Cheers,
Dean
Clearly, it's too early. Hype or lack thereof is irrelevant to smart VCs.
It's obvious, but of course VCs are in it to make money. If there is no hockey stick revenue stream, there will be no money there, with the exception of some light angel seeding done half-philanthropically.
Because current AR "technology" can be trivially replicated by any old group of programmers, AR has no barriers to entry apart from data availability. That's a big hurdle, but it's a business hurdle, not a technical hurdle. This is why, once AR finally becomes useful for something, Google and a couple of other giants will dominate, since they have all the data, especially geocoding resources, and a random startup has no data of their own.
Couple things for people to keep in mind:
1. Some elements of what we're all calling "AR" are indeed trivial - making apps that leverage a location API and camera API on a handset is not some breakthrough technology or commercial application.
2. Some lesser discussed elements of "AR" are just the opposite; incredibly challenging, hard to replicate, and in short supply. E.g., applied computer vision products for mobile, 3D reconstruction, image/video recognition, etc.
3. Like the rest of life, there's an ecosystem around AR that involves other critical pieces -- the scientific breakthroughs on the hard parts of AR are only coming to light now in non academic labs, yet still consumers won't feel it until mobile bandwidth (believe it or not) increases and better front-ends are made.
4. No bucks, no Buck Rogers. As many correctly point out, the fluffy apps that are neither platform oriented nor cash machines are not likely to get investment. That said, there is a wave of AR platform-esque technology coming to market and there's also a growing trend involving mobile commerce. Either one of those pieces will cause a new light to be shone on the economics of "AR"
Great article, Marshall. And nice comments all.
Thanks,
Jamie
http://blog.pongr.com
I think the money come when AR starts delivering on it's potential as a valuable utility. The recent projects from the USPS (http://bit.ly/2MBggQ) and Wimbledon (http://bit.ly/1gpS7r) and great examples of delivering on that usefulness.
http://www.14four.com
Interesting article. I agree with some of it, and not with other bits (which i've alluded to in various interviews over the past year).
--(AR is hype)--
I think you are partially on the mark here; I'd rephrase to say "Most AR applications are hype, and not useful" ... as I've said over the months about systems like Layar and wikitude, and the various FLAR and custom iPhone apps, they just aren't solving any problem that needs solving. But the problem is not with AR, it's with the technology these systems are based on. "real AR" (as most of us AR old-timers would call it) requires accurately aligning the virtual content with the real world; when the content is meters or worse off, and bobbing and weaving around separate from the world, none of the hoped-for advantages of AR (e.g., knowing something about a building or object or person by looking at them) can materialize. I've been showing videos of the Yelp app in my talks recently, and point out that NONE of the labels in the video I took are even close to aligning with the buildings.
But, that doesn't mean AR as a concept is not useful; it means these pseudo-AR apps are not useful. Big difference.
--(AR is a feature, not a product)--
I totally agree with this. AR is an interface concept, like "2D graphics" or "first person 3D game". It is enable by a variety of technologies (e.g., the tracking technology that companies like Total Immersion market). But the idea that these companies represent AR is absurd; many of the so-called AR companies have NO EXPERIENCE is AR, and know nothing (or close to nothing) about how to use it effectively. It's like saying that NVidia (or SGI before them) is a 3D visualization company or a 3D games company; their product is a vital enabling technology, but that does not mean the cheesy applications they develop represent the potential of AR.
For folks like me, who've spent years understanding how to actually use AR, it's frustrating to see the absurd claims made by these companies be taken at face value, and depressing to see naive techno-enthusiasts take what they say at face value. Don't get my wrong; some of what they do is good, and the technology made by some of these companies is truly impressive. But, if you look at things like the Topps AR-enable sports cards, you can't help by ask "what were they thinking?" (where "they" is the folks who approved these business ventures). These things may do ok in the short run, when they can be carried by flash and novelty, but for many of the so-called "AR applications", there's no "there there".
--(it's too early)--
I don't agree with this; it's not too early for AR. We'll see some very interesting things soon (both from labs like mine, and from companies like the one I'm starting). But, many of the things we will see will continue to be terrible.
That's ok, though: for every few dozen terrible ideas, a few will come out that surprise us all. And I'm not naive or arrogant enough to think only "experienced" folks will do the cool stuff; one of the reasons I've worked for years on building AR tools for non-techies is that I believe that (like many media over the history of mankind) it's the naive enthusiasts that will find those useful things that "we all know won't work".
In the end, it's a question of designing applications and experiences and games that fit the current capabilities of the technology, rather than trying to design what you read in sci-fi novels, with technology that isn't remotely up to the task. Some of us have the advantage of experience; some folks have the advantage of genius and creativity; and some folks will be lucky!
Interesting article. Inspired me to write about “What’s the best strategy for entering a space whose time has not yet come?” The approach I took was to describe the Phases that lead up to "The Next Big Thing."
http://www.fusefinancial.com/fusenote/understanding-phases-of-next-big-thing