Investment in the next big thing in computing is cooling off - except for one super-hyped startup that few are sure of
- Magic Leap, an insanely hyped augmented reality startup, is regularly pulling in hundreds of millions of dollars in funding.
- But investment in the broader augmented reality and virtual reality industry is flatlining.
- New data shows how over the past three years, investment in the AR/VR space - excluding Magic Leap - has stayed fairly steady.
Investment in two fields that promise to be the next big thing in computing - augmented and virtual reality - has exploded over the last year or so, frequently hitting highs of more than half a billion dollars a quarter.
But when you remove Magic Leap, one of the buzziest startups in the space, from the analysis, it's a very different story.
New data from analytics firm CB Insights, as highlighted in a research note by Goldman Sachs analysts, indicates that funding in the space has effectively stalled at around the $100 million mark for the last four quarters running - with the exception of Magic Leap.
Virtual reality is all about building virtual worlds and immersive, 365-degree headsets and hardware that let users experience it like they're really there. Augmented reality, a closely-related technology, takes these virtual objects and overlays them over the real world via special headsets or smartphone cameras.
Advocates of the tech say it will revolutionize how humans interact with computers, radically lowering the barriers between what is real and what is "virtual."
Magic Leap, which builds augmented reality headsets, has been shrouded in secrecy for years. It has a roster of A-list investors including Google and Alibaba, and has repeatedly pulled in funding rounds in the hundreds of millions of dollars ($502 million in Q4 2017, and another $461 million in Q1 2018, for example). It finally, officially launched its first hardware product in August 2018.
The data clearly illustrates just how disproportionate Magic Leap's levels of investment are to the broader industry, and how, once the firm is taken out of the picture, the levels of capital flowing in to support AR and VR have hit a years-long plateau.
Of course, venture capital data alone doesn't offer a comprehensive view of investment in the industry. Major players like Apple, Microsoft, and Google are all quietly developing their own versions of the technology in-house; Microsoft's own AR headset, the HoloLens, beat Magic Leap to the market by over two years.
These companies don't break out how their spending on AR/VR-specific R&D, so there's no accurate way for outside observers to assess the total investment being made into building the tech.
Goldman Sachs analyst Heather Bellini takes a positive view of the direction of investment in AR/VR startups, writing that "these fundings help to underscore our viewpoint that potential use cases for AR/VR continue to grow as the technology continues to mature. Given the trajectory of AR/VR funding in 2Q18, we remain confident in our view that AR/VR investment remains on the rise."
Indeed, the general trajectory for both funding levels and volume of deals remains slowly positive, despite the recent deceleration.
What's most clear from the data is just how anomalous Magic Leap is, and how the hype has translated into unprecedented amounts of cash flowing into its coffers. And now that its debut product, the Magic Leap One, is on the market, some critics have suggested that the device wasn't worth the wait.
The Verge's Adi Robertson said it "doesn't seem like a satisfying computing device," while Scott Stein at CNET wrote that "my initial experience didn't blow me away, despite Magic Leap's promises." And The Wall Street Journal's Joanna Stern called it "a bold, exciting, petrifying vision of the future" - but after testing it out, cautioned: "I don't suggest anyone run out to buy one-maybe not for years."
These responses could ominous news for Magic Leap - and run the risk of sparking disillusionment with the nascent technology, making fundraising even more difficult for the rest of the industry before it's even really had its breakthrough moment. In other words, with this much money flowing in, Magic Leap will have to prove it's more than just hype.
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