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Straight Talk Media & Entertainment

Summary

Chinese digital marketplace Alibaba has led a Series C funding round in Florida-based augmented reality (AR) start-up Magic Leap. The $739m round also included Google and Qualcomm, both of which invested in a Series B round valued at $542m. Although Magic Leap has yet to demonstrate a product, the assortment of companies investing – which includes entertainment company Warner Bros. – shows the potential of AR technology beyond traditional tech circles.

There’s still life in AR, bets Alibaba

Continued interest by Google and Qualcomm in AR is unsurprising because both are still involved in computer vision applications (despite Google discontinuing the Google Glass Explorer program and Qualcomm selling its Vuforia AR platform to PTC). Computer vision, in fact, forms a large chunk of Google’s activities beyond its core search and Android businesses. Its self-driving car business, for instance, is a clear use case for advanced computer sensing, and Google Tango, which allows devices to perceive objects in 3D, has offered applications to NASA, among other partners.

The interest in AR from entertainment companies such as Warner Bros. and production studio Legendary Entertainment is also fairly obvious. AR presents opportunities for new forms of content and new ways to deliver content. Meanwhile, Alibaba’s activity as leader of the latest funding round – which has gained it a seat on Magic Leap’s board – confirms the interest of retailers in AR technology, and companies such as Ikea and Walmart have experimented with AR as a way to run in-store promotions and drive increased traffic.

Magic Leap is creating a head-mounted system that projects images directly onto a user’s retinas, but it hasn’t displayed the product in videos or demos. The fact that the product has been compared to Google Glass or Microsoft’s HoloLens (which remains under development) has likely contributed to the interest from investors. Investors were also probably interested in Magic Leap founder Rony Abovitz’s degree in biomedical engineering and experience in building successful start-ups. Abovitz co-founded MAKO Surgical Corp, which specializes in robotic arm assistance for surgery. MAKO was bought by Stryker for $1.65bn in 2013.

Yet AR remains a difficult sell at customer level, as proven when Google ended consumer sales of its Glass eyewear. Companies in this sector don’t seem to have found the ideal form for the technology because neither smart glasses nor mobile-based AR has caught on with users. AR is very processor- and battery-hungry, which means developers must make trade-offs between the resolution of the images they provide and the length of battery life.

On the other hand, Alibaba can help Magic Leap enter the potentially lucrative Chinese market, giving it the economies of scale to roll out a more appealing product. The trick (as always with AR and its close cousin virtual reality) will be finding the right use cases to get customers interested.

Appendix

Further reading

PrimeSense Is the Key to Apple’s Long Game in Augmented Reality, ME0002-000637 (January 2016)

Augmented Reality: Edging Toward Mass Awareness, TE0001-000888 (October 2014)

“PTC’s acquisition of Vuforia signals a shift to IoT for the augmented reality sector,” ME0002-000616 (October 2015)

Author

Francesco Radicati, Senior Analyst, Digital Services

francesco.radicati@ovum.com

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