AI

The four waves of augmented reality (that Apple owns)

Comment

Image Credits: Galyna Andrushko (opens in a new window) / Shutterstock (opens in a new window)

Tim Merel

Contributor

Tim Merel is managing director of Digi-Capital.

More posts from Tim Merel

We’ve been saying for the last couple of years that augmented/virtual reality is the fourth wave of consumer technology, and that AR could become much bigger than VR. But AR itself is not one giant wave, it’s a set of four big ones: mobile AR software, mobile AR hardware, tethered smartglasses and standalone smartglasses. These four waves could drive AR from tens of millions of users and $1.2 billion last year, to more than a billion users and $83 billion by 2021. Surf’s up.

Digi-Capital AR platform waves

Consumer technology waves are not all the same. Some are ripples, others start small and swell to great heights and there’s an occasional tsunami. So what is each AR wave? Let’s start by defining them:

  • Mobile AR software: AR software that works on standard smartphones/tablets, like Apple ARKit for iOS and Facebook’s Camera Effects Platform.
  • Mobile AR hardware: dedicated smartphone/tablet AR hardware and software, like Google Tango phones.
  • Tethered smartglasses: AR smartglasses requiring a smartphone/tablet or PC host, like Meta smartglasses.
  • Standalone smartglasses: Self-contained AR smartglasses with no host, like Microsoft HoloLens (which they call mixed reality).

Mobile AR software

Mobile AR software is the tsunami that came out of nowhere, with Pokémon GO downloaded 750 million times in its first year. But where Pikachu gave consumers their first taste of mobile AR, Facebook’s AR platform and Apple’s ARKit for iOS democratize mobile AR software at scale as true consumer platforms.

Apple’s ARKit for iOS requires at least an iPhone 6s, iPhone SE, 2017 iPad or iPad Pro, with 300 to 400 million ARKit-compatible devices today. Eighty-six percent of iOS users installed iOS 10 a year after launch, so assuming iOS 11 follows a similar path and iPhones/iPads keep selling, ARKit could have an installed base of up to 400 million devices by the end of 2018.

Facebook’s Camera Effects Platform is being rolled out to Facebook Messenger’s 1.2 billion MAUWhatsApp’s 1.2 billion MAU and Instagram’s 700 million MAU (with significant overlap). Facebook migrated 15 percent of WhatsApp users to Status 10 weeks after launch29 percent of Instagram users to Stories less than a year after launch and 54 percent of Instagram users to Direct four years after launch. A similar growth curve could deliver around 400 million installed base for Facebook’s Camera Effects Platform by the end of 2018 too.

 

As well as these two dominant platforms, mobile AR software is set to play out across messaging apps from Tencent, Snap, LINE, Kakao and Snow, maps apps from Google and Baidu, e-commerce apps from Alibaba, Amazon and eBay, plus consumer (non-games), enterprise, games, location-based, video and other new mobile AR apps nobody has thought of yet. The mobile AR software wave could drive more than a billion users by 2021.

As with early iOS/Android, a Cambrian explosion of mobile AR apps with new dominant forms should emerge on top of these platforms (see what’s been developed so far here), making them a bonanza for developers. As mobile AR software players will be able to migrate to mobile AR hardware, tethered smartglasses and standalone smartglasses waves, mobile AR software looks like the one wave to rule them all.

Mobile AR hardware

Mobile AR hardware’s additional sensors, CPU/GPU grunt and AR-focused device efficiency could improve user experience where computer vision and simultaneous localization and mapping (SLAM) are critical. This is despite the fact that Apple’s ARKit for iOS and Facebook’s Camera Effects Platform apps will work just fine on many standard smartphones.

With phone replacement cycles at 2.5 years and high-end phones anywhere between one-third and two-thirds of smartphone sales (depending on manufacturer and geography), range-topping AR phones could deliver an installed base of tens of millions in the next 12 months, and more than 400 million by 2021. In other words, mobile AR hardware might take five years to reach the same scale as just one of the dominant mobile AR software platforms next year.

This makes the mobile AR hardware user base a high-end subset of mobile AR software (except for Apple, where it will eventually be the same thing). Mobile hardware makers could do very well out of this market, and it might also have stronger monetization for mobile AR software developers with less-price-sensitive early adopters.

Tethered smartglasses

Say “AR” and most people hear “smartglasses” (or “Iron Man”). But smartglasses’ five major challenges must be conquered for them to work in consumer markets: (1) hero device (i.e. an Apple-quality device, whether made by Apple or someone else), (2) all-day battery life, (3) mobile connectivity, (4) app ecosystem, and (5) telco cross-subsidization. While most attention is paid to what that hero device will look like and when it will get here, two of the other challenges are particularly hard to solve.

Until a major breakthrough in battery technology or device efficiency, a lightweight pair of standalone AR smartglasses doing heavy-duty AR is hard to power all day without a battery pack or hot-swappable batteries (fine for enterprise users, a harder sell for consumers). This is a non-trivial problem. Plus, it’s a major risk for the developer ecosystem to invest heavily in building apps for new platforms until the installed base reaches scale. It’s the perennial chicken and egg problem that all new tech platforms face. Mobile tethered smartglasses offer a potential solution to both.

Sharing processing, display and sensors across smartphones and tethered smartglasses gives you two batteries, each powering fewer individual systems. If they’re connected by a cable, this could give a healthy bump to battery life. But if the tether is wireless (like Apple’s Watch and AirPods), communication between devices could take back some of the benefits.

 

Apple, Facebook and Tencent’s mobile AR software ecosystems could also transition seamlessly to tethered smartglasses if and when they launch them. For Apple in particular, ARKit for iOS could see a wealth of mobile AR software developers migrating to iGlasses (even if they call them something else). Our current view is that Apple might enter the mobile tethered smartglasses market around 2019, with possible competition from Samsung, Huawei, Facebook, Tencent and others.

As mobile tethered smartglasses are peripherals to, not replacements for, smartphones, users will need to pay for, charge and carry two devices rather than one. That additional inconvenience and cost could limit market size to the tens of millions by 2021. By comparison, mobile AR might have billions of users in the same time frame.

PC tethered smartglasses that require more computing power could remain more expensive, enterprise-focused and have smaller installed bases than their mobile tethered equivalents. They also might not benefit directly from the mobile AR software ecosystem. A parallel for this dynamic already exists in VR, where mobile systems outnumber PC equivalents 10 to one.

Standalone smartglasses

You could buy standalone smartglasses (HoloLens anyone?), but price (around $3,000), form factor (weighing more than a pound, limited field of view), battery life (2-3 hours), app ecosystem (limited consumer apps) and mobile connectivity (Wi-Fi only) restricts them to the enterprise market today. High-profile startups like Magic Leap are trying to solve AR’s five big consumer challenges, but standalone smartglasses look like the fourth and final wave of consumer AR (at least until The Matrix gets here).

But good things come to those who wait. Mobile AR software will solve the app ecosystem. Tethered smartglasses will solve the hero device. Mobile connectivity is easy (although not powering it all day), and telcos are already selling AR phones to replace standard smartphones to drive data revenues. But all-day battery life without a battery pack or hot-swappable batteries remains a challenge. Again, without a breakthrough in battery technology or device efficiency, standalone smartglasses might not completely replace your smartphone before 2020.

When standalone smartglasses are ready to conquer consumer markets, user adoption reverts to the phone replacement cycle. Early adopters will lead the charge to replace their phones with standalone smartglasses, but we’re still talking about a Tesla market by 2021. By way of analogy, Interstate 280 between San Francisco and Sand Hill Road is a Tesla parking lot at rush hour; you don’t see many Teslas in Marengo, Indiana.

Apple owns your augmented future

Since early 2015, we’ve said that Apple could deliver as great dominance and profitability in AR as it has in mobile today. Its end-to-end ecosystem of hardware, software, app store, developers and retail are natural advantages that can’t be beaten (and many have tried). Dominance across all four AR waves looks like it could be the innovation for which Tim Cook is remembered, and take Apple beyond Steve Jobs’ legacy to make it a 100-year company.

Facebook’s user base, platforms (Messenger, Instagram, WhatsApp), developer ecosystem, mobile AR developer tools, mobile market experience and financial muscle guarantee its success in mobile AR software. However, Facebook’s entry into the phone hardware market did not go to plan, and Oculus is orders of magnitude smaller than the rest of Facebook. This makes a mobile AR hardware play (i.e. a Facebook AR phone) look unlikely.

Mark Zuckerberg believes in smartglasses’ long-term future, but a head-to-head battle with Apple in this market might not be a fair fight. Apple’s inherent advantages and consumer hardware DNA make it the most valuable company in the world (mostly), and Facebook would be building a smartglasses hardware ecosystem from scratch. Facebook could still launch smartglasses, but sticking to its knitting as an AR software company is always on the table. Either way, expect significant Facebook investment in AR beyond the Camera Effects Platform.

Tencent has as great mobile AR software potential in China as Facebook outside it, focused on the more than 846 million folks who use WeChat. But if Tencent really wants dominance across all four AR waves in China, it could approach the AR hardware market in a unique way. Enabled by the market share of WeChat, its app store strength and the fragmented nature of the Chinese phone market, Tencent could produce a domestic version of Apple’s AR ecosystem together with major domestic phone makers. This could result in Tencent AR hardware, software, app store, developers and WeChat as the dominant Chinese AR platform. As with Facebook, Tencent also could avoid AR hardware altogether and remain a pure software player.

Google’s Maps, VPS and data resources give it significant advantages in mobile AR software outside China, but it doesn’t have mobile messaging platforms like Facebook or an integrated ecosystem like Apple. Google Tango relies on hardware partners outside the top five globally (e.g. LenovoASUS), but Samsung, Huawei, Oppo and Vivo haven’t signed up yet. If Google wins support from these four companies, the road to tethered smartglasses and standalone smartglasses for consumers becomes clearer. But if it doesn’t, Google would need to find another path (potentially as an evolution of Google Glass Enterprise Edition). Baidu faces similar opportunities and challenges in China, but with a different set of domestic competitors.

Whether or not Google partners with them, Samsung, Huawei and other phone makers don’t have the advantages of Apple’s ecosystem, Facebook/Tencent’s messaging platforms or Google/Baidu’s data to support them in mobile AR hardware, tethered smartglasses or standalone smartglasses. To break out of today’s status quo, investments and M&As for totally new AR capabilities might be required.

 

Alibaba has already invested heavily in AR, with a view to becoming the AR e-commerce leader in China (where it doesn’t have Tencent’s advantages as a mobile AR software platform). Given Jack Ma’s penchant for bold moves in new markets, he might consider going from Magic Leap’s lead investor to its owner (assuming it delivers on its promise). Amazon and eBay have similar AR e-commerce software opportunities outside China to sell things to folks in totally new ways.

Microsoft currently has no play for mobile AR software or mobile AR hardware, and it isn’t clear that it will enter either market. Satya Nadella focused HoloLens on the enterprise, and even Windows 10 VR is being left to PC hardware partners without Xbox One X support this year. Microsoft’s enterprise focused strategy for AR (which, again, they call mixed reality) means HoloLens is their only horse in the race. When a future HoloLens is ready for consumers, Microsoft might have to try to switch mobile AR and tethered smartglasses developers and users away from Apple. That sort of thing was last done successfully by a young man called Bill Gates in 1981.

Snap was the mobile AR software market before Pokémon GO, Facebook and Apple came along. But with a closed platform and 300 million monthly active users, it’s much smaller than any one of Facebook’s big three. So it has a massive fight on its hands to maintain its momentum as a mobile AR software leader. Snap Spectacles were a brilliant pre-IPO marketing wheeze, and a great Trojan horse to gather consumer data. But if Evan Spiegel decides to develop Spectacles into full-blown mobile tethered AR, his understanding of what his users want would need to be matched by hardware and ecosystem scaling beyond anything he’s done before. Doing new things seems to be his strength, so watch this space.

Like Microsoft, startups Magic Leap, Meta, Avegant, ODG, Vuzix and others (including corporates like Epson) are going straight to tethered smartglasses or standalone smartglasses and bypassing mobile AR entirely. This sees them all focused on enterprise customers while they innovate to solve AR’s five consumer challenges. But when they finally reach the promised land, they’ll have a common set of enemies (apart from each other) waiting for them.

Apple, Facebook and other major AR developer ecosystems might already be monetizing at scale at that stage. This could give smartglasses pure-plays the challenge of switching developers and users across from standard platforms with billions of users and network effects to proprietary platforms with a few million users and revolutionary technology. That sort of thing was last done successfully by a man in his 50s called Steve Jobs in 2007.

I scream, you scream, we all scream for ice cream

Apple’s Tim Cook said about AR, “I think it is profound. I am so excited about it, I just want to yell out and scream.” Apple could dominate all four AR waves and your augmented future, so he might consider jumping up and down too.

More TechCrunch

After Apple loosened its App Store guidelines to permit game emulators, the retro game emulator Delta — an app 10 years in the making — hit the top of the…

Adobe comes after indie game emulator Delta for copying its logo

Meta is once again taking on its competitors by developing a feature that borrows concepts from others — in this case, BeReal and Snapchat. The company is developing a feature…

Meta’s latest experiment borrows from BeReal’s and Snapchat’s core ideas

Welcome to Startups Weekly! We’ve been drowning in AI news this week, with Google’s I/O setting the pace. And Elon Musk rages against the machine.

Startups Weekly: It’s the dawning of the age of AI — plus,  Musk is raging against the machine

IndieBio’s Bay Area incubator is about to debut its 15th cohort of biotech startups. We took special note of a few, which were making some major, bordering on ludicrous, claims…

IndieBio’s SF incubator lineup is making some wild biotech promises

YouTube TV has announced that its multiview feature for watching four streams at once is now available on Android phones and tablets. The Android launch comes two months after YouTube…

YouTube TV’s ‘multiview’ feature is now available on Android phones and tablets

Featured Article

Two Santa Cruz students uncover security bug that could let millions do their laundry for free

CSC ServiceWorks provides laundry machines to thousands of residential homes and universities, but the company ignored requests to fix a security bug.

12 hours ago
Two Santa Cruz students uncover security bug that could let millions do their laundry for free

OpenAI’s Superalignment team, responsible for developing ways to govern and steer “superintelligent” AI systems, was promised 20% of the company’s compute resources, according to a person from that team. But…

OpenAI created a team to control ‘superintelligent’ AI — then let it wither, source says

TechCrunch Disrupt 2024 is just around the corner, and the buzz is palpable. But what if we told you there’s a chance for you to not just attend, but also…

Harness the TechCrunch Effect: Host a Side Event at Disrupt 2024

Decks are all about telling a compelling story and Goodcarbon does a good job on that front. But there’s important information missing too.

Pitch Deck Teardown: Goodcarbon’s $5.5M seed deck

Slack is making it difficult for its customers if they want the company to stop using its data for model training.

Slack under attack over sneaky AI training policy

A Texas-based company that provides health insurance and benefit plans disclosed a data breach affecting almost 2.5 million people, some of whom had their Social Security number stolen. WebTPA said…

Healthcare company WebTPA discloses breach affecting 2.5 million people

Featured Article

Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Microsoft won’t be facing antitrust scrutiny in the U.K. over its recent investment into French AI startup Mistral AI.

14 hours ago
Microsoft dodges UK antitrust scrutiny over its Mistral AI stake

Ember has partnered with HSBC in the U.K. so that the bank’s business customers can access Ember’s services from their online accounts.

Embedded finance is still trendy as accounting automation startup Ember partners with HSBC UK

Kudos uses AI to figure out consumer spending habits so it can then provide more personalized financial advice, like maximizing rewards and utilizing credit effectively.

Kudos lands $10M for an AI smart wallet that picks the best credit card for purchases

The EU’s warning comes after Microsoft failed to respond to a legally binding request for information that focused on its generative AI tools.

EU warns Microsoft it could be fined billions over missing GenAI risk info

The prospects for troubled banking-as-a-service startup Synapse have gone from bad to worse this week after a United States Trustee filed an emergency motion on Wednesday.  The trustee is asking…

A US Trustee wants troubled fintech Synapse to be liquidated via Chapter 7 bankruptcy, cites ‘gross mismanagement’

U.K.-based Seraphim Space is spinning up its 13th accelerator program, with nine participating companies working on a range of tech from propulsion to in-space manufacturing and space situational awareness. The…

Seraphim’s latest space accelerator welcomes nine companies

OpenAI has reached a deal with Reddit to use the social news site’s data for training AI models. In a blog post on OpenAI’s press relations site, the company said…

OpenAI inks deal to train AI on Reddit data

X users will now be able to discover posts from new Communities that are trending directly from an Explore tab within the section.

X pushes more users to Communities

For Mark Zuckerberg’s 40th birthday, his wife got him a photoshoot. Zuckerberg gives the camera a sly smile as he sits amid a carefully crafted re-creation of his childhood bedroom.…

Mark Zuckerberg’s makeover: Midlife crisis or carefully crafted rebrand?

Strava announced a slew of features, including AI to weed out leaderboard cheats, a new ‘family’ subscription plan, dark mode and more.

Strava taps AI to weed out leaderboard cheats, unveils ‘family’ plan, dark mode and more

We all fall down sometimes. Astronauts are no exception. You need to be in peak physical condition for space travel, but bulky space suits and lower gravity levels can be…

Astronauts fall over. Robotic limbs can help them back up.

Microsoft will launch its custom Cobalt 100 chips to customers as a public preview at its Build conference next week, TechCrunch has learned. In an analyst briefing ahead of Build,…

Microsoft’s custom Cobalt chips will come to Azure next week

What a wild week for transportation news! It was a smorgasbord of news that seemed to touch every sector and theme in transportation.

Tesla keeps cutting jobs and the feds probe Waymo

Sony Music Group has sent letters to more than 700 tech companies and music streaming services to warn them not to use its music to train AI without explicit permission.…

Sony Music warns tech companies over ‘unauthorized’ use of its content to train AI

Winston Chi, Butter’s founder and CEO, told TechCrunch that “most parties, including our investors and us, are making money” from the exit.

GrubMarket buys Butter to give its food distribution tech an AI boost

The investor lawsuit is related to Bolt securing a $30 million personal loan to Ryan Breslow, which was later defaulted on.

Bolt founder Ryan Breslow wants to settle an investor lawsuit by returning $37 million worth of shares

Meta, the parent company of Facebook, launched an enterprise version of the prominent social network in 2015. It always seemed like a stretch for a company built on a consumer…

With the end of Workplace, it’s fair to wonder if Meta was ever serious about the enterprise

X, formerly Twitter, turned TweetDeck into X Pro and pushed it behind a paywall. But there is a new column-based social media tool in town, and it’s from Instagram Threads.…

Meta Threads is testing pinned columns on the web, similar to the old TweetDeck

As part of 2024’s Accessibility Awareness Day, Google is showing off some updates to Android that should be useful to folks with mobility or vision impairments. Project Gameface allows gamers…

Google expands hands-free and eyes-free interfaces on Android