Since first uploading a YouTube teaser video of its tech five years ago, Magic Leap’s presence in the augmented reality industry has been controversial.
Some have lauded the team’s ambitions, while others I’ve talked to say the company’s posturing has dissuaded investors from taking chances on other AR hardware startups, which has hampered the industry’s advance.
Regardless of its impact, Magic Leap carries outsized weight, leading one to question what would happen to other AR companies if the company’s situation worsened.
The company announced layoffs today, with reports indicating that it is dismissing around 1,000 employees — about half of the company. Magic Leap’s added news of a major pivot to enterprise makes it seem like that wasn’t its primary strategy over the past year. From my perspective, the company looks like it is on a path to a fire sale and will be dependent on executing a dramatic turnaround, which grows tougher under current economic conditions.
Magic Leap has few users, so a theoretical shutdown would likely have a lesser impact than other unicorn flare-outs; still, losing a company on the forefront of a technology lauded by many as the next ubiquitous platform will certainly impact others that are striving to bring this tech to market.
The impact for startups moving forward would be nuanced. Without a substantial software suite of its own, Magic Leap relied heavily on developer partnerships, though in recent months many of those seemed to promote enterprise use cases. AR/VR startups are already in a rough position, and one less developer platform could force more companies to de-prioritize headset-based platforms and shift their focus to mobile.
The COVID-19 crisis was already going to negatively impact frontier tech in a disproportional way, so the death of a handful of AR hardware startups and Magic Leap’s downward trajectory will likely suppress investor interest in backing AR hardware makers aiming to beat Apple or Facebook to releasing a mainstream device. Investors that do approach the space will likely stay away from horizontal AR platforms in favor of more niche verticals with clear use cases. The overall environment seems poised to shrink in the near-term.
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Even without a shutdown, Magic Leap’s shift away from a consumer focus is detrimental for Apple and Facebook. There are few developer pipelines for content optimized for AR headsets beyond Magic Leap, so if the company never returns to the consumer space and Apple or Facebook launches an AR device in the next few years, they will have to jump-start a developer ecosystem.
Building a developer platform in AR/VR is time-consuming and expensive. Magic Leap was dispatching millions in grants, funding AR-first titles that were unlike anything that had been created before. Apple aimed to do this with its iOS-based ARKit, but there has been little to entice major developers to create for a platform for which consumers have shown little appetite. Facebook has already spent billions on Oculus post-acquisition, building out its hardware and software platforms while bankrolling countless VR startups to create content for the headset.
While there is substantial crossover between developers building content for VR and AR at the moment, it’s likely because few are building native AR content that capitalizes on the platform’s inherent strengths. Apple has invested heavily in building technologies that can integrate real-world geometry into AR experiences, something for which VR developers don’t have to accommodate.
A total shutdown of Magic Leap would only further complicate the missions of these large companies. Early reports seem to indicate that Apple is squarely focused on developing a consumer-focused AR product, though less is known about Facebook’s plans. That said, years of uncontested dominance in the enterprise space by Microsoft with HoloLens would be bad for both companies.
Microsoft has largely appeared to be moving at its own pace, but Magic Leap has offered some competition for the software giant. Were the startup to shut down, Microsoft would be the only major tech company left with an AR device on the market, something that could lead to an early-mover advantage were the HoloLens division to push its learnings into a consumer product.
The augmented reality industry is young but maturing, and the path to upending mobile is now littered with dead startups. For existing tech giants, the theoretical loss of Magic Leap could mean a dry spell that pushes them to increase investment ahead of launching dedicated devices.
