RIP Magic Leap

Magic Leap is an augmented reality company founded in Florida in about 2010. And their vision was huge, absolutely huge. They wanted to bring some really, really cutting edge technology that was previously only available in labs and in huge rooms and shrink all that down into a form factor similar to a pair of glasses that you could wear. It's really, really cool technology. And I want to talk about why they're in the news, what they could have done differently, and how they ended up where they are. So Magic Leap was founded by ronnie above in 2010, and to date they've raised over $2 billion from Google and a bunch of other venture capitalists, as well as large technology firms. They recently announced a large swath of layoffs, about 50% of their workforce. That's 1,000 jobs. And they also announced that they would be pivot consumer plans and instead focusing on the enterprise. Then about a month later in May, they announced that they had successfully raised $350 million and that they wouldn't need to lay off so many people. But then just a few days ago, they announced that the CEO and founder would be stepping aside. And that's generally not a good sign for the company. He's the one that laid down the vision and obviously they're in a rough situation if he has to move on and they're bringing in new management. So I think this is an interesting case study because they raised so much money pre product market fit. But unlike a Theranos or, you know, another kind of real buzzy startup that's raised lots of money before getting customers, the founder here, Ronnie, is the real deal. He founded makosurgical, which is another kind of hard tech robotics company. They make surgical arms to help with knee surgeries and hip replacements. And he sold this company for $1.65 billion just nine years after founding it to Stryker, which is a very big medical devices company. Huge success. Obviously after an exit like that, he could get in the room with any type of investor and they'd want to hear him out and see what his next vision was. Ronnie is clearly incredible at fundraising. There were multiple articles about how much money he'd raised before launching anything or really announcing anything publicly. So when investors look to value a company, they're hoping to look at profits. If profits aren't there, then revenues might suffice. If revenues aren't there, then you might look at customers or user traction. But if the customers aren't even there yet, because you're just completely pre launch, really all you have to go off of is the technology. And the people behind the project. So in Magics Leap's example, they were very focused on this technology demo and the people and the talent that had joined the team to make this a reality. If you look around at people who had done the demo, it was a very secretive process. You needed to sign a lot of non disclosure agreements. But it sounds like you moved into a large room and the equipment was not in a glasses form factor at all. It was maybe the size of a room or a large table. And it worked incredibly well. Everyone who tried it loved it and was absolutely taken aback by it and swore by it. But the vision was always to shrink that technology down to something much smaller that you could wear on your face as a pair of glasses. And that was the real challenge. And that's why they raised so much money to try and make that happen. So the demo promised a bunch of different things. Retinal projection, meaning the light would be projected directly onto your eyes as opposed to, say, you looking at a screen. They wanted to have a wide field of view, deep depth of field, so there were various focal points that you could look at. Made it all look very, very real, obviously all packed into a glasses form factor at a price that a consumer, albeit a high end one, could afford. But again, shrinking that tech down was just super difficult. One of the biggest problems was the field of view. It was very narrow and as you tilted your head left or right, objects would clip in and out of the scene. So when I first heard about this retinal projection idea, I thought it was just marketing speak. I thought that they had basically looked at the science behind what happens when you look at a LED tv, which technically the light does come from the TV directly to your retina. That is technically accurate. And I thought that they had just rebranded looking at a screen or bouncing something off of a piece of glass into your eye as retinal projection. But it appears that they actually, actually had built a true retinal projection system. They just couldn't shrink it down. So naturally, tons of investors who looked at this demo and felt this amazing experience were immediately comparing it to the iPhone and multi touch and just kind of the exciting new frontier of technology that could be unlocked by a device like this. But when I think about the iPhone launch, I think back to the original Steve Jobs presentation. I focus on the fact that he had three main value propositions. The iPhone was going to be better than your ipod, better than your current phone, and it was also going to serve as an Internet communicator or web Browser. And I think augmented reality needs a three prong approach. I think gaming and these interesting creative demos aren't enough. It also needs to supplant video. It needs to supplant your TV or your home theater. It needs to supplant your multiple monitor setup that you might use for work at an affordable price point. And I think that once we get to a point where VR or AR is able to actually compete with the existing technologies, be they monitors or TVs, then you'll see really mass adoption. And then all of the creators will come and start taking advantage of the broader technology and what's available with a new device. So when you look at what happened with the iPhone, they were able to introduce very quickly a product that was better than your existing cell phone. It did the job of making phone calls reliably, it did the job of handling voicemail, and it actually did that more efficiently with visual voicemail. And of course, as the ipod, it evolved that to include multi touch and a larger library and eventually Internet connectivity. So there were a lot of ways that it was advancing existing devices and replacing them. So to the consumer, they weren't just buying a phone that one day would have a large app ecosystem and they could maybe download Instagram, if that was ever even created. Instead, they were very easily able to justify the purchase as this will replace my current phone, it will replace my ipod, and I'll also be able to browse the web on this. Now, the browsing the web part is very important because it allowed them to wrap a whole host of benefits around an existing ecosystem, which was the web. The Safari Web browser on iOS was so mature that it could render the New York Times website just as you saw it on desktop. And that was something that no mobile phone could really do at the time. So that was a very interesting approach because it allowed them to essentially have a whole host of content available to the product immediately. There was no real waiting period. So the analogy with VR and AR here in gaming might look like a developer kit that allows a traditional developer who's developing for PS4 or Xbox or PC to be able to bring their content very easily to VR or ar, much like websites were immediately viable on the iPhone. You might need some translation software, you might need some developer kits, but being able to bring a huge library of content and titles to the device would immediately add value for someone who maybe doesn't have a TV or doesn't have a PS4, doesn't have monitors and a gaming rig. If they can buy this Even if it's $1,000, that might actually be cheaper for them. So I think that that is something that these products need to focus on before they have their quote unquote iPhone moment. So obviously Magic Leap is in a lot of trouble. The CEOs out, they're potentially laying people off, they're pivoting. It doesn't seem like they've been able to shrink down that initial demo in an effective way. It seems to be mostly R and D at this point. But my hopes for the future of AR are still really high. I really hope that this doesn't cause a winter or some sort of pullback in investment. You know, some of these projects can move into big tech, some of them can move into the government, and some of them can move into university research labs. But I do think startups and can have an impact in these spaces. So I really hope that this doesn't mean that we're not going to see another hard tech company get funded in the next five years. I really hope that people don't see this as a massive failure for the industry as a whole. I do think that there's a valuable lesson here though, in building too much hype before you go live and you have something that can actually be used by a consumer. The gap between the demo and the reality was so wide with Magic Leap. They just had an impossible hurdle to jump over. It was very, very difficult for them to bring something to market. And when they finally did, they were met with a lot of criticism and a lot of negative reviews because they created so much hype that they weren't able to fulfill. I'm still super excited about virtual reality and augmented reality, and I think that if they can solve some of those other use cases like work or home theater, that the adoption will be so much higher. Ultimately, it comes down to an economic equation for more. Most consumers, if this device can actually save them money and get them a better experience, they're going to buy it. The amount of people that are going to spend $1,000, $2,000 on a product that only has a few demos and not a lot of content and doesn't actually replace any of the technology that they currently have is very small. But as soon as you allow people to replace something existing with something that's better, even if it's incremental, the adoption is going to be huge. So that's what I'd like to see from Magic Leap. I hope that they can pull through this and wind up shipping some amazing stuff. I'd really like to be using this on a daily basis, but unfortunately the product's just not there yet. And it sounds like they've had some really tough setbacks and their initial vision didn't really pan out. But I hope that maybe they have to sell off some patents, maybe some other people pick up the research. But I hope it continues because the vision here is incredible and I hope that it pans out. Thanks for listening to this. If you have any comments, please let me know. I'd love to know what you think about Magic Leap and augmented reality and virtual reality more broadly. Thanks a lot.