Magic Leap – Backwards leap.

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Massive setback means more money likely to be needed 

  • It appears that Magic Leap has hit a major problem with the commercialisation of its technology and the question really is: are its investors patient enough to hang on while a new solution is found?
  • Magic Leap is an augmented reality company that has a very high profile because:
    • First: It has promised a user experience that other augmented reality companies can only dream of.
    • In most systems the virtual world can only be superimposed on a portion of the user’s field of vision.
    • Effectively there is a letter box in front of the user within which the virtual world exits and from which it cannot escape.
    • For productivity applications, this is not really a problem but for the consumer, there is no way this will fly.
    • This is the problem that I think Magic Leap has solved and if it can produce a good product, it could dominate the consumer market for AR (see here).
    • Second: It has very high profile investors (Google, Alibaba etc.) and a valuation of $4.5bn.
    • $4.5bn is a sky-high valuation for a company with no product, no prototype and no time frame within which a product will come to market.
  • Despite some rumblings around whether one of its latest demonstration videos is genuine, the older demonstrations show clearly that Magic Leap offers a full superimposition of the virtual world onto the real.
  • However, this is not where the problems that I can see are to be found.
  • The problem is that the device is huge, clunky and uncomfortable to wear making it completely unsuitable for the consumer.
  • I have long held the view (see here) that for AR to work, the entire unit needs to be no heavier or intrusive than a regular pair of glasses.
  • The original idea was that Magic Leap would use a laser shone through a vibrating fibre optic lens to create the light field (see here) but it seems that this solution does not work properly.
  • A recent demonstration (the information) of a head unit attached to a PC with multiple cables produced images that were of a lower quality than Microsoft’s HoloLens.
  • It looks like this has laid bare the weakness in the laser / fibre optic solution in enabling a move from being the size of a fridge into a head unit.
  • Furthermore, the press does not like being made to feel foolish and so the knives are now out following the possibility that the latest video is a concept rather than real footage.
  • Either way, it looks like it is back to the drawing board for Magic Leap in terms of figuring out how to ut full field of view AR into a pair of glasses.
  • This is a huge problem as I suspect it means a lot more time and a lot more money.
  • With no revenues and aggressive hiring over the last 12 months, Magic Leap’s burn rate must be tens of millions of dollars a month raising the likelihood of another funding round probably at a lower valuation.
  • The big question is whether its investors will continue to support the longer development time required and if so, what price will they pay?
  • The longer development time also gives rivals such as HoloLens, Meta and Atheer Labs time to fix their issues with the field of view.
  • With risks increasing and sentiment souring the valuation can only come down.

 

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.

Blog Comments

Microsoft will certainly breath a sigh of relief with Hololens, as you say it may not be as technically amazing but it’s more a retail ready product that MagicLeap is going to be any time soon.

So MagicLeap have been telling some tall tales to the press, the last video I watched of them only a few months ago this year was filled with hype, a little too much as it turns out.

Yes agreed. Although I think if it can crack the minaturisation problem it could well have something