Magic Leap – Expectations management.

Reality hits the dream seller.

• As I expected, it turns out that augmented reality (AR) for the consumer is light years away from where it needs to be meaning that the only real market, for now, is still the enterprise.
• Magic Leap has finally accepted this reality but seeing as others pivoted to the enterprise 2 to 3 years ago, it will find itself behind the curve and at the back of the queue.
• According to The Information, (see here) sales of the Magic Leap One Creator Edition have been utterly dismal selling just 6,000 units compared to the 100,000 that were planned and the 1m that the CEO was expecting.
• This further underlines my long-held view (see here and here) that Magic Leap’s biggest problem is its inability to set and manage expectations.
• This is crucial because a plan for 100,000 units shipped with only 6,000 sold means that there is a huge pile of units that cost a fortune gathering dust in a warehouse.
• If the CEO’s plan for 1m units had become reality, the company would probably now be out of cash.
• This issue has hurt the company time and time again.
• There is nothing wrong with the Magic Leap One Creator’s Edition as its performance is broadly in line with that of its peers, but it was so badly over-hyped that its launch was a huge disappointment.
• I suspect that this was a large contributing factor towards its utterly dismal sales performance.
• To date, Magic Leap has been the only AR company to remain primarily focused on the consumer as its peers pivoted towards the enterprise years ago.
• The reality of piles and piles of unsold units has now forced Magic Leap into the same position which is why it has finally launched an Enterprise Suite and Device Manager for the renamed Magic Leap 1.
• The problem here is that everyone else has been focused on this for several years meaning that Magic Leap is very far behind its competitors.
• To rub salt into the wound, Sundar Pichai who represented Google (biggest shareholder) on Magic Leap’s board has reportedly resigned in a clear indication of Magic Leap’s declining relevance.
• He clearly has more important things to do.
• Magic Leap remains a viable contender in the race to produce a decent user experience that will sell to consumers, but I think that it is now falling behind the competition in the enterprise.
• The technical challenges remain immense meaning that it will continue to require large investments to remain in the game.
• Microsoft and Apple are spending huge amounts of money on their offerings meaning that Magic Leap will most likely soon be out on the road again scrumping for cash.
• The fact that Magic Leap appears to have also offered all of its patents as collateral to JP Morgan (see here) is another sign that cash is becoming a major problem.
• This will be a much more difficult round to raise as its main investor has clearly lost a lot of its enthusiasm for the proposition and Softbank is still licking its wounds and is now going to be much more risk-averse.
• I suspect that Google will end up acquiring Magic Leap at some point when the outlook has deteriorated even further.
• This is the only way that I think an acquisition of this nature will get past Dr. Porat as the price will have fallen substantially.
• The moral of this tale is to under promise and over deliver and if Magic Leap had done this, I think its prospects to remain an independent company would be far better.