augmented reality - riding the wave

Riding the Augmented Reality Wave|FTIConsultingLLP1EXPERTS WITH IMPACT

A record $2.3 billion was invested in augmented reality (“AR”) startups in 2016, representing a three-fold increase from the $700 million invested just a year earlier.1

AR hardware saw the largest investment, securing nearly 40 percent of total dollars. Key deals included $794 million raised by Magic Leap and capital raises by other AR hardware players, including ODG at $58 million, Meta at $50 million and Lumus at $45 million. The second largest investment area came in the AR services and solutions arena (including a $181 million investment in Unity, or nearly 20 percent of investment, the provider of a top game development platform and community.) Finally, AR apps also experienced large investments, driven by a $54 million raise by Blippar, a company that provides an AR mobile app and self-service suite of tools.2

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Riding the Augmented Reality Wave

Overall,thevastmajorityofinvestmentinARoccurredatthetopofthetechnologystack,asseeninFigure2.Inthefuture,asARcapabilitiesandcommunitiesbecomewell-established,weanticipatetheSystemIntegrationlayerofthestack–creatingintegrationofecosystems–willbeafocusinvestmentareaplay.

2016alsowitnessedpervasivemediacoverageoftheARlandscape.Whileoftenmentionedtogetherandinsimilarterms,ARandvirtualreality(“VR”)aredifferentconcepts

andservedifferentusecases.Inthisarticle,weexplorethequicklyemergingandseeminglylimitlessworldofAR.Toprovideclarity,bothARandVRarepartof“ExtendedReality,”whichincludesvirtual,augmentedandmixedreality(Figure1).

AlthoughtherearedifferingviewpointsonthepotentialmarketsizeforAR,itwillcertainlybehuge.Analysts’forecastfor2020varyfrom$7billion(GoldmanSachs)to$31billion(Citibank)andupto$90billion(Digi-Capital).

1Digi-Capital2Digi-Capital,GreenlightInsights

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Nomatterwhoyouchoosetobelieve,theconsensusisitwilltakelongertogainwidespreadpenetrationandadoptionforreasonswearticulatelaterinthisarticle.ARlikelywillacceleratequicklyoverthenextthreeyearsastheconsumerandenterprisemarketspacesgetdefinedandessentialtechnologies,includingtheunderlyingsoftware,chips,batteries,camerasandsensors,mature.

AsnumerousandcomplextechnologyecosystemsinvolvedwithARdevelopoverthenextfewyears,therewillbenewwearables,devicesandapplicationsusedtoaugmentsensesandphysicalcapabilities,enhancinginteractionswiththerealworld.ARwillchangethewaypeopleinteractwiththeirenvironmentandshapethewaytheyseetheworld.Ithasthepotentialtobeasdisruptiveassmartphoneshavebeenandcouldbethe

fourthcomputingrevolutionafterthePC,theInternetandsmartphones.

ARintegrateddeviceswillbetheconnectorsbetweenseveralothertechnologydisruptionsthatweareorsoonwillbeexperiencing(e.g.,smartcities).

ARhasthepotentialtoprovideacompleteframeworkforintegratingnewtechnologiesintobusinessandenterpriseapplicationsastheymatureandbecomemainstream.Thesetechnologiesincludecomputervisionandpatternrecognition,multi-sensorintegration,artificialintelligence(“AI”),roboticsandmachinelearning.

Augmentation TypesTounderstandviableARbusinessmodels,wemustfirst

understandthedifferenttypesofaugmentationavailable

today.CurrentARcanbebrokendownintofivemajor

categories.

Thefirstisdisplay augmentation,wherevisualoverlays

aremappedtoanysurface,includingscreens,walls,floors,

objectsandpeople.Humansinteractwiththesedisplays

throughsensoryinputs(e.g.,touch,movement,voice)to

displayinformationconnectingtherealworldtovirtual

worlds.Asimpleexampleofthistypeofaugmentationis

themyriadofvirtualkeyboardsthatexistinthemarket.

Thesecondtypeisgeospatial augmentation.Geotagging

andlocation-basedservicesareassistedbysensoryinput

(e.g.,GPS,magnetometer,accelerometer)andusedto

Apps and Content Apps • Appdevelopersandcontentproviders(e.g.,Creation,AssetsManagement)

Value-Add Services Value-AddServices • Value-addservicesfororusingAR(e.g.,expertfieldsupport,enhancedtraining,coding)

AR End PointsIntegratedDevices • Endpointdevices(e.g.,HoloLens,Rift,Bodyunits,otherdevices/equipmentbyusecase)

SWPlatformsandSoftwareDevelopmentKits(“SDKs”) • SoftwareplatformsandSDKsthatenableandenhancetheARendpoints

Enterprise Systems SystemIntegration • Integratorsofecosystems(e.g.,healthcare,Mil/Aero,connectedcar)

Delivery Infrastructure

DataAggregation&Processing • Datamanipulationandmanagement

CDN|EdgeComputing • CDN|distributedandedgecomputing

Network|Protocols • Transportandnetworking

DataPipeline • Dataandinformationchannels(bandwidthandspectrum)

Software

MiddlewareandEngines • Middlewareandengines(e.g.,A/Vcompression,3D/3DSound)

OS,SDKs,APIs • Infrastructuredevelopmentplatforms

FWandEmbeddedSoftware • Firmwareandembeddedsoftware

Components

Hardware • PCBs,hardwareintegration,sensorfusion

Processors • Dataandsignalprocessors

MemoryandLogic • NVM,volatilememoryandlogicdevices

SensorsandControllers • MEMSandothersensors,microcontrollers

FIGURE 2:AugmentedRealityTechnologyStackandValueChain

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Reality Description

Virtual

Animmersiveexperienceinacompletelyvirtualworld,inotherwords“youcanseeadifferentworld.”

Augmented

Arealworldenvironmentenhanceddigitallyusingsensoryinput(e.g.,graphics,location,sound),inotherwords“youcanseetheworlddifferently.”

Mixed Theblendingofaugmentedandvirtualrealitywhererealandvirtualworldsco-existandinteract.

FIGURE 1:ExtendedReality

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overlayreal-timeinformationonobjectsandpeopleas

theusermovesthroughtherealworld.ThePokémonGO!

appisagreatrecentexampleofgeospatialaugmentation

whereauser’slocationandclimateaffectthePokémon

theycancatch.

ThethirdtypeofARisrecognition-based augmentation.

Sensorsandimagingcapabilitiesidentifyobjects,shapes

andpatterns,whicharethenoverlaidwithelements,

includingimages,3Dconstructs,videos,soundsandother

information.Therecognitioncanbemarker-based,where

theimagesandcommentaryareidentifiedinadvance,or

marker-less,whererecognitionisdonereal-timewithout

usingpre-placedmarkers.Realandvirtualobjectscan

beviewedinthesamescreen,enablinginteractions.QR

codesareanexampleofrecognition-basedARusing

patterns.

Sensory augmentationisthefourthtypeofARand

involvesthemergerofsensorydataacrossthevirtualand

realworld,includingtouch,tasteandsmell.Bylevering

aperson’sorshape’soutline,touchcanbemimicked

anduserscaninteractwithvirtualenvironmentsand

objects(e.g.,stackingvirtualblocksontopofeach

other).Examplesofthistypeofaugmentationinclude

theMicrosoftKinect(virtualtouch),Sony’sDualShock4

(haptic)andOlorama’sdigitalscenttechnology(smell).

Thefifthtypeofaugmentationishybrid augmentation,

which,asitsnameimplies,isacombinationoftwoor

moreoftheaforementionedtypesofaugmentation.

TheMicrosoftHololens,SportsMEDIATechnologies

enhancementsoflivesportstelecasts,PokémonGO!,and

ReachRobotics’MekaMonbattlingrobotsarealldifferent

examplesofhybridaugmentation.

Pathways to AdoptionTherearebarriersinhibitingthespeedofARdevelopment

andwidespreadadoption.Thesebarriersarecreated

byinfrastructure,technology,security/privacy,safety

policies,financialandecosystemmaturityconsiderations.

Infrastructure Considerations:

• Scale complexity: ARisconstrainedonlybyspace

limitationssetbytherealworld.Totakefulladvantage

ofallthepossibilities,amyriadofinputsfromthereal

worldmustbeintegratedandprocessedatahigh

velocityandinreal-time.Wearejustbeginningto

explorethisexperience.

• Relationship mapping: Realandvirtualobject

relationshipsmustbewelldefined,established,

translatedandportableacrossplatformsand

technologiestoprovideaholisticARexperienceat

scale.Theserelationshipscanbeestablishedina

myriadofways,includingannotations,tags,labels,

hyperlinksatthesimplestlevelandhighlyadaptive

hyperlinksatacomplexlevelthatenabledecisions

basedondynamicenvironmentvariables.Giventhe

lackofdefinitionsandstandards,itwillbesometime

beforeweexperienceportablecrossecosystemAR.

• Interaction complexity: Peopleareaccustomedtothe

realworldandinstinctivelyknowhowtointeractwithit.

Overtime,individualstrainthemselvestointeractwith

thevirtualworldthroughman-madeinterfaces,suchas

amouse,joysticksandperipherals.TheworldofARis

newandblendstherealandvirtualworlds.Thelevelof

seamlessnessachievedwilldefine,enableanddrivethe

overalluserexperienceandadoption.

Technology Considerations:

• Sensors:Vastamountofsmall,cheapandefficient(low

power,high-speed)sensorsarerequiredtomakeARa

mainstreamtechnology.Depthsensorsinparticular

thatestimatedepthinalllightingconditionsarein

greatdemandinmanyindustryverticals.Thisisafast

evolvingspacelackingmajorplayerswiththecapacity

todevelopanddeploythesesensorsonagrandscale.

• Imaging: Mostcameramodulesareself-sufficient,

accessibleonlythroughhighlevelfunctioncalls

intendedforenduserapplications.Developersneed

theabilitytocontrolcamerasthroughlowerlevelAPIs

tofullyutilizeAR.

• Memory:Toquickenadoptionanddrivescale,

CPU-GPUsharedmemoryarchitecturesmustbe

exposedtodevelopersineasytoleveragedevelopment

kits.Inaddition,giventhevastdataandthroughput

requirementsforprocessingandmanipulatingimages

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intoday’sresolutions,memoryandsupporting

architecturemustcontinuallybemadesmaller,faster

andcheaper.

• Power:Asinallportabledevices,batterylifeiscritical.

Lowerpowertechnologycoupledwithnewbattery

technologytoenablealldayoperationsisamusthave

todrivemainstreamcommercialadoption.

• Sensory immersion:TrueARmustbe

all-encompassing.3Daudioisrapidlymaturingand

needstobeintegratedwithinappropriateARofferings.

Otherareasofsenseaugmentation(e.g.,smell,touch,

andtaste)areatvariousstagesofevolutionanda

completefivesenserealityisquitefuturistic.

• Connectivity:Realizingmobileconnectivityat

bandwidthsthatenablean“alwayson”postureis

criticaltodriveadoption.

Miscellaneous Factors:

• Security and privacy concerns:Securityandprivacy

concernshavealsobecomepervasiveintheconnected

world.Current(andfuture)ARcapabilitieswillrelyon

somelevelofcapturinguserdata/informationand

linkingitwiththingsintherealworldtherebydriving

needsforprivacyandsecurity.

• Safety and policy barriers:Safetyandpolicy

barrierswillplaytheirpartintheARadoptioncurve.

Safetyconsiderationsrangefromtheeverpresent

“distractionfactor”(akintopeopletextingwhile

driving)totheunderlyingreliabilityofthetechnology

forcomplexandriskytaskssuchasmedical

proceduresandmilitaryuse.

• Financial barriers:Financialbarriersalsoexist—both

tothebusinessesdevelopingandmanufacturingtheAR

capabilitiesandforconsumerspurchasingthem.As

sensor,memory,andprocessingcapabilitiescontinue

toincreaseandmanufacturingcostscontinueto

decrease,costofownershipwilltrendlower,incresing

ROIandadoption.

ThereareplentyofARusecases,whichcannotbe

achievedwithoutafoundationalecosystembeingin

place–theinfrastructure,technology,andvaluechain

players–alloperatingatoraboveacertainlevelof

maturity.Interoperabilityacrossplatforms,productsand

ecosystemsisvitaltodrivefasteradoption,avoidvendor

lock-inandmaketheARmarketplaceascompetitiveand

compellingaspossible.

Inadditiontothebarrierstoadoption,otherchallengesfor

ARtoovercomebeforeitcanreachcriticalmassinclude:

• Unveilingofa“killerdevice”(e.g.,an“ARiPhone”,

whethermadebyanOEMorothers).

• Establishinganappecosystemspecificallydesignedto

provideARexperiences.

• Achievingtelcocross-subsidization.

AR Use CasesAstheARmarketmatures,amyriadofusecasescontinuetoarise.Theydeployvarioustypesofaugmentationandaregatedbyspecificbarrierssofaroutlined.Figure3showsexamplesofcurrentlyexistingusecasesandhighlightsrepresentativeplayers,theaugmentationtypesused,andprimarypathwaystoadoption.Boththeusecaselistandtherepresentativeplayersarebynomeansall-inclusive.

Business ModelsBusinessmodelsdrivesuccessandtakeintoconsiderationmanyvariablesincludingthecompany’sstrategy,typeofoffering,usecasesaddressed,offering’svalueproposition,market,existingassets/capabilities,competitivelandscape,routestomarket,partnerecosystem,suppliersandendcustomers(includingtheirconsumptionmodelsandappetite),coststructureandmonetizationmethods.

ManyplayersexistacrosstheARvaluechainwithdifferentbusinessmodelsandunderlyingeconomiclogicforeach.Inthispaper,wefocusonthetopofthevaluechainandtechstack;however,companieslowerdowninthestackalsostandtobenefitfromARandneedtodevelopappropriatestrategiesandbusinessmodelstocapitalizeonthetrendeffectively(e.g.,sellingfaster/betterandmoreprofitablebandwidth,silicon,infrastructureequipment).

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Focus Sample Use Cases Representative Players Augmentation Types Pathways to Adoption

GamingLocationbasedandinteractivegaming(e.g.,PokémonGO!)

•Niantic•CastAR•MekaMon

•Display•Geospatial

•Scalecomplexity•Relationshipmapping•Safetyandpolicy

TravelLocationbasedinteractivity(e.g.,popups,knowledge,games)

•Wikitude•Skignz•Flightradar24

•Display•Geospatial

•Scalecomplexity•Relationshipmapping•Ecosystem

Sporting Activities/Outdoors

Trackandprojectactivitymetricsinrealtime

Viewoverlaidinfoatsportingevents

•SixtoStart•Fusar•SportsMEDIA

•Display•Geospatial

•Sensors•Imaging•Power•Securityandprivacy

Entertainment

Experiencesforconsumerstointeractwithevents,shows,content,etc.

•Metagram•Olorama•Snapchat

•Display•Geospatial•Sensory

•Relationshipmapping•Interactioncomplexity•Power•Financial•Ecosystem

Marketing / Branding

Interactiveandimmersiveexperiencesforconsumerswithbrands

•INDE•Blippar•CurrentStudios

•Display•Recognition

•Interactioncomplexity•Imaging•Ecosystem

Personalized Shopping

Enhancedshoppingexperiencesdeliveredin-store(e.g.,interactivedisplayads)orremotely(e.g.,virtualfittingroom)

•FittingBox•GoInStore•Zappar

•Display•Geospatial•Recognition

•Financial•Ecosystem

Automotive

Headsupdisplay(“HUD”)andinterfacefordriving

•InfinityAR•PelicanImaging•iOnRoad

•Display•Geospatial•Recognition

•Scalecomplexity•Relationshipmapping•Sensors•Imaging•Memory•Safetyandpolicy•Ecosystem

Productivity Improvement

Performdailytaskssuchasemailandtextmessaging

•ThalmicLabs•eyeHand•GlassUp

•Display•Sensory

•Power•Securityandprivacy•Financial

Medical and Health Services

Improvesurgicalanddiagnosticcapabilitiesincludingremoteandrobotassistedoperations

•Meta•Pristine•ThirdEyeHealth

•Display•Sensory•Recognition

•Sensors•Imaging•Memory•Securityandprivacy•Safetyandpolicy•Financial•Ecosystem

FIGURE 3:IllustrativeUseCases

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Type Business Model Pros Cons

Hardware Only

Directsalestobusinessesandconsumers

•Ifsuccessfulthehardwarecanbecomethemainhumaninterfacetotheecosystem(thinkAppleiPhone)

•VerycrowdedspaceandhardwarecomeswithBOMandsupplychaincosts(itbetterbegood)

Hardware Subsidized by Software or Services

Razor-blade(sellhardwarenearcostandmonetizeviasoftware,apps,orsupportservices)

•Providemoreprofitableandscalableavenuesforgrowingrevenuesbeyondjustsellinghardware

•Abilitytomonetizenon-hardwareelementsisdeterminedbyabilitytosellhardware(itbetterbegood)

Software Only

ARplatform(withhosting,transaction,orlicensefees)

•Digitaldevelopmentfocusedonly(lesscomplexsupplychain)

•Ifsuccessfultheplatformprovidercanbecomethe“glue”oftheecosystem

•Difficulttogrowtheecosystemandattractuserswithoutdevelopingagamechangeroralreadyhavingseriousclout

Apps Only

Microtransactions/in-apppurchases

•Digitaldevelopmentfocusedonly(lesscomplexsupplychain)

•Veryprofitableifsuccessful

•Hardtomaintain,user’sattentioncaneasilymovetoothersources

Ecosystem Play

TurnkeySolutionsandSystemsthatprovideEcosystemglue(Softwareplatform,Telcoinfrastructure,Dataplay)

•Highbarriertoentryonceexperienceisbuiltandcomplexsolutionsavailable

•Veryprofitableifsuccessful

•Difficulttobuildfromscratch.Usuallycreatedthroughacquisitions

FIGURE 4:RepresentativeBusinessModels

Figure4showspotentialbusinessmodelswithassociatedprosandcons.Thislistisbynomeansall-inclusive.Itshouldbenotedthatacompanycanemployacombinationofmodelsaswellascrossovercategoriesbasedonitsportfolioofofferings.

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Conclusion

Regardlessofwhichforecastyouchoosetobelieve,theopportunityforARisbig.Wellknownhigh-techcompaniesarerapidlybuildingouttheirARsolutionsandofferings.

2016witnessedtheglobalreleaseofMicrosoft’sHoloLensv1,aself-containedholographiccomputerbuiltintoaheadset.Microsofthasalreadyannouncedplanstoskipv2sotheycanacceleratedevelopmentofv3withatargetreleaseof2019.Recently,MicrosoftalsoacquiredSimplygon,asoftwarefirmfocusedonautomaticoptimizationof3D-gamecontentandlevelofdetail,toincorporatethetechnologyandfurtherenhanceHoloLens’capabilities.Inaddition,MicrosoftisbusyfilingAR-relatedpatentstosolidifyitsposition,includingonefocusedongraspingvirtualobjectsinAR,onefocusedonprovidingadditionalcomfort/eyereliefforwearablesandanotheronARlightguidedisplaytechniques.

AccordingtoEngadget,Amazon’shardwareR&DdivisionLab126islookingtoturnwholeroomsintoanARexperience.Amazonwasawardedseveralpatentsin2015focusedonobjecttrackingandreflector-baseddepthmapping;and,in2017theU.S.PatentOfficepublishedalicensebelongingtoAmazonthatincludedenhancedrealitysmartglasses.ThiscapitalizesonAmazon’scurrentfootprintwithintheconnectedhomeandoffice,includingAmazonPrime(streaming)andAlexa(ArtificalIntelligencevoiceassistant)amongothers.AmazonisusingAlexaasaplatformtofurtherpenetratemarkets,includinguseonthird-partydevices(e.g.,Huawei’sMate9Androidphone,Fordcars).AmazoncanleveragetheserelationshipsandplatformscaletocomplementitsARofferingsanddriveincreasedadoption.

Inaddition,acquisitionsmadebyotherhigh-techplayersalsoshowhowtechexecutivesareplacingbetsonAR:

• Google: Api.ai,Eyefluence,ThriveAudio

• Facebook:TwoBigEars,PebblesInterfaces(via

Oculus),Faciometrics,MSQRD

• Apple: PrimeSense,FittingBox,Metaio,Faceshift,Flyby

Media

• Snapchat:Seene,Looksery,CimagineMedia,Scan

ARhasapromisingfuture,drivenbythelargeandincreasingventurecapitalinvestmentsandbigbetsplacedbyglobalcorporations.ThetechnologyandunderlyingecosystemsforARarematuringrapidly.ARhasstandalonepotential;but,italsofitssynergisticallywiththeInternetofThings(“IoT”)andriseoftheconnectedworld,whichhasalreadyachievedsolidmarketpenetration.Tocapturemaximumbenefitsandcapitalizeonthepowerofincreasedscale,companiesshouldintegrateARcapabilitiesintotheirIoTinitiatiavesandroadmapsnow.

Webelieve2017willseemarkedimprovementsinARtechnologies(e.g.,wireless,battery,andimaging),continuedreductionofcostsandtherealizationofadditionalusecasesthatproviderealandtangiblebenefitstobusinessusersandconsumers.

In2020,peoplewillremember2017notastheyearARwentmainstreambuttheyearinwhichthefoundationneededtomakeARmainstreamwassolidified.

Nitin KumarSenior Managing Director+1 646 202 3166nitin.kumar@fticonsulting.com

Michael KnottSenior Managing Director+44 20 3727 1297michael.knott@fticonsulting.com

Phil SchumanSenior Managing Director+1 310 569 8765phil.schuman@fticonsulting.com

John Cartoux, PhDManaging Director+1 202 277 6158john.cartoux@fticonsulting.com

Brian HoardManaging Director+1 512 585 3080brian.hoard@fticonsulting.com

Ryan HerbstConsultant+1 646 830 3542 ryan.herbst@fticonsulting.com

The views expressed herein are those of the authors and not necessarily the views of FTI Consulting, Inc., its management, subsidiaries, affiliates, or other professionals.

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