augmented reality - riding the wave
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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 [email protected]
Michael KnottSenior Managing Director+44 20 3727 [email protected]
Phil SchumanSenior Managing Director+1 310 569 [email protected]
John Cartoux, PhDManaging Director+1 202 277 [email protected]
Brian HoardManaging Director+1 512 585 [email protected]
Ryan HerbstConsultant+1 646 830 3542 [email protected]
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