Awe-gmented Reality: Why AR Will Change the World Like the Internet Did

Sophic Capital  |

Click HERE for Sophic Capital’s full augmented reality report.

Sophic Capital attended the Augmented World Expo (AWE), the world’s largest augmented reality (AR) and mixed reality (MR) conference (virtual reality has managed to creep in too). After immersing ourselves in the latest AR/MR head mounted displays (HMDs), testing the newest applications, and speaking with some of the 5,000 industry insiders there, we’re certain that reality technologies will reshape our world.

AR overlays computer generated images and text in our world. With AR, we still see the real world and remain mobile (VR blocks the real world). AR will be a larger market than VR because many enterprises see AR as a productivity enhancement technology to reduce costs, improve safety, and protect the environment.

MR HMDs combine VR and AR, scan the surroundings and overlay real-time digital content for user interaction. Whereas AR applications are passive (such as reading an email), MR is active (such as and placing virtual furniture in a real room).

AR Will Change Our World Like the Internet

The Internet transformed our lives. The Internet digitized information and databases and made them available to everyone. The next generation Internet will digitize every object and superimpose them into our world via AR glasses. AR will display layers of predictive information based upon who and where we are and what we want.

AR is thriving in the enterprise because it reduces costs. At AWE 2017, companies presented case studies on how AR improved productivity. A tractor company adopted AR to inspect its final products and reduced the time to complete and document the process by about 40%. In another instance, wiring an airframe was 6 times faster with AR. AR improved warehouse inventory picking efficiency by 25%. These examples were not exceptions.

AR Will Be a Big Market

Wireless Won’t Determine a Consumer HMD Winner

Investors constantly ask Sophic Capital when high-end HMDs will become wireless. Wireless solutions face challenges. Bandwidth demands of an evolving market is a big issue. Kopin’s (KOPN) Elf VR will have three times the resolution of the cabled Oculus Rift and HTC Vive HMDs. Wireless also imparts additional design costs, increases HMD weight, power concerns, and potentially reduced battery life. There’s also the safety issue of having a battery strapped to the user’s head (remember those exploding phones)?

Price and performance are the major drivers of consumer adoption of VR HMDs – NOT wireless technology. AR/MR/VR headsets are available at various price points and performance capabilities (Exhibit 1). Generally, lower priced devices allow consumers to try VR without large investments. Samsung’s sold over 5 million Gear VRs even though performance is relatively low. HTC and Oculus have had less success than expected mainly due to consumer reluctance to spend so much for an emerging technology. High-end standalone devices are interesting, but today’s price points are beyond acceptable levels for consumers. However, we believe that Microsoft’s (MSFT) MR devices will hit the sweet spot of low price and high performance, especially with the marketing and sales channels of Microsoft and its partners.

Microsoft Defining the Future of Computing

On October 26, 2016, Microsoft announced PC OEM partnerships for its Windows 10 VR HMD. PC OEMs need a new a computing platform, and VR HMDs are it. Dell (private), Asus (2357:TPE), Lenovo (0092:HKG), HP (HPQ), and Acer (2353:TPE) will build and ship the tethered Microsoft HMDs in 2017 with prices starting at US$299.

Marketing and content are other reasons why we think Microsoft’s HMDs could become the next reality headset winner. Net Applications lists Windows operating systems as commanding 90% of the world’s market share.

The “Camera” is Facebook’s AR Platform

During Facebook’s (FB) F8 developer conference, CEO Mark Zuckerberg detailed how AR is one of the company’s next big bets. He said that Facebook will give developers new AR tools to build on the camera to do things like leave digital messages in bars or notes on a refrigerator.

The Apple of My Eye

In Sophic Capital’s VRy Interesting report, we revealed an Apple (AAPL) patent that may have been for an AR HMD. Since then, rumours built speculating that Apple is working on AR. Both The Financial Times and Bloomberg reported on the possibility.

Google Leverages Its Expertise in Machine Learning for VR

Google (GOOG) CEO Sundar Pichai revealed a Qualcomm-based reference VR design for hardware OEMs looking to get into this space. The new VR doesn’t rely upon a smartphone to provide the screen. Both Lenovo (0992:HKG) and HTC (2498:sTPE) are apparently ready to build the device, and they should be available later this year.

Mr. Pichai also announced that ASUS would produce a second-generation, AR Tango phone. Tango is Google’s AR computing platform. Lenovo released its PHAB 2 Tango phone at the end of 2016. Several handset OEMs already offer Daydream-compatible phones.

Simply Amazong!

Amazon (AMZN) appears interested in VR and AR’s potential with its customers and is recruiting tech expertise. Perhaps Amazon is exploring an interactive, 3D marketplace, since Amazon shoppers are currently limited to 2D storefronts and text product descriptions.

A Great HMD “IMMY” Opinion

IMMY (private) has focused on optics to create an AR/VR headset that closely mimics the human eye. Management invested 10+ years developing distortion-less optics, solving the problem of projecting an image onto a curved surface.

Conclusion

VR/AR/MR are real and growing. At AWE 2017, we saw numerous headsets and enterprise applications. AR/MR will change our world on a scale like the Internet did. Sophic Capital believes that VR/AR/MR will be an investment theme for many years to come.

Click HERE for Sophic Capital’s full augmented reality report.

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