Facebook Is Going to Muscle VR into the Mainstream

At yesterday’s Oculus Connect 4 conference, Zuckerberg outlined a goal to have 1 billion VR users. This goal is rooted in his belief that once platforms reach more than 1 billion monthly users in scale, they’re impossible to compete with. He should know, given the platforms under his control including Facebook (2B), WhatsApp (1.3B), Messenger (1.2B), and Instagram (800M). Like it or not, VR will be mainstream – and we love it.

Empowering global VR adoption. While the Oculus Go hardware announcement and Zuckerberg’s billion user VR target captured yesterday’s headlines, the bigger story is that Facebook can singlehandedly turn VR from a nascent user base today into a mainstream computing platform in the next 5 years. Facebook has the capital ($502 billion market cap and $43 billion in cash) and its founder is committed to empowering global VR adoption.  It’s important to note that VR has long been a passion of Zuckerberg, and it was reportedly love at first sight when he first used Oculus. Zuckerberg’s 1 billion VR user stake in the ground will be a motivator for start-ups, private companies, and investors. We no longer have to debate if VR will be real, now it’s a function of time.

How big is the VR Market? Earlier this year we published our VR headset market share model, which calls for monthly global VR users increasing from 100 million in 2018 to 1.2 billion by 2022 and 2.4 billion by 2025. While we’re leaving our estimates unchanged following Zuckerberg’s comments, our confidence in our VR user model has increased.

How much will Facebook spend on building out VR? We estimate Facebook will spend $36 billion on R&D over the next 3 years (2018-2020). If we assume 15% is going to VR that would imply over $5.5 billion in spending, which we see as more than adequate to accomplish it’s billion user target.

Facebook gets it, VR needs to be social. Social is not only important to Facebook’s mission, but to the future of VR. Mainstream adoption of VR will not take place with the current gaming landscape, since VR is currently seen as a luxury geek item. Instead, VR will need a social aspect before there will be mass adoption of the technology. Software features like screen-sharing, virtual lounges, project collaboration, and shared experiences like watching a movie or a sports game, allow people to connect in VR.

Oculus Go is more accessible. This headset is a step toward finding the sweet spot between mobile VR and computer-based VR. Mobile VR is easy to use but offers a diminished experience, while computer-based VR offers the highest quality experience, but is far more expensive and leaves users tied down with a cable. The Oculus Go is noteworthy not only because its $199 price point is 15% of the cost of an all-in Rift system (with a compatible computer), but because it’s easier to use, offering plug-and-play with no wires and no specific smartphone needed. While the quality will not be as rich as on the Rift, it will address the need for a middle of the road system that will undergo huge improvements with further investment as more users flood to VR.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

ARCore + ARKit Make Augmented Reality Ubiquitous

On Tuesday, Google released a developer preview of ARCore, a platform for developers to build augmented reality apps for Android. ARCore brings augmented reality to the world’s largest mobile operating system, starting with just the Pixel and Galaxy S8, but will expand to other existing and upcoming Android devices. The announcement comes on the heels of Apple’s ARKit, made available to developers in June. The introduction of both platforms blankets the mobile device market and will eventually make AR as ubiquitous as the devices themselves.

How does it work? Three basic components make up the technology that enables ARCore:

  1. Motion tracking – uses internal sensors and the phone’s camera to identify features and determine your position and orientation as you move through space
  2. Environmental understanding – detects the size and location of flat horizontal surfaces like tables and walls
  3. Light estimation – blurs the lines between the real and augmented world by helping virtual objects cast accurate shadows

What about Tango? Augmented reality is not a new area of interest for Google. Over three years ago, Google released Tango in an attempt to bring AR to smartphones and tablets.  Google’s custom hardware requirements, however, left Tango with little mainstream appeal. ARCore forgoes some of Tango’s power for increased accessibility. Fortunately for consumers, as AR becomes a core capability of devices going forward, hardware will catch up in the form of more sensors and better cameras, benefitting mobile AR as a whole.

Déjà vu. In July 2008, Apple opened the App Store with a total of 500 apps. One year later, it had seen over 2 billion downloads, and by 2011, the App Store was home to over 350,000 apps with 10 billion total downloads. The Android Market (later Google Play Store) was announced 3 months after the App Store, and although it had a slower takeoff due to smaller market share, it surpassed the App Store by 2014, both in terms of number of apps available and total downloads. The Google Play Store currently offers 2.8 million apps, compared to Apple’s 2.2 million. Just as smartphone apps erupted into existence, augmented reality will soon be a core technology available to millions of users. Google expects that by ARCore’s public launch, 100 million Android devices will support AR applications, and our research suggests over 200 million iPhones will become AR-enabled with the introduction of ARKit.

AR is here to stay. The two major device platforms are now wholeheartedly embracing and investing in augmented reality. Microsoft and Facebook have also heavily invested in AR’s future, further confirming AR’s position as a pivotal technology. We have previously written about the gold rush of AR applications on the App Store, which will only be amplified by the addition of ARCore. While the race for the pole position in AR heats up, there is one clear winner – the consumer. Aside from putting useful and fun new apps in our hands, expanding the user base of the underlying technology will accelerate the adoption of the next generation of computing.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Apple’s Core ML Brings AI to the Masses

AI is one of the core themes on which we focus at Loup Ventures. And as analysts, we heard Google, Facebook, Amazon, and Apple emphasizing their focus on AI over the last several years. Google CEO Sundar Pichai has commented on each of the past three Google earnings calls that Google is transitioning from mobile-first to AI-first. Facebook has recently spent a lot of time and resources developing chat bots on its platform, and has utilized AI to create a better news feed, and improve photo recognition. Amazon uses AI extensively with recommendations, and is integrating third-party AI models into AWS. While Google, Facebook and Amazon are each making significant progress as it relates to AI, it’s worth noting that Apple was the first company of the four to embrace it.

Apple’s AI roots date back to the mid 1990s with handwriting recognition on the Newton. In June Apple announced Core ML, a platform that allows app developers to easily integrate machine learning (ML) into an app. Of the estimated 2.4m apps available on the App Store, we believe less than 1% leverage ML today – but not for long. We believe Core ML will be a driving force in bringing machine learning to the masses in the form of more useful and insightful apps that run faster and respect user privacy.

Apple’s history in ML. Apple’s history in ML dates back to 1993 with the Newton (a PDA Apple sold from 1993 to 1998) and its handwriting recognition software. While not a complete list, Apple has since used AI in the following areas:

  • Facial recognition in photos
  • Next word prediction on the iOS keyboard
  • Smart responses on the Apple Watch
  • Handwriting interpretation on the Apple Watch
  • Chinese handwriting recognition
  • Drawing based on pencil pressure on the iPad
  • Extending iPhone battery life by modifying when data is refreshed (hard to imagine that our iPhone batteries would be even worse if not for AI)

Core ML. Core ML was announced at Apple’s June 2017 WWDC conference. It’s a machine learning framework that sits below apps and third-party domain specific AI models, but above processing hardware inside of a Mac, iPhone, iPad, Apple Watch, or Apple TV.

Source: Apple

Core ML allows app developers to easily incorporate third-party AI models into their apps. App developers don’t need to be experts in AI and ML to deliver an experience powered by AI and ML within their app. In other words, Apple will take care of the technical side of incorporating ML, which allows developers focus on building user experiences.

At WWDC, Apple outlined 15 ML domains that can be converted to work on apps:

  • Real Time Image Recognition
  • Sentiment Analysis
  • Search Ranking
  • Personalization
  • Speaker Identification
  • Text Prediction
  • Handwriting Recognition
  • Machine Translation
  • Face Detection
  • Music Tagging
  • Entity Recognition
  • Style Transfer
  • Image Captioning
  • Emotion Detection
  • Text Summarization

What’s different when it comes to ML between Apple vs. Android? Google provides developers with TensorFlow compiling tools that make it easy for Android developers to integrate ML into their apps. Developer blogs suggest that Core ML makes it easier to add ML models into iOS apps, but we can’t compare the comparative ease of adoption. However, we can say they are different when it comes to speed, availability, and privacy.

  • Speed. ML on Apple is processed locally which speeds up the app. Typically, Android apps process ML in the cloud. Apple can process ML locally because app developers can easily test the hardware running the app (iOS devices). In an Android world, hardware fragmentation makes it harder for app developers to run ML locally.
  • Availability. Core ML powered apps are always available, even without network connectivity. Android ML powered apps can require network connectivity, which limits their usability.
  • Privacy. Apple’s privacy values are woven into Core ML; terms and conditions do not allow Apple to see any user data captured by an app. For example, if you take a picture using an app that is powered by Core ML’s vision, Apple won’t see the photo. If a message is read using an app powered by Core ML’s natural language processor, the contents won’t be sent to Apple. This differs from Android apps, which typically share their data with Google as part of their terms and conditions.

AI for the masses. In the years to come, iPhone users updating their favorite apps will experience a step function improvement in utility, but may never know that Core ML is behind the curtain making it all possible. We can all look forward to continually improving apps thanks to Core ML.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Bad Culture Doesn’t Scale

The most important lesson from Uber’s travails is that bad culture doesn’t scale. Talented teams with bad culture can build fantastic businesses, but not businesses that last. A unicorn with bad culture is a unicorn with a bomb strapped to its back — it’s only a matter of time before bad culture catches up and forces disruptive change. Sometimes bad culture rears its ugly head quickly, as it did with Zenefits. Sometimes it doesn’t happen until after multi-billion dollar per year business is established, as it did with Uber.

The culture at Uber wasn’t a secret. It had always been known as an aggressive one, and that culture deserves some credit for helping Uber transform the ride hailing industry; however, the bigger and more established a company becomes, the harder it is to maintain bad culture. Rumors spread, lawsuits happen, and good hires leave because it wasn’t what they signed up for. The media will report every painstaking detail. Advanced companies like Uber also face public backlash from customers, impacting revenue. If Uber were a publicly traded company, the stock would be down at least 30% in the past month given the CEO turmoil. Maybe down 50% for the year adding in the Google lawsuit and other well-publicized troubles.

During our time as public equity analysts, we’ve had the opportunity to cover some great, lasting companies like Apple, Amazon, Google, and Facebook. A common thread between all four of those companies is great culture. When Steve Jobs passed away, we wrote that his greatest achievement wasn’t the iPhone, the iPod, or the Mac, but Apple itself. He left behind a culture of good people driving revolutionary innovation. That might sound simple, but not compromising on your values and consistently hiring the right people that share those values is hard. It’s especially hard for a startup trying to build quickly while bearing the pressure of venture investor expectations.

It’s hard to determine the long-term fallout of Uber’s culture problem. The company has “verbed” itself, much like Google, which allows it a significant brand advantage. One of our teammates has joked that he would, “uber us a Lyft.” With broad leadership change, including the departure of its CEO, Uber has a chance to grow new roots and overcome the negative culture that’s now detracting far more than it ever added.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Snap’s Pain is AR’s Gain

On Wednesday, Snap reported earnings for the first time. Most investors saw Snap’s results as a disappointment, primarily because they missed on revenue and didn’t meet DAU expectations. Investors expected Snapchat to reach about 168 million DAUs, but they only reached 166 million DAUs. That’s bad news for Snap, but good news for the field of Augmented Reality.

Competition is Heating Up in AR. Facebook is going directly at Snapchat with Instagram Stories. Since launching in August 2016, Instagram Stories has eclipsed Snapchat in DAUs. Facebook and Instagram understand the importance of AR in the future, and made a commitment to invest heavily in the area.

At F8, Mark Zuckerberg threw down the gauntlet, making it very clear that AR was an important area for Facebook and Instagram in the future. Facebook has taken an open approach to its camera, giving developers a set of tools with which they can create apps that run on Facebook’s camera platform. By opening this up, Facebook will see more, and better AR content within its application. Snapchat will likely follow suit and open up its camera for other developers as well.

Ultimately, the increase in competition between Snapchat and Facebook will push AR forward faster.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.