E3 Leaves VR Fans Wanting More

Fans of virtual reality gaming didn’t hear quite as many announcements as they were hoping to last week at E3. While Sony and PC platforms announced some impressive titles launching in VR, Microsoft was silent about VR despite releasing the most powerful console to date. It was Nintendo however, that made a surprise announcement about its efforts in VR.

During its press conference, Nintendo unveiled that Mario Kart is arriving at a location-based VR with VR Zone Shinjuku, a 40,000 square foot arcade from Bandai Namco, offering 15 different VR games. The facility is set to open on July 14th. One of the most anticipated games to be showcased at the facility, Mario Kart, gives gamers the chance to sit in a go-kart and put on a VR headset, racing their friends virtually. This is Bandai Namco’s second foray into location-based VR arcades, after opening up “VR Zone Project I Can” in Tokyo last year.

Time will tell if Nintendo further adopts the location-based approach, and brings more of its games to the increasing number VR arcades across the world. Location-based VR is a great way to introduce VR to a higher number of consumers. These VR arcades help defray high costs, provide ample space for VR gaming, and offer a fun, communal VR experience. However, given the declining cost of VR gaming, we view this as stepping-stone technology that won’t be the final place for VR gaming. Eventually, VR gaming will be home-based, just as console video-games replaced arcades of the past.

In contrast to Nintendo, Sony continues to release VR content to its PlayStation VR console. At E3, Sony announced major titles in VR including Skyrim and Doom VFR. Previously, Sony’s VR titles were non-major titles that were developed specifically for the VR experience. Major titles reaching its VR platform is a big step forward for VR gaming and a positive indication for the space.

Microsoft has yet to bring VR gaming to the Xbox, instead choosing to place a bigger bet on Mixed Realty, focusing on their new MR platform for PCs coming this fall. When Project Skorpio was announced last year, it seemed all but a certainty that it was a move to compete directly with Playstation VR, and bring VR gaming to the Xbox One. However, Microsoft tempered expectations before E3. Microsoft’s Phil Spencer shared his belief that VR console gaming is typically done in family rooms and needs to have wireless headsets in order for it to be done right. While the newly announced Xbox One X is powerful enough to support VR, owners likely won’t see VR support until 2018. Until then, Microsoft remains focused on its Mixed Reality platform coming to PCs this fall.

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 Will Become The Leading AR Platform Over Night

Here’s our take on the most important announcements from Apple’s WWDC 2017 keynote event:

  • New AR Developer Tools. ARKit is the single most important announcement from today’s keynote, enhancing iOS 11 devices for augmented reality. ARKit instantly creates a multi-100m user base for AR developers over night, which compares to Google’s Tango platform which we believe has well under 10 million users. We believe AR will be the core technology that eventually replaces the smartphone. Today’s announcement lays the groundwork for Apple to succeed in that future as ARKit represents the first tangible commitment from Apple to establish itself as the leader in the race to build a dominant AR-driven OS. The company will build AR-enhanced iPhones that include depth cameras and other additional hardware in the future, but they will also bring along the existing iOS device base to bring AR to all sooner than later.
  • New VR Developer Tools. Apple also dedicated a meaningful chunk of the keynote to introduce new technology, announcing support for SteamVR, Unity and Unreal. The company also announced Metal for VR, which supports VR content creation.  These announcements show that Apple views VR as an important computing paradigm in the future, a market they have been shut out of to date because of their focus on integrated graphics and downplaying the powering of external hardware. We believe that today’s announcements represent a small step toward eventually launching a VR platform for iPhone.
  • New AI Developer Tools. Apple showed an increasing focus on artificial intelligence across its product line. The company announced Core ML, a new machine learning API to make AI faster on mobile devices. Ultimately, this will enable on-device processing for AI with data privacy across iOS, macOS, watchOS, and tvOS. Robust AI requires: 1) broad understanding and learning across devices, 2) advanced natural language processing, and 3) advanced computer vision. Apple highlighted its strengths across all three of those requirements throughout today’s keynote.
  • HomePod. Natural language will be a key user interface in the future of computing and Apple is playing catchup today with HomePod. Based on the product demo at WWDC, HomePod clearly offers a premium audio experience. The company is differentiating the device from other home assistants by focusing on music, but make no mistake: Siri is the killer app on HomePod. Apple fully understands the importance of Siri for HomePod and we expect updates to Siri when HomePod ships in December. We expect Apple to gradually open Siri up to developers and create an Alexa Skills-like offering for voice based apps. Today, developers are only able to integrate Siri skills if their apps fall within nine app domains (ride booking, restaurant reservations, etc.), but that won’t cut it in the future.

And here’s our take on the rest of the announcements from WWDC:

  • ApplePay for person-to-person transactions. Apple is now the only company to integrate a comprehensive payments platform directly into the OS. The significance of OS integration will only increase as computing becomes more immersive in the screenless future. A clear negative for PayPal’s Venmo.
  • macOS High Sierra. Support for VR will excite some developers and Mac gamers who have avoided the Mac.
  • watchOS 4. We’re looking forward to the Siri watch face.
  • iOS 11. Classic Apple software updates to keep iOS ahead of the pack. New iPad features for iOS show that Apple is trying to push the limits of the iPad as a productivity device. We think it might be enough to bend the growth curve from negative to flat.
  • New iMacs and MacBook Pros. An unexpected price cut on the most popular MacBook Pro.
  • New 10.5″ iPad Pro. Makes sense given that Apple’s getting rid of the 9.7″ iPad Pro. Generally, the iPad line makes more sense now.
  • Amazon Prime Video on Apple TV. More of a negative for Netflix than a positive for Apple or Amazon.
  • Redesigned App Store. Unifying the UI across iOS.

Hinting Towards an AR-enhanced iPhone.

Today’s announcement of ARKit leaves us incrementally more confident that an AR-enhanced iPhone is coming this fall. The software groundwork has been laid for Apple to unveil new iPhones with dual cameras across all models (regardless of screen size), a new 3D mapping chip, and perhaps an edge-to-edge display with no hardware home button. Apple’s new Siri UI showed a Siri button that looks like it could be a Siri-specific home button on a home button-less iPhone. And the new design of the dock, which is now self-contained in iOS 11 (as opposed to the edge-to-edge dock design in iOS 10), makes more sense in a UI with display area below the button. The next iPhone continues to look like it will be the most important update to the device since iPhone 6.

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.

The Future of Retail

It’s no secret that online retail is slowly killing offline retail.  In Q4 2016, 8.3% of total US retail sales were online (about $103 billion), up from 5.1% just five years ago (about $53 billion). Offline sales were 91.7% of the total, about $1.1 trillion. We don’t typically talk about the percentage sales that happen offline, but it’s powerful to see how large that market remains. The longer-term question is: how much of total retail will eventually happen online?  We looked at the breakdown of US retail sales by category excluding gas and restaurant expenditures. Based on our analysis, we believe that 55% of total retail sales will eventually happen online, leaving 45% of retail sales for the offline world. But how will brick & mortar retail defend its territory?

We believe the answer lies largely in a combination of artificial intelligence and robotics.  Where AI and robots are superior to humans in terms of efficiency, logic, and raw productivity, we believe humans will remain superior at creativity, community, and experience. Machine-driven retailers are uniquely qualified for convenience, speed and selection. Human-driven retailers are uniquely qualified to create personalized service based on empathy.

Human retailers are uniquely qualified to create personalized service based on mutual understanding – empathy.

The degree to which retailers are successful in leveraging creativity, community and experiences in their stores is the degree to which they will be successful in defending their businesses against online commerce and automated retail.

Given that backdrop, we see the future of retail delivered in three ways:

  • Online Shopping
  • Automated brick & mortar
  • Empathic offline retail

The Future of Online Shopping. Our analysis of US retail sales by category leads us to believe that 55% of total retail sales will eventually happen online. The consumer benefits of convenience, quick shipping and expansive product selection are too powerful to slow the gains that online shopping is enjoying at traditional retail’s expense. Amazon gets it, and they’re playing the long game, aggressively denying short term gains to establish itself as the owner of the operating system for commerce in the future. But Amazon also gets the fact that not all retail is best suited for the internet, which is why we’ve seen them dabbling in automated brick & mortar concepts. More on this below.

More immersive buying experiences will be a major driver of further gains for online shopping. Specifically, augmented reality and virtual reality will allow shoppers to experience a product in lifelike ways before they purchase it. Test out a new outfit in VR and get feedback from your friends. Show your significant other the new couch in your living room with AR before you order custom furniture. The likelihood of returns goes down, customer satisfaction goes up, and so too does the share of online retail.

The Future of Automated Brick & Mortar. We also expect a portion of retail to move to an automated model with few if any employees.  Stores will be monitored by computer vision systems. Shelves will be stocked by robots. Customers will be helped by service robots that understand natural language.  Checkout may resemble Amazon Go where customers simply walk out with their purchases. We’ll likely see the lines between online shopping and automated brick & mortar blur as some stores become more like warehouses for delivery personnel or delivery robots.

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On The Future of Entertainment

“The goal of film has always been immersion… [to] get lost in the show.” – Mike Schroepfer, CTO at Facebook.

We spent time this week at the Cannes Film Festival talking with industry leaders about the future of film. We explored virtual reality, storytelling, empathy, and new ways to immerse audiences. Here are the takeaways from our conversations at the festival:

  • Storytellers Love VR. Filmmakers know that VR will enable new ways to engage audiences. VR will expand storytelling on three levels: First, the 360 degree experience increases the viewers sense of presence. Second, immersion promotes empathy as it puts the audience in another world – in someone else’s shoes. Third, allowing a viewer to control spatial movement in a scene opens the door for a choose-your-own-adventure framework. Any one of these three warrants a paradigm shift in film, but all three will happen in time.
  • Established Filmmakers Will Supplement with VR. Established filmmakers see VR as a tool to supplement traditional content. Content creators are increasing the availability of free 36o-degree smartphone VR experiences to, for example, dive deeper into one scene of a film. Next, free VR experiences will begin to appear in the lobbies of theaters to promote films. Last, paid branded VR experiences will command $10-$30 for a 15 minute experience; e.g., the VOID and Ghostbusters. It’s important to note that today established filmmakers are steering clear of producing VR films. Steven Spielberg’s Ready Player One would have been the ideal first VR film but several factors prevented that including cost and the time it takes to retrofit theaters.
  • Aspiring Filmmakers Will Take an All-In Approach. Cannes was filled with startup storytellers going all-in on VR, inspired by the success of once-unknowns like Pixar and Netflix that changed the film industry 15 years ago; e.g., Penrose Studios (Arden’s Wake). Separately, Facebook’s recent closure of Oculus Story Studio (launched in January of 2015) bodes well for startup studios. Facebook’s efforts will now be focused on supporting external VR content creators.
  • Gaming Will Lead The Way. The gaming segment will be a leading indicator for the ramp in VR film adoption. Gamers will be early adopters given they are the largest segment of Rift and Vive users. Many of the tools that game developers use to build VR environments will be used by VR storytellers.
  • Hardware Is The Hold Up. Loup Ventures estimates there are about 2 million high immersion VR headsets in use globally today, including game console-powered VR headsets and  computer-powered VR headsets. We expect that number to increase to 146 million in five years (2022), including game console-powered VR headsets, computer-powered VR headsets and standalone VR headsets. We see hardware as the gating factor to VR film adoption. Hardware today is: 1. Expensive – $1000 plus for Rift & Vive. Daydream from Google headset and phone is $700. 2. Uncomfortable – screen resolution causes sickness and headsets are heavy and can only be worn for 15 minutes or less. 3. Clumsy – given Rift & Vive are both tethered experiences.

Today, consumer VR behavior is marked by a try-it-and-forget-it reality. Over the next 5 years, hardware will improve and costs will come down opening the door for daily VR usage and a new paradigm in film.

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.

What Google I/O Means for Immersive Computing

This week Google hosted it’s annual I/O developer conference. On day one, the company focused on their innovation in the artificial intelligence space. On day two, they talked about new VR products. Here’s our take on what the latest out of Mountain View means for the future of AI and VR.

  • Day One: AI. At Google I/O, Google lived up to it’s commitment to be an AI-first company. The company announced a slew of AI innovations focused on making their platform easier to use with more natural interfaces including voice (Google Assistant) and vision (Google Lens). For example, Google Assistant now includes support for calendars, phone communication, and proactive alerts, closing a gap we identified in our work on home assistants. Proactive alerts for voice-based assistants is a big step towards a screenless future. Google Home now flashes when it has relevant and timely information. For example: [*Google Home flashes*] “Traffic is heavier than usual. Leave in the next five minutes to be sure you make it to Anna’s soccer game on time.” In the screenless future, friction-less information push represents the future of search technology. Google is still in the best position to own the category given its organization of the world’s information. Google’s progress in the fields of computer vision (Google Lens) and cloud-based supercomputing/machine learning (Google Compute Engine) positions the company for success as we transition to more natural and immersive computing. It’s no coincidence that day one ended with a tease for a standalone VR headset, untethered to a PC or a smartphone. For more, see the 10 min condensed version of all the day one announcements here.
  • Day Two: VR. The big news on day two was the announcement of a standalone VR headset untethered to a PC or smartphone for computing power. Google is partnering with Qualcomm to build a reference headset and announced partnerships with HTC and Lenovo to bring standalone VR headsets to market later this year. Google also addressed a common knock on VR: given the full enclosure of VR headsets, VR experiences are hard to share with others. Google is making VR more social with shared rooms and voice chat as replacements for the text-based comments familiar to PC users. These advancements will help make VR mainstream faster. The transition from PC- and smartphone-driven VR to standalone VR will take 3-5 years (we don’t expect real traction – 1m units – until 2019), but the transition has clearly begun.

Bottom line: Google’s investments in AI and VR will accelerate the transition from computing on PCs and touchscreen devices into the future marked by immersive 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.