Feedback Loup: Virtual Reality for Retail

Virtual Reality, which remains a high-end tech gadget that has yet to gain mainstream traction, is often misunderstood in terms of the span of its use cases. As we mentioned in The Future of Retail, VR will allow consumers to experience products in a more lifelike way before purchasing, which will lead to greater customer satisfaction and fewer returns. Brand experience is another benefit of VR in retail.

If your brand is how people experience your company, then it’s no surprise that VR is a helpful branding tool. VR is the most experiential computing platform. Traditional mediums like television, print advertisements, and social media posts reach a large audience but are inefficient (this is why you might see the same ad every commercial break), whereas VR gives brands an opportunity to immerse a consumer in their world. To see for ourselves one example of a retail VR experience, we visited the Arc’teryx store in Minneapolis.

Using an Oculus Rift, we watched Hut Magic, a VR film that immerses you in the world of Arc’teryx-wearing backcountry skiers staying in a remote alpine hut and skiing uncharted terrain in British Columbia. The film teleports you to the middle of nowhere, portrays a spirit of adventure and associates Arc’teryx products with that spirit. You also get the sense that their gear is built for extreme conditions. If only slightly, we left feeling more excited about the Arc’teryx brand. And dying to go skiing in BC.

Fun but gimmicky. We had to find a store clerk, sign a waiver, and click through some menus before putting on a headset (which still feels odd in public). Ultimately, we’re skeptical on the use of VR in retail stores. Virtual reality makes sense for immersive, experiential shopping at home – and brands will get on board. However, stores are built for retailers to connect and consult with their guests. VR doesn’t facilitate or leverage the retailer’s core reason for being.

Stores are built for retailers to connect and consult with their guests. VR doesn’t facilitate or leverage the retailer’s core reason for being.

If VR headsets were common household items, virtual commerce could gain traction as a way to shop in virtual stores tailored to a company’s liking and your buying habits. Users would be able to try on clothes or see what furniture would look like before buying it, ultimately boosting online sales. Today, however, give the price tag on a VR system, in-store VR makes sense. The store manager we talked to said it drove in more foot traffic simply out of curiosity after seeing someone with a headset on by the window. Also, after an in-store experience, customers are able to try on gear they saw in the video, or talk to a sales expert, but we didn’t get the sense that the VR movie was driving meaningful sales.

In the meantime, some companies are using VR to build their brands in new ways. For example, TOMS put together a “virtual giving trip” video. The viewer visits Peru to see first-hand the joy on children’s faces when they are given the shoes that TOMS customers helped make possible. TOMS brand tells a story, and VR is a great medium to bring that story to life. Other brands from The North Face to Lowe’s have invested in VR. Unfortunately, until VR breaks out of its current position as a high-end entertainment gadget, these use cases will be limited.

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.

AR and VR: Living, Breathing Storytelling

Written by guest author Jesse Damiani, Founder and CEO at Galatea Design

Story telling yesterday and in the future. For the past several millennia, our stories have lived in two dimensions. We translated our creative impulses into 2D formats—whether it was around a fire, painting, page, poster, motion picture or video game. But with VR and AR, that’s all changing, and fast; it’s no exaggeration to say that we can’t even begin to grasp what the storytelling content of 2028 will look like. The irony, of course, is that this shift to spatial media just means we have to revert back to our spatial understanding of the world—something we engage with every moment of every day—except now we’re no longer constrained by the physical laws of nature. The stories of the future are not just pieces of content, the spaces for immersive experiences.

The “Narrative Potential” of space. Ask any architect, interior designer, or DIY home-renovator: every space tells its own story. Take the example of a library. When you walk into it, what’s communicated to you? Lots of carpeting muffles sound, and often, high ceilings dissuade us from speaking too loudly. Shelves of books, ample desks, and fluorescent lighting imply a place intended for scholarship. These embedded details drive us to make automatic assumptions about how to behave and what to expect—the “story” of that space in time.These perceptual opportunities constitute “Narrative Potentiality,” the chance for creators to fill the space with information that will kickstart our brains’ native storytelling impulses. If I, as a VR experience designer, seat you in front of a table where a vase is positioned precariously close to the edge, I’m tapping narrative potential by making you think about it falling and shattering around you.

The space is the story. In other words, in VR/AR, the space is the story. It won’t be long before most of the digital materials we currently conceive of as 2D exist as 3D spaces. What might your favorite website or social media page look like as a “real” space?

Living, breathing stories. Buckle up: it gets wilder. Our understanding of stories is rooted in linear storytelling—the model we’ve had since we invented storytelling sitting around the fire with each other. In this model, a teller projects the story, and audiences receive it. It has a beginning, middle, and end. Audience participation (listening) doesn’t impact the outcome in any significant way. Where we’re headed is toward participatory stories that we share with each other in real time—whether we’re talking about AR or VR.

It’s a shift from linearity into semi-linearity and non-linearity, from pre-written stories experienced from a remove to stories optimized for impromptu co-creation (using narrative potential). Think about it, when you show up at a wedding, you have a general sense of what’s going to happen—but the fun of it is the experience of it spontaneously unfolding around you, and your ability to participate and impact it. The memory you leave with is your story of that event. Everybody else has a story too, both similar to yours and altogether unique.

In VR, reality is the medium. A friend of mine put it best: “In VR, reality is the medium.” Science tells us that our brains are incredibly plastic; they have space to carry multiple, simultaneous realities in them. If you’re in a story experience with your mom and she’s a purple alien, you carry two versions of her in your head: human and purple alien. Of course, she’ll be playing with her new identity as a purple alien, so your understanding of her will have to expand to include this new information. The point is: it’s all up for grabs. Want to be able to control a third arm using your pinky finger or two winks? Want to bend the laws of physics? That’s the narrative potential that VR and AR open up for us. The best part is we’ll be sharing in them together.

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.

Feedback Loup: PlayStation VR vs HTC Vive

Head-to-head. We compared two of the most popular tethered virtual reality headsets, the PlayStation VR and the HTC Vive, to get a sense of where VR experiences are today, what needs to improve, and where they might go tomorrow. While each headset has its own specs and limits, VR experiences differ mainly as a result of the type of machine driving them, a computer (Vive and Rift), a video game console (PSVR), or a smartphone (Daydream and GearVR). The takeaway is that the HTC Vive delivers an unmatched experience around visuals, motion tracking and overall performance, but the PSVR is easier to use. Virtual Reality technology as a whole is more developed than many realize. If it is your first time in VR, both of these headsets will blow you away. While we mostly tested games, our experience with these headsets leaves us more optimistic than ever about VR’s future in consumer and commercial use cases from entertainment to training and therapy.

The PSVR is the most popular VR headset out today (2m units in the year after its Oct-16 release), while the Vive – along with the similar Oculus Rift – is on the high-end of both cost and performance. We believe there will be 536m VR users in 2023 with a market value of $62B compared to the 25m users in a $3.5B market today. These headsets have reinforced our faith in the technology’s potential, but have also shown us there is still a long road ahead.

Untethered VR around the corner. Last week Lenovo announced Mirage Solo, an untethered standalone hardware VR headset, that runs on Google’s Daydream platform.  It will be priced around $400 and ship in the spring of 2018. We believe Mirage Solo will mark a measurable step forward in the utility of VR. More later this week.

Verdict. The clear winner was the HTC Vive. The games look better in Vive because its based on a PC that’s capable of better graphics. The superior visuals of the Vive played a significant role in our feeling of immersion compared to the PSVR. Another major advantage for the Vive is the positional tracking via the sensors versus the PSVR which only uses a camera-facing headset. While both have 6 degrees of freedom (meaning it can track up/down, right/left, and forward/back), the Vive’s sensors allow for a “freer” experience than the PSVR. There were a number of times playing the PSVR where we moved out of the camera’s view to peek around a corner or duck behind cover and it caused the game to pause and instruct us to get back into view of the camera. With the Vive we avoided tracking problems almost entirely. The more we played, the more we came to realize that the Vive is simply a better system.

Price. The Vive retails for $599 but requires a PC with sufficient performance specs, which bumps the total cost to around $1000 at a minimum. The PSVR headset sells for $299, but a $430 bundle should be considered the true base price since the camera and controllers are necessary to get the optimal experience (that bundle also includes a full-length game in addition to VR hardware). However, that $430 doesn’t include the actual PlayStation 4 console ($300) bringing the total cost of PSVR to $730 if the bundle route is taken, more if it isn’t. Both devices have a high price point, and to us that means that a quality experience requires significant investment. The PSVR is considered more accessible because of the large install base of the PlayStation 4, while the average PC owner often needs to upgrade their graphics card or buy a new machine with the processing power to handle VR.

Performance. We experienced very few technical problems with either device. We had a couple instances with the Vive where the display in the headset, but not the computer monitor, would go gray for a second and then return to normal. It’s an issue with the headset not being properly tracked, but we were unable to replicate it when we tried. The handheld controllers in both systems tracked beautifully (when unobstructed by each other in the PSVR’s case). They were responsive, felt natural, and have intuitive navigation and controls. One of the games we played in the Vive, Superhot VR, relies exclusively on the tracking of the headset and hands in order to dodge, aim, and throw objects at enemies. We were completely blown away by the system’s ability to accurately detect our every move.

Visuals. The Vive outshined the PSVR here. The PSVR’s graphics are not the PS4’s graphics. They actually look a little worse than PS3 graphics, which was released in 2006. The Vive was notably better, though both headsets suffered from the “screen door effect”, where it appears as if there’s a screen door between the wearer and what’s seen in the headset. The new Vive Pro headset, unveiled earlier this week at CES, reportedly cuts down on this effect while improving overall resolution. In the PSVR we have been playing a lot of SkyrimVR, the repurposed version of 2011’s smash hit fantasy RPG. Skyrim is famous for its stunning visuals, so as you can imagine there was a great deal of excitement over being able to experience it in VR. Unfortunately, we were disappointed by the PSVR’s visuals relative to its two-dimensional counterpart; it was unable to deliver the beautiful in-game graphics we were hoping for. That being said, the giant spiders were still incredibly unsettling in a very visceral way, and we believe that to be a credit to the headset’s ability to fully immerse its wearer.

Comfort and fit. Both headsets felt comfortable but the Vive edged out the PSVR because it was easier to put on, calibrate to different wearers, and lighter. We enjoyed the velcro straps on the Vive to secure the headset over your eyes more than the tightening wheel on the back of the PSVR. The fitting system on the PSVR has a “head squeezing” feel and while not uncomfortable, it didn’t fit quite as well as the Vive. The Vive also closed off the area below the eyes more completely than the PSVR, meaning less light was allowed to seep through the bottom part of the wearer’s periphery.

Problem areas. The biggest shortcoming for both headsets was in-game movement. The headsets are both tethered to the PC/PS4 so there isn’t much freedom to physically move around. Most games use a form of teleporting, where the player presses a button and selects where on the ground (in the display) around them they would like to move to. It feels clunky and definitely is immersion-breaking. In Skyrim we were able to change the settings to move normally, without teleporting, which felt much more natural. Separately, eliminating or even mitigating the screen-door effect on visuals is imperative. Cutting the cord is also a must – they get in the way, become tangled, and in general are a hassle. We recognize these as growing pains that should be expected of any new tech product, but this issue is already being addressed by the Oculus Santa Cruz project and the Vive Pro.

Bottom line. The Vive is without doubt the superior headset, however the PSVR is great and any PS4 owner interested in VR should consider getting one. The two were not without their drawbacks, but overall we came away feeling optimistic about the future of VR. The industry has hit a rough patch and isn’t seeing the adoption many were expecting, leading some to believe VR will go the way of the HD DVD instead of Blu-ray. We, however, are still strong believers in VR. It’s fun, the games are accessible and attractive to non-gamers, it has limitless potential outside of gaming (despite only being in the embryonic stage), and above all it works. The biggest concerns for VR are whether technology can advance to a point that allows VR to fix its current problems as well as improve on what we have today (smaller headsets, better graphics, haptic feedback), and allow for compelling content to be created. Only time will tell.

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.

8 Tech Predictions for 2018

Loup Ventures’ predictions of 2018:

  1. AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative.
  2. VR gets untethered but it still takes another year to take off.
  3. Google Home continues to gain market share in smart speaker market.
  4. Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.
  5. Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021.
  6. Bitcoin pulls back.
  7. iPhone ASP’s $740 vs. Street at $710.
  8. Amazon will acquire Target.

AI theme continues and artificial general intelligence takes small step forward through Google’s “Deepmind” initiative. We believe the hype around AI is justified given it’s hard to understate the significance that AI will have on the future. In 2018 we expect the AI momentum to continue. In July of 2017, we counted 11% of Fortune 500 companies mentioned AI on their quarterly conference calls. We expect that number to grow in 2018. As for leaders, it’s clear that Google CEO Sundar Pichai is trying to get his point across: AI is the future of Google. We went back and looked at his opening comments over the last year and found he has led his prepared remarks by asserting Google’s evolution from a mobile to an AI-first company on each of the past four earnings calls. The company is pushing its AI into hardware devices (Google AI hardware note) and seeing its work pay off (Google Home’s the smartest smart speaker). Artificial narrow intelligence (ANI) is being mastered and we expect more news about the next frontier in AI, artificial general intelligence (AGI, the ability of a machine to think like a human), to be top of mind in 2018. We expect Google to play a thought leadership role in AGI with its Deepmind platform, but keep in mind true AGI is likely another 20 years away.

VR gets untethered but it still takes another year to take off.  The Wall Street Journal said it best in their Dec 30 article titled “Virtual Reality Needs to Cut the Cord”.  Oculus Go ($199 untethered) which comes out early in 2018 will be a step forward in ease of VR use, but it won’t be until 2019 until more powerful untethered hardware lay the groundwork for content developers and consumers to fully embrace VR. For those disappointed VR won’t be mainstream in 2018, you can at least look forward to Ready Player One’s release on March 30th. Here’s our Facebook in VR outlook.

Google Home continues to gain market share in smart speaker market.  In 2017 the smart speaker market was led by Amazon with the release of 3 new Echo devices (Echo, Echo Plus, Echo Spot), Alexa for Business, sub $50 pricing, and the Alexa app being the #1 downloaded app on Christmas Day vs. Google Home at #6 across Android and iPhone. That said the market is still up for grabs, as evidenced by Amazon and Google collectively spending more than $70m on TV ads from Thanksgiving through Christmas to push the theme. Despite Alexa owning 75% (Loup Ventures) of the global smart speaker market today, we expect in 2018 Google Home will be a share gainer in smart speakers given its performance lead. Here are the details of our recent face off between the smart speaker players.

Tesla Model 3 production ramps from 2,500 in 2017 to greater than 150,000 in 2018.  Near-term, we expect another miss in Model 3 production, but in 2018 we predict production will turn the corner. We continue to stress that Model 3 production over the next several quarters will be largely a guessing game and that short-term production numbers do not materially affect the long-term story. The last update on Model 3 production calls for “a production rate of 5,000 Model 3 vehicles per week by late Q1 2018,” which we believe is ambitious. That said, we’re encouraged by hundreds of Model 3s have been spotted at delivery centers and at the Fremont factory shown in a video here, along with several suppliers reporting that they are back to delivering Model 3 parts at volume.

The reason we remain upbeat on the Tesla story despite the prolonged Model 3 production problems is that EV and autonomy are the future. Tesla is fighting to gain production scale to create that future. While other car manufacturers build gas-powered vehicles at scale, building autonomous EVs is a vastly different process that will require traditional auto manufacturers to re-engineer their production facilities. That means every automaker that wants to compete in the future needs to go through the production pain Tesla’s experiencing today. Here’s our recent note on Model 3 production outlook.

Major automakers announce expanded electric vehicle line-up, but autonomous driving will not ramp up until 2021. 2018 will likely be the year of announcements around expanded EV lineups from traditional automakers. The Detroit Auto Show (Jan 13-28th) is an obvious window for these announcements and we expect a steady drip of EV model announcements throughout the year. We don’t believe these new vehicles will be available until 2019 or 2020. The autonomy theme will be equally top of mind in 2018, lead by likely updates from Apple around their autonomous shuttle project. We continue to expect 2021 as the year autonomy begins to ramp, and our bet is Waymo, GM’s Cruise, and Tesla will be first to market.  Here’s our autonomous vehicle industry model.

Bitcoin pulls back. We feel cryptocurrencies are in a bubble, but something can be in a bubble and still over time become a foundational technology, just like the internet. Those who jumped on history’s greatest “get rich quick” event enjoyed 1409% increase in value in 2017 as the world watched a coin formerly synonymous with the “Silk Road” break into Wall Street. We believe that blockchain technology and cryptocurrencies are here to stay and represent the future of storing value, however, we anticipate that increased oversight (banking and government), speculation amongst institutional investors along with operational difficulties on trading platforms will trigger a crypto sell-off in 2018.  Here’s our recent Bitcoin outlook note.

iPhone ASP’s $740 vs. Street at $710. We remain optimistic that iPhone units in FY18 will be inline with the Street (~242m up 12% y/y), but the mix of iPhone X will exceed Street expectations and have a higher ASP of $740, up 13% y/y compared to the Street ASP of $710. Our ASP estimate is based on a 30% mix of iPhone X and iPhone 18% mix of iPhone 8 (iPhone 8+ and iPhone 8). In a typical iPhone cycle, the newest phone represents about half of the mix, in line with our FY18 outlook of a 48%new phone mix. Here’s our recent note on why we remain comfortable with our iPhone estimates.

Amazon will acquire Target. We saved our boldest 2018 prediction for last, Amazon acquiring Target. Getting the timing on this is difficult, but seeing the value of the combination is easy. Amazon believe’s the future of retail is a mix of mostly online and some offline. Target is the ideal offline partner for Amazon for two reasons, shared demographic and manageable but comprehensive store count. As for the demographic, Target’s focus on moms is central to Amazon’s approach to win wallet share. Amazon has, over the years, aggressively pursued moms through promotions around Prime along with loading Prime Video with kid-friendly content. As for retail stores, Amazon’s acquisition of Whole Foods 470 stores along with testing of the Amazon Go retail concept is evidence that Amazon sees the future of retail as a combination of mostly online and some offline. Despite gaining Whole Foods, Amazon’s ~470 store presence still dwarf’s Walmart at 11,695 (global).  If Amazon acquires Target’s that would jump its store count to about 2,300.  As for anti-trust, the Trump administration won’t do any favors for Jeff Bezos, but the market share numbers suggest the deal will be approved. Walmart will reach about $315B in U.S. sales in 2017 (total 2017 Walmart is expected to be $500B, up 2.6% y/y), and Amazon North American ($105B in 2017 up 31% y/y) and Target ($71B, up 2.4% YoY) would equal about $176B in U.S. revenue. Looking at the top 18 U.S. retailers (including grocery), Walmart has about 23% share and an Amazon/Target combination would have about 13% share. Lastly, Amazon can afford Target. If you assume they pay a 15% premium to the current TGT trading level would imply a take-out valuation of $41 billion, about 8% of the value of Amazon’s current $564 billion market cap.

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.

Our First Glimpse of Magic Leap One

After a six-year wait, Magic Leap has finally released their highly anticipated headset. With almost $2 billion in funding, one of the country’s most secretive startups has been developing a mixed reality headset that is considered to be a cut above the field by those who have experienced it.

What is it? The device, called the Magic Leap One Creator Edition, includes three pieces of hardware: Lightwear – the goggle-like headset, Lightpack – a hockey puck-sized external computer worn on your belt that is tethered to the Lightwear, and a handheld controller to navigate menus.

Mixed reality is a hybrid of augmented and virtual reality. Rather than simply overlaying information in your field of view like AR, MR allows the user to fully interact with virtual objects. Mixed reality use cases span from immersive gaming and storytelling, to web browsing, more interactive meetings, multipurpose workstations, and data visualization.

What we know. Based on the information available, the device is more or less in line with our expectations. The actual headset, despite still looking like a steampunk Star Trek accessory, is more sleek and deliberately designed than we imagined. The Lightpack, however, seems more cumbersome than what we hoped for. The Creator Edition will ship only to developers sometime in 2018. Rolling Stone was invited for a demo of the product and wrote an in-depth piece here.

What we don’t know. With mixed reality, the user experience is the critical factor. While Magic Leap’s website suggests the experience will be both revolutionary and visually incredible, it’s impossible to know without the trying the Magic Leap One. Bottom line, we have to reserve judgement until we try it for ourselves.

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.