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.

Investing in Enjoy

We’re investing in Enjoy as a counter-automation play on the future of retail. Read our thesis on retail’s future here. In short: retailers must either embrace full automation or compete on experience by focusing on uniquely human capabilities: creativity, community, and experience. We call it “empathic retail.” Enjoy delivers the future of retail by focusing squarely on empathic retail. Enjoy hand delivers products bought online from the world’s premier companies and delivers them with an experience. The service comes at no additional cost to consumers and it’s fast, with nearly 50% being delivered the same day.

Amazon is changing consumer expectations related to the price, availability, and delivery of products and services. But the in-person retail experience is outside of Amazon’s core competencies. Enjoy offers its premier companies (including AT&T, Sonos, DJI, and others) a high-touch, personalized delivery and setup service. Enjoy optimizes the customer experience, reduces returns, and increases customer satisfaction.

At the same time, automation technologies are already replacing retail jobs. Enjoy offers its team of Experts (delivery and setup employees) flexible work, salaried, with benefits – a transformative employment model for the new retail workforce. In our view, Enjoy is creating the optimal go-to-market channel for premium brands in the automation age.

Enjoy’s CEO, Ron Johnson, has spent his career innovating in retail. His experience as VP of Merchandising at Target, SVP and head of retail at Apple, and as CEO of JCPenney, along with his network of leaders at consumer electronics and luxury goods brands, uniquely positions Enjoy for success in these markets and beyond.

We’re excited to be a part of delivering retail’s future with the team at Enjoy.

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.

3 Reasons Amazon Will Buy Target This Year

Amazon is the world’s largest online retailer, about five times bigger in that space than Walmart and its Jet.com subsidiary. Yet despite Amazon’s deep online roots and dominance over Internet shopping, I believe it will buy Target in 2018.

After digging into the realities of both companies, it becomes clear that Amazon buying Target isn’t as bold of a prediction as one might think. Here are three reasons why a merger makes sense.

Offline sales will always be a big part of retail.

It’s no secret that online retail is slowly killing offline. My firm, Loup Ventures, estimates that in the fourth quarter of 2017, about 10% of total U.S. retail sales, or about $125 billion, were online. The longer-term question is: How much of total retail will eventually happen online? Based on our analysis of U.S. retail sales by category (excluding gas and restaurant expenditures), 55% of total retail sales should eventually happen online.

Even if half of commerce shifts to online, that still leaves a massive market offline at 45%. People in the future will still want to pick up groceries at a local store. As retail changes dramatically going forward, the biggest winners will promote both online and offline opportunities.

They both pursue affluent customers.

 Amazon’s acquisition of Whole Foods last year confirmed that the online giant’s focus is on the high-income consumer. Market research firm GfK MRI estimates the median household income for an Amazon shopper is $90,100, similar to Whole Foods at $95,200. Target reports its average shopper earns $87,000. These far exceed the U.S. median household income of $55,322.

By buying Target, Amazon would solidify its dominance of the high-income consumer. Conversely, if Amazon were to acquire a company targeting lower-income customers, such as Dollar Tree, Amazon would steer its focus away from its core consumers. In my years of observing tech companies, I’ve seen that owning a demographic usually yields the best results.

Brick and mortar will get more advanced.

Over the following 10 years, I’d expect Amazon to convert Target and Whole Foods stores to an automated model with few employees. Stores would be monitored by computer vision systems; shelves would be stocked by robots; customers would be helped by service robots that understand natural language; and checkout would resemble Amazon Go locations, where customers simply walk out with their purchases. In this future, the lines between online shopping and automated brick and mortar stores would blur, as cost-focused stores become more like smart warehouses. The few employees working in stores would focus on delivering personalized service based on mutual understanding and empathy, which would enable retailers to differentiate themselves.

Any number of factors could derail such a combination, including government intervention. But sometimes mergers make too much sense to ignore. Amazon buying Target is one such situation.

This note was originally published on Fortune.

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 a Venture Win Looks Like

We met with a prospective LP recently to talk about investing in a specific company. This LP had a successful business career in a traditional industry where operating profits are the bar, so he had a hard time getting his head around how to value a business based on more abstract concepts like daily active users, platform engagement, and IP. To that end, he posed a simple question, “What has to happen for us to win in this investment?”

A simple, but powerful question. It forced us to reflect on our experience as public market analysts and now VCs about why tech companies have liquidity events. We concluded that nearly every tech company that we’ve seen exit does so based on the promise of profit, not actual profit. There are rare exceptions like Google, Facebook, and Alibaba who were operationally profitable at their IPOs. It’s no coincidence that those companies also happen to be some of the best performing, and now biggest, public stocks of the past decade. But most exited tech companies, whether via acquisition or even IPO, do not generate an operating profit. Most don’t even generate an EBITDA profit.

We analyzed 20 tech IPOs from 2017 to put some data to our observations. We found that 75% of those companies did not generate a net profit in 2016, a year prior to IPO. 65% are not expected to generate a net profit in 2017 based on consensus estimates (only 17 companies have 2017 estimates), and 67% are not expected to generate a net profit in 2018 (18 companies have 2018 estimates).

Much like venture investors, growth seems to be the more important near-term metric. Of the IPO companies for which we found data, they grew an average of 78% in 2016 and are estimated to grow 46% in 2017 and 35% in 2018.

But what does this really mean about a win for venture investors? In lieu of net profit, public market investors are looking at growth to help them build a case for profit tomorrow. A small survey of buy side investors from earlier this year corroborates this. When we asked 12 buy side investors to rank tech IPO traits including short-term profitability, short-term growth, long-term profitability, long-term growth, and visibility of revenue, long-term profitability ranked first, followed by long-term revenue growth.

Even for exits that happen through acquisition, profitability factors heavily. When a Google or an Apple or a Facebook buys a company, it’s preceded by a careful analysis of what the expected return of the investment may be. That return may be very short-term in nature, or it may be long term. When Apple bought Beats, they were buying a music platform that they could quickly leverage into its own streaming service. Apple Music launched two and a half years ago (one year after the Beats acquisition) and now has 30 million subscribers. That business generates a run rate on the order of $3.5 billion per year gross, which should net enough to quickly pay for the $3 billion purchase of Beats. A similar calculus is possible for YouTube or DoubleClick or Instagram even WhatsApp, although the last still needs time to come to fruition.

We’re sharing this because it’s easy to get hung up on user growth, media mentions, and other startup vanity metrics. Wins require profitability, or at least the potential of it. It’s something both VCs and companies should both remind themselves of frequently.

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.