But it’s not just students and hobbyists in their garages toying with Estes model rockets anymore. The new space economy is here, and it’s here because of very recent advances in launch, reusable propulsion and small satellite technologies. This renewed “Right Stuff” dynamism has startups chasing the next Cream Soda computer, which just might become an Apple Inc. space equivalent.
The visionary future for the space economy will be driven by new mass-market technologies and manufactured on a large scale.
Most people would agree that it was largely SpaceX that paved the way for this new era. But what did SpaceX get right, and what are some of the unmet opportunities other ventures are beginning to address?
SpaceX and the blueprint
As one would imagine, there are substantial expenses and manufacturing constraints behind the scenes of large rocket launches.
According to Forbes, each SpaceX Falcon 9 rocket costs $50 million. Compare that now to the Electron that Rocket Lab just launched, which costs $5.7 million.
For a short time with the Falcon 1, the company delved into developing smaller rockets that could lift up to 1,500 pounds. The opportunity to corner the market was there a decade ago, but SpaceX abandoned that program in favor of rockets with heavier payloads.
One of the companies picking up where SpaceX leaves off is Vector, whose CEO Jim Cantrell worked with Musk in the early days of the company. However, Cantrell acknowledges that “Elon and SpaceX have lowered the cost of building these rockets by at least 50 times what the government’s done.”
In SpaceX’s current state, the sheer number of different components and extensive design iterations make their large rocket development much too complex to be mass manufactured.
Additionally, there is an extremely large footprint required. For example, this year, the Los Angeles Board of Harbor Commissioners approved a 19-acre facility for SpaceX to develop its BFR rocket and spaceship system on a large parcel at the Port of Los Angeles. But don’t knock the hustle — after all, the goal of the BFR rocket is to literally colonize Mars.
The challenge is that SpaceX’s facility size, operational requirements and lack of portability don’t address the automation needed for the emerging smallsat and renewable propulsion market, whose leaders envision the equivalent of a food truck being stationed at a customer’s headquarters, cranking out spacetech products in real time.
NASA defines smallsats as satellites of low mass that can vary in shape and size and are less than 180 kilograms, which is about the size of a large refrigerator. By comparison, the satellites designed for megaconstellations and currently being used by constellation explorers OneWeb and SpaceX have been reported to vary from 110 kilograms up to 6 metric tons, the size of a city bus.
Automation is mainly about improving process [repetition], avoiding human error and making manufacturing easy and fast, so you have the right take time. — Eric de Saintignon, COO, OneWeb, in reference to time between production starts.
In order to achieve their larger goal of making interplanetary space travel more affordable, SpaceX had to embark upon the design, manufacturing and assembly of a next-gen rocket. With decades-old Space Shuttle technologies still in use by NASA, this required an inordinate amount of R&D — in both engineering and manufacturing.
Beginning in 2002, SpaceX would go on to streamline the rocket manufacturing efficiency process, identify cost-saving strategies and trim the timeline for delivery. It got better every time, and that was the goal, as Elon Musk opined in 2014: “you’re really left with one key parameter against which technology improvements must be judged, and that’s cost.”
SpaceX also established component sourcing not reliant on third-party manufacturers. Between 80-90 percent of SpaceX rocket materials are manufactured in-house, a key move to reduce lead time. The use of a Horizontal Integration Facility (HIF) in the hangar of Cape Canaveral’s 39A launch pad assembles components manufactured at their Hawthorne, Calif. factory, minimizing unnecessary travel and ensuring quality control.
With their first re-flight occurring in 2017, another important area SpaceX innovated within was developing the first reusable launch system. The science behind these technologies is being simplified by smaller reusable and electric propulsion companies.
What’s in store next for satellite propulsion: the engine of the space economy
The latest figure circulated by the FAA Office of Commercial Space Transportation was that the global space economy (both private industry revenues and government budgets) is upwards of $345 billion, and growing rapidly. Of this aggregation, more than 76 percent of the capital was the revenue generated by public and private companies.
The FCC also estimates that in the next five years, 8,811 satellites will be launched, of which 60 percent will be from the smallsat category.
Lowering the costs and manufacturing process of both constellations and propulsion technologies will bring a handful of new entrants into the fold. Their goals are concrete: simple, scalable and affordable new products, but high-performance nonetheless.
And yes, utilizing these Toyota Camry-type efficiencies will mean significant ROI for launch, reusable propulsion and small satellite manufacturing companies and investors.
By continually resourcing best practices from wholesale industries like automotive, medical and consumer electronics, these new private entrants will create low-cost and scalable technologies that will be the catalysts for humanity’s future in space.
Our editorial bent is more clear-cut: How much money is going into startups? Who is putting that money in? And what trends can we suss out about the health of the market over time?
So let’s talk about the state of AI startups and how much capital is being raised. Here’s what I can tell you: funding totals for AI startups are growing year-over-year; I just don’t know precisely how quickly. Regardless, startups are certainly raising massive sums of money off the buzzword.
To make that point, here are just a few of the biggest rounds announced and recorded by Crunchbase in 2018:
SenseTime, a China-based startup that is quite good at tracking your face wherever it may be, raised a $1 billion Series D round. It was the largest round of the year in the AI category, according to Crunchbase. But what’s more mind-blowing is that the company raised a total of $2.2 billion in just one year across three rounds. A picture is worth a thousand words, but a face is worth billions of dollars.
UBTech Robotics, another China-based startup focusing on robotics, raised an $820 million Series C. Just a cursory look at its website, however, makes UBTech appear to be a high-end toy maker rather than an AI innovator.
And biotech startup Zymergen, which “manufactures microbes for Fortune 500 companies,” according to Crunchbase, raised a $400 million Series C.
Now, this is the part I normally include a chart and 400 words of copy to contextualize the AI market. But if you read the above descriptions closely, you’ll see our problem: What the hell does “AI” mean?
Take Zymergen as an example. Crunchbase tags it with the AI marker. Bloomberg, citing data from CB Insights, agrees. But if you were making the decision, would you demarcate it as an AI company?
Zymergen’s own website doesn’t employ the phrase. Rather, it uses buzzwords commonly associated with AI — machine learning, automation. Zymergen’s home page, technology page and careers page are devoid of the term.
Instead, the company focuses on molecular technology. Artificial intelligence is not, in fact, what Zymergen is selling. We also know that Zymergen uses some AI-related tools to help it understand its data sets (check its jobs page for more). But is that enough to call it an AI startup? I don’t think so. I would call it biotech.
That brings us back to the data. In the spirit of transparency, CB Insights reports a 72 percent boost in 2018 AI investment over 2017 funding totals. Crunchbase data pegs 2018’s AI funding totals at a more modest 38 percent increase over the preceding year.
So we know that AI fundraising for private companies is growing. The two numbers make that plain. But it’s increasingly clear to me after nearly two years of staring at AI funding rounds that there’s no market consensus over exactly what counts as an AI startup. Bloomberg in its coverage of CB Insights’ report doesn’t offer a definition. What would yours be?
If you don’t have one, don’t worry; you’re not alone. Professionals constantly debate what AI actually means, and who actually deserves the classification. There’s no taxonomy for startups like how we classify animals. It’s flexible, and with PR, you can bend perception past reality.
I have a suspicion there are startups that overstate their proximity to AI. For instance, is employing Amazon’s artificial intelligence services in your back end enough to call yourself an AI startup? I would say no. But after perusing Crunchbase data, you can see plenty of startups that classify themselves on such slippery grounds.
And the problem we’re encountering rhymes well with a broader definitional crisis: What exactly is a tech company? In the case of Blue Apron, public investors certainly differed with private investors over the definition, as Alex Wilhelm has touched on before.
So what I can tell you is that AI startup funding is up. By how much? A good amount. But the precise figure is hard to pin down until we all agree what counts as an AI startup.
Illinois’s startup market in 2018 was very strong, and it’s not slowing down as we settle into 2019. There’s already almost $100 million in new VC funding announced, so let’s take a quick look at the state of venture in the Land of Lincoln (with a specific focus on Chicago).
In the chart below, we’ve plotted venture capital deal and dollar volume for Illinois as a whole. Reported funding data in Crunchbase shows a general upward trend in dollar volume, culminating in nearly $2 billion worth of VC deals in 2018; however, deal volume has declined since peaking in 2014.1
Chicago accounts for 97 percent of the dollar volume and 90.7 percent of total deal volume in the state. We included the rest of Illinois to avoid adjudicating which towns should be included in the greater Chicago area.
In addition to all the investment in 2018, a number of venture-backed companies from Chicago exited last year. Here’s a selection of the bigger deals from the year:
Crain’s Chicago Business reports that 2018 was the best year for venture-backed startup acquisitions in Chicago “in recent memory.” Crunchbase News has previously shown that the Midwest (which is anchored by Chicago) may have fewer startup exits, but the exits that do happen often result in better multiples on invested capital (calculated by dividing the amount of money a company was sold for by the amount of funding it raised from investors).
2018 was a strong year for Chicago startups, and 2019 is shaping up to bring more of the same. Just a couple weeks into the new year, a number of companies have already announced big funding rounds.
Here’s a quick roundup of some of the more notable deals struck so far this year:
Learning management system company BenchPrep announced $20 million in a Series C round co-led by Chicago-based Jump Capital and Bay Area-based Owl Ventures, LP. Part of that capital reportedly comes in the form of debt. The SEC filing for the round, dated December 2018, discloses that $14.53 million was raised in an equity offering, of which $2,999,999 was used to buy shares from “certain executive officers” at the company.
Besides these, a number of seed deals have been announced. These include relatively large rounds raised by 3D modeling technology company ThreeKit, upstart futures exchange Small Exchange and 24/7 telemedicine service First Stop Health.
Globally, and in North America, venture deal and dollar volume hit new records in 2018. However, it’s unclear what 2019 will bring. What’s true at a macro level is also true at the metro level. Don’t discount the City of the Big Shoulders, though.
Note that many seed and early-stage deals are reported several months or quarters after a transaction is complete. As those historical deals get added to Crunchbase over time, we’d expect to see deal and dollar volume from recent years rise slightly.
Something odd is in motion in Los Angeles. On a recent day at the office, colleagues debated the merits of the Boring Company’s proposal to alleviate Dodger traffic via levitating tunnel pods. I stepped out for coffee in the afternoon and was almost run over by an elderly man on a dozen scooters, balanced precariously as he rebalanced dockless inventory. And that night, I sat in traffic on the 10 Freeway listening to commentators discuss Uber’s ostensibly imminent eVTOL aircraft, while a venture capitalist friend rested his head in the sleeping compartment of a Cabin bus, carrying him back to Silicon Valley from Santa Monica.
Welcome to the abnormalization of transportation.
Even without hover-sleds and flying cars, the Los Angeles megalopolis is in the midst of a transformation in mobility. Neighborhoods from downtown to Silicon Beach have been carpeted in scooters and bikes. The Uber and Lyft revolution faces competition from the various dockless two wheelers and Via’s ridesharing as a service, launching in Los Angeles soon. Flixbus, looking to expand out of European dominance, targeted LA as its hub for inter-city private bus service. And Cabin’s luxury sleeper bus has been offering a premium alternative to Megabus to and from the Bay Area for months.
If even a fraction of the promise of this technology comes to pass, the movement of things and people in cities will be both bizarre and beautiful process in the near future.
Yet we fear that this future may not be realized if start-ups are given the red light by well-meaning regulators. As the cities of the world experience a shakeup they haven’t seen since the subway, we have three ideas to help policymakers bring about more equitable, efficient, and environmentally friendly transportation systems, and answer a fundamental question: how on earth do you plan for a future this wild?
Rule 1: Play in the sand before you carve in stone.
It’s far from clear how these transformative, and multi-modal, technologies will fit together. Equally uncertain is the right framework to govern this puzzle. Proscriptive solutions risk killing innovation in its infancy. The solution is to encourage regulatory sandboxing. Regulatory sandboxes are mechanisms to allow emerging technologies to operate outside the constraints of normal regulations and to inform the development of future rules. These protected spaces, increasingly common in areas like fintech or crypto, allow the evolution of what Adam Thierer calls “soft law” before policymakers make hard decisions.
The federal Department of Transportation has recognized the value of such ecosystems and the lessons they bring. Last year, the DOT created the drone Integration Pilot Program which allows a number of state, local, and tribal governments to work with companies to test advanced drone operations, including the right balance of rules to govern such operations. Recognizing the early success of the IPP, DOT recently announced they would be creating a similar program for autonomous vehicles. These flexible environments promote critical collaboration between the companies building cutting-edge technologies and the regulator. New regulations are constructed on real-world experience, rather than hypotheses developed behind closed doors.
Rule 2: Don’t pick winners and losers.
Regulators tend to be cautious folks, so more often than not, they favor incumbents. And even when they embrace innovation, too often, authorities takes sides and decide which companies, or even which technologies, are allowed to operate.
For example, some cities are writing off the scooter sector entirely, just as they did a few years ago with ridesharing. Beverly Hills has banned dockless scooters and impounded more a thousand, in an effort to send a message to Bird. Bird responded by suing the city, stating that the scooter ban violates several California laws.
Other cities haven’t gone so far as to ban scooters outright, but are nonetheless falling into the trap of replacing old cartels with new technocumbents. Santa Monica came very close to banning Lime and Bird, the two most popular scooter companies among locals, in favor of Uber and Lyft, who had never deployed scooters in the city before. Only after outcry from ordinary beach dwellers did the city council allow all four companies to operate. Still, no other scooter companies are allowed to operation within city limits.
We should let the market determine whether these technologies will succeed and which companies should deploy them. Cities should play an orchestration role, instead of adjudicator, facilitating connections between new technologies and the existing transit infrastructure. The alternative is to kill innovation in the crib.
Remember PickupPal? They were around well before Uber or Lyft, but you can’t call a PickupPal today. A Canadian pioneer in ridesharing in the early days of smartphones, the company was thwarted by incumbents raising a law banning pickups for profit. Rather than recognize the benefits of ridesharing, authorities crushed it (along with another popular ridesharing company Allo Stop). A technology-enabled last mile solution was regulated out of existence.
By contrast, Uber was able combat efforts to thwart its access to markets. They did so, in many cases, by taking an adversarial approach and changing the law to ensure ridesharing could continue. While this preserved ridesharing as an industry, it delayed the opportunity to connect ridesharing to existing transit networks. Regulators and ridesharing companies remain more at odds than not continuing to delay solutions to the systemic transportation challenges cities face.
Rule 3: Embrace the challenge and the tools that will help you address it.
Transportation is inherently local, and the future of of mobility innovation will be as well. Even aviation, an industry that long soared above concerns of the urban environment, is being forced to rethink its relationship with the metropolis. EVTOL aircraft are revisiting the lessons helicopters learned in the 1970s and drone companies face the hyperlocal concerns that arise when your neighbor decides 3am is the ideal time for his Eaze order to be facilitated by a flying lawnmower.
Ultimately, solutions, not sanctions, will allow cities to welcome this weird new transportation future and realize it’s transformative potential. The abnormalization of transportation presents a tremendous challenge for city officials, planners, and legislators. It’s a road worth traveling.
Siri Fiske is founder and head of MYSA School in Bethesda, Md. and Washington, D.C.
The Silicon Valley engineers who design our tech gadgets won’t let their kids anywhere near those devices, according to a shocking New York Times profile. These workers are convinced too much time in front of smartphones and iPads is rotting kids’ brains. Technology “is wreaking havoc on our children,” warned one former Facebook employee.
These parents need to relax. It’s true that allowing kids to browse social media until the wee hours of the morning isn’t a good idea. But it’s also true that smart phones, iPads and other gadgets are powerful educational tools, both at home and in the classroom.
Rather than demonize and ban all devices, parents should regulate screen time and ensure their children use technology in beneficial ways.
Despite the parental panic in Silicon Valley and well-educated communities nationwide, research suggests that screen time can be a net positive for children. Kids whose parents drastically limit screen time ultimately perform worse in college, according to a Swiss study of American universities.
And thanks to their immediate feedback and multimedia features, iPads are great reading tools. Compared to kids who only use books, kids who learn to read on iPads are more engaged, cooperative and willing to speak up, according to a researcher from the Institute of Education in London. Kids from low socioeconomic backgrounds who read on both books and iPads at home are more likely to perform at or above grade level in school.
It’s not the screen itself that’s good or bad — but what’s on it.
These studies show that it’s not the screen itself that’s good or bad — but what’s on it. Watching two hours of Cartoon Network is much different than watching a National Geographic documentary. Parents simply need to create straightforward rules for their kids. Regulating non-educational screen time or having a social media curfew are both good options.
At school, educators can use tech gadgets and apps to speed up the learning process while tailoring their lessons to support each student.
Consider DreamBox, a platform that allows elementary and middle schoolers to play different math games on their iPads. The tech tool mines more than 48,000 data points per student every hour to personalize lessons for individual users. Algebra Nation, a similar program, studies click-patterns to figure out when students are struggling and offer personalized advice.
Classroom tech also gives teachers a superhuman capacity to pinpoint and predict problems. For example, a school in Spokane, Wash. gives its students online surveys to track how focused they feel, how inclusive their social environment is and how often they feel like giving up, among other things. Educators then study this data via dashboards to understand where kids might need help, both inside and outside the classroom.
A decade ago, it would have been unrealistic to expect school faculty to track the day-to-day thoughts, feelings and engagement of each and every student — despite this being invaluable information for educators. With classroom tech, such practices can and should become standard.
No reasonable person thinks it’s good for kids to be glued to their screens 24/7 or to replace human interaction with an app. But the notion that screen time is intrinsically harmful for children is equally silly. It’s time for teachers and parents to stop the fear mongering and harness the latest technology to offer kids a world-class education.
Fintech startup Flutterwave has partnered with Visa to launch a consumer payment product for Africa called GetBarter.
The app based offering is aimed at facilitating personal and small merchant payments within countries and across Africa’s national borders. Existing Visa card holders can send and receive funds at home or internationally on GetBarter.
The product also lets non card-holders (those with accounts or mobile wallets on other platforms) create a virtual Visa card to link to the app. A Visa spokesperson confirmed the product partnership.
GetBarter allows Flutterwave—which has scaled as a payment gateway for big companies through its Rave product—to pivot to African consumers and traders.
“Rave is B2B, this is more B2B2C since we’re reaching the consumers of our customers,” Flutterwave CEO Olugbenga Agboola—aka GB—told TechCrunch.
The app also creates a network for clients on multiple financial platforms, such as Kenyan mobile money service M-Pesa, to make transfers across payment products, national borders, and to shop online.
“The target market is pretty much everyone who has a payment need in Africa. That includes the entire customer base of M-Pesa, the entire bank customer base in Nigeria, mobile money and bank customers in Ghana—pretty much the entire continent,” Agboola said.
Flutterwave and Visa will focus on building a GetBarter user base across mobile money and bank clients in Kenya, Ghana, and South Africa, with plans to grow across the continent and reach those off the financial grid.
“In phase one we’ll pursue those who are banked. In phase-two we’ll continue toward those who are unbanked who will be able to use agents to work with GetBarter,” Agboola said.
Flutterwave and Visa will generate revenue through fees from financial institutions on cards created and on fees per transaction. A GetBarter charge for a payment in Nigeria is roughly 40 Naira, or 11 cents, according to Agboola.
With this week’s launch users can download the app for Apple and Android devices and for use on WhatsApp and USSD.
Founded in 2016, Flutterwave has positioned itself as a global B2B payments solutions platform for companies in Africa to pay other companies on the continent and abroad. It allows clients to tap its APIs and work with Flutterwave developers to customize payments applications. Existing customers include Uber, Facebook, Booking.com, and African e-commerce unicorn Jumia.com.
Flutterwave has processed 100 million transactions worth $2.6 billion since inception, according to company data.
Flutterwave added operations in Uganda in June and raised a $10 million Series A round in October that saw former Visa CEO Joe Saunders join its board of directors.
The company also plugged into ledger activity in 2018, becoming a payment processing partner to the Ripple and Stellar blockchain networks.
Flutterwave hasn’t yet released revenue or profitability info, according to CEO Olugbenga Agboola.
Headquartered in San Francisco, with its largest operations center in Nigeria, the startup plans to add operations centers to South Africa and Cameroon, which will also become new markets for GetBarter.
A smartphone screen is a wonder of the world. It’s not just that it’s bright and colorful and sharp. In some ways, it’s as good as human biology allows. We’ve packed so many pixels into such a small space that any more would be lost on us. We can’t make the screens themselves bigger, because then they’d become too large to hold. The only way to get more information from a smartphone screen is to bring the pixels closer to our eyes, with the device somehow mounted on our heads rather than holding it in our hands. Instead of a phone as we usually think of it, it would be more like a pair of glasses.
Sound unlikely? In fact, many smart CE companies (Apple, Microsoft, Google, HTC) are already working on this new screen. When it arrives, experiences you’ve only seen in the movies will become the stuff of everyday life.
The “diffraction limit” for the human eye
When you look through a small hole, things on the other side appear blurry. This is because when a ray of light passes through a hole on its way to your retina, it spreads out a little. Think of watching a wave from the ocean hit a sea-wall with a narrow opening: The way the straight wave becomes a ripple spreading out on the other side is the same as what happens to rays of light when they go through a hole.
You can play with this by making your own “pinhole camera” and looking through it at text far away. The smaller the hole, the blurrier. And your iris is, of course, also a hole.
Source: Getty Images: Carmelo Geraci/EyeEm
This means that our eyes, given their size, have only a certain ability to see detail. For the human pupil, at about 5 millimeters across, we can express this limit in pixels-per-degree, and the number is around 60. So, for example, if you hold a quarter at arm’s length away from your eye, it’s going to take up about 2.5 degrees of your view, which means that a little square display of 150 pixels across will look “perfect” to your eye. Any more pixels will be a waste because you wouldn’t be able to see them.
Starting in about 2010, our smartphone displays reached that level of quality, where we could no longer see the pixels, even held as close to our face as comfortable — a change that you may remember Apple aptly branding the “Retina” display. Even big-screen TVs have now reached that same limit . Anything beyond 4K is a waste of money because you can’t see the difference unless you are sitting so close you can feel the heat from the screen!
This means that a 6-by-3-inch phone held in our hands is never going to take up more than a tiny part of our field of view, and will never be able to show us more than the few dozen lines of text we can read on it today.
But both our appetite and capacity for digesting visual information is tremendous. We love screens, and the bigger the better. We would love it, for example, if our laptops could magically unfold to have four screens instead of just the one (like those super-cool folding ones on Westworld).
Ideally, we’d be able to see screens in every direction, with the option to turn them off when we want to pay the closest attention to the real world. And these will be a far cry from early prototypes like Google Glass, which had an even smaller field of view and text/information capacity than your smartphone display.
The biggest possible screen
That is exactly what is being worked on: If you could fix the screen in front of your eyes with lenses that make it comfortable to look at, and which also have the ability to precisely sense the rotation of the head, you could create a magic new “screen” that completely surrounds you with pixels too small to be seen. Wherever you turn your head, the pixels right in front of your eyes would change to display the part of the virtual screen where you are looking.
This new screen will appear really, really big — about the equivalent of 16 4K monitors, with about 200 million pixels. Imagine being able to snap your fingers, any time, and be surrounded by 16 monitors containing any content you’d like — ones for email, text messages, browsing, video and whatever else you’d like to remember to check on. No-one will be able to see the content but you, and they come with you everywhere, just like your smartphone.
Would you wait in line at the Apple store for a $500 headset that surrounds you with 16 magic floating 4K monitors that don’t weigh anything and no one else could see? Of course you would — and you will. And by the way, you can keep the keyboard and mouse on your old desk, too . You just won’t need the monitor anymore.
Source: Hoxton/Paul Bradbury
This is exactly why so many great companies — Apple, Microsoft, HTC, Google and startups like Magic Leap, Avegant and ODG — are working on trying to build this screen. The worldwide market for screens is about a trillion dollars, so whoever gets this new screen right will reap the rewards.
Accessible to all
Because they are self-contained and therefore cannot consume much in the way of computing power, these new devices will be less expensive than their predecessors — about the same price as a smartphone. And this means that, like the smartphone in comparison to the PC, they will be widely accessible — in the hands of billions of us within the next 10 years.
So it is possible that this change will be empowering for the many people worldwide who currently have access to simple smartphone screens but not the more powerful work and learning opportunities offered by the expensive desktop and wall-mounted screens found in only more affluent homes and offices today. These inexpensive devices could give everyone worldwide the equivalent of a gigantic Bloomberg terminal.
VR and AR are lucky benefactors, not the killer apps
Thus far I haven’t focused on 3D VR worlds or AR objects superimposed on the real world, because these new screens won’t need them to still be wildly successful. Like camera apps were to smartphones, VR and AR applications will be the lucky beneficiaries of the race to a new screen. Once you have a device with such a screen, you can display 3D content or superimpose 3D content on the real world or travel to virtual worlds or communicate across the world as an avatar. Incredible VR applications that enhance human connections and experiences despite great distances are in the works now. But you won’t have to rush out to buy a headset — you’ll already have one for browsing and email.
Multiple companies will release headsets and glasses in the coming couple of years that will replace the smartphone screen as the way we take in visual information from our computers. Our first use of these screens will be to do all the things we struggle to do on our smartphones. Following that, virtual worlds, VR and AR will begin to make use of these screens, allowing us to augment or substitute entirely new worlds for the real one.
Everyone’s searching for the new “killer app” for VR and AR headsets, but you are already looking at it by reading this article.
The future of AR/VR could be bright, but only if it moves beyond where it is today. 2018 was the first of what look like two transitional years, with a potential shakeout in 2019 before an inflection point in late 2020. Let’s look at where we are today, where we’re heading tomorrow and some of the changes needed to get us there. (Note: There were earlier generations of AR/VR, but this discussion focuses on the post-2014 market.)
AR/VR installed base (including mobile AR)
Source: Digi-Capital AR/VR Analytics Platform
AR/VR 1.0 — where are we now?
AR/VR 1.0 kicked off in earnest when Facebook bought Oculus back in 2014. This inspired a generation of entrepreneurs, corporates and VCs to build early-stage AR/VR. Despite significant technical progress, even industry insiders admit this hasn’t produced a mass market yet.
Mobile AR delivered 2 percent higher revenue than we forecast for 2018 at over $3 billion globally, driven by app store revenues (primarily Pokémon GO), ad spend (e.g. from mobile AR features in messaging apps) and e-commerce sales (e.g. Houzz delivering 11x sales uplift). Mobile AR installed base (i.e. configured devices) grew more slowly than anticipated, to more than 850 million globally (note: this isn’t active users, which is a much lower number). As anticipated, there weren’t any standalone breakout mobile AR apps last year. Developers are still figuring out what does and doesn’t work for mobile AR.
AR (mobile AR, smartglasses) could top two and a half billion installed base and $70 billion to $75 billion revenue by 2023. VR (mobile, standalone, console, PC) might deliver more than 30 million installed base and $10 billion to $15 billion revenue in the same time frame. That’s a pretty big difference, so let’s dig into the data to understand why.
AR/VR platform revenue
Source: Digi-Capital AR/VR Analytics Platform
While mobile AR revenue outperformed slightly last year, underlying data at the platform level has guided us to downgrade mobile AR’s installed base long term. Where Apple and Facebook control their platforms (ARKit, Spark AR), Google doesn’t — it had to rely on Android phone maker partnerships to grow ARCore configured devices from 100 million to 250 million last year.
That’s still a big number, but the growth curve it implies now means that our AR/VR Analytics Platform forecasts ARCore’s installed base trailing Apple/Facebook until 2021. So while ARKit and Spark AR growth paths remain on track with previous forecasts, a slower growth path for ARCore means there could be a total mobile AR market installed base just over two and a half billion globally by 2023. Again, still a big number, just not as big as originally anticipated.
Mobile AR business model revenue
Source: Digi-Capital AR/VR Analytics Platform
E-commerce across 10 major categories (from cars to clothing to toys) looks set to be mobile AR’s largest revenue stream, which together with ad spend across 11 major advertiser categories (from retail to CPG to travel) could deliver three quarters of mobile AR revenue long term.
AR e-commerce sales
Source: Digi-Capital AR/VR Analytics Platform
Mobile AR app store revenues (in-app-purchase/premium) remain dominated by games (primarily Pokémon GO) today, but mobile AR’s installed base and increasing adoption as a feature in mainstream apps could see non-games categories take more than half the mobile AR app store revenues by 2023. As with the overall mobile market, it could remain difficult for standalone mobile AR apps to rise to the top of app stores. Mobile AR growth could have more to do with mobile AR features in ubiquitous apps than new standalone apps.
Mobile AR app store categories revenue
Source: Digi-Capital AR/VR Analytics Platform
Smartglasses have to deliver on five major challenges before they can become mass market consumer devices: (1) hero device (i.e. an Apple quality device, whether made by Apple or someone else), (2) all-day battery life, (3) mobile connectivity, (4) app ecosystem and (5) price. Together, these are non-trivial problems, and could see smartglasses remain mainly enterprise focused through the middle of 2020. Smartglasses device sales could stay in the hundreds of thousands of units globally this year.
Smartglasses business model revenue
Source: Digi-Capital AR/VR Analytics Platform
If Apple launches iPhone-tethered smartglasses in late 2020 (as we’ve forecast since 2016), the AR/VR market could finally see its inflection point. Nonetheless, long-term smartglasses revenues could remain dominated by hardware and enterprise (ex-hardware) revenues through 2023. The mass market for consumer smartglasses still looks a long way off, even with Apple’s entry.
Smartglasses enterprise revenue
Source: Digi-Capital AR/VR Analytics Platform
Smartglasses enterprise pilot projects and full-scale rollouts have been symptomatic of an early-stage tech platform, but real-world productivity results are now being delivered with companies like Lockheed Martin reducing satellite building activities by more than 50 percent using HoloLens/Scope AR. When smartphone-tethered smartglasses reduce system costs and expand the range of applications, “bring your own device” could see smartglasses enterprise revenues kickstart an inflection point in 2021 across manufacturing/resources, TMT, government (including military), retail, construction/real estate, healthcare, education, transportation, financial services and utilities industries.
VR could return to modest growth this year, and remain dominated by hardware and games revenues. The second generation of premium standalone VR headsets (not those launching this year) could become a catalyst in the 2020/2021 time frame. For this to happen, they will need to deliver greater performance and better content at lower prices. Hopefully by that time we could also see VR platform holders simplify their product ranges from their current platform fragmentation (taking a page out of Steve Jobs’ 1997 playbook).
VR business model revenue
Source: Digi-Capital AR/VR Analytics Platform
VR revenue comes primarily from entertainment, and is driven by premium/standalone VR more than mobile/standalone VR due to installed bases and unit economics. Games software revenue could dominate long term, followed by hardware, enterprise (ex-hardware), video and location-based entertainment revenue streams. Due to VR platform holders’ gamer focus, they face the same challenges as Sony and Microsoft when they tried to diversify games console revenue streams beyond games (with mixed results).
AR/VR countries revenue
Source: Digi-Capital AR/VR Analytics Platform
Asia is set to dominate AR/VR for the next five years, driving more revenue than North America and Europe combined by 2023. China’s commitment to the market is a standout, and it could remain the largest single market for AR/VR long term.
So what’s needed to go from AR/VR 1.0 to 2.0?
A lot of things might need to change to take us from AR/VR 1.0 to 2.0:
High friction to low friction: A large part of AR/VR 1.0 remains high friction in terms of installation, UX and UI. In many ways the market today looks like the MP3 player market before Steve Jobs launched the iPod (keep that analogy in mind). AR/VR 2.0’s lower friction is in the works, but what’s needed here are Apple smartglasses (whether they call them iGlasses or something else), the second generation of premium standalone VR (that comes after Oculus Quest and HTC Vive Focus) and mobile AR developers innovating beyond the lessons learned from Niantic, Houzz and others.
Experiences to use cases: There have been many “experiences” during AR/VR 1.0, with visually stunning apps not delivering meaningful UX. An AR/VR dragon or portal is impressive the first time you see it, but gets old pretty quickly. The next stage of AR/VR must deliver against critical use cases, with features in critical apps that we use all day, every day.
Standalone to features: The industry has largely focused on standalone apps to date, but major features in apps we use every day could see higher usage and prove more commercially successful. Navigation (Google Maps), e-commerce (Amazon, Walmart, Alibaba) and messaging (Facebook Spark AR, Snapchat Lens Studio) are beginning to show how this might happen.
Expensive to good value: Early AR/VR has ranged from $3,000 HoloLens to $200 Oculus Go to free mobile AR. But competing platforms often deliver more for less outside of specific use cases, particularly where we already own them, as with mobile. AR/VR 2.0 needs to become a great value because of what it delivers to users regardless of price point.
Point solutions to ecosystem: Many early AR/VR apps have been entertainment (games, video) or standalone point solutions to specific problems. As we’ve discussed before, AR/VR needs its own reality ecosystem to scale.
Low ROI to high ROI: For consumers, this means apps that give back more than just a “wow,” and for enterprises, applications that deliver real return on investment. This is beginning to happen in enterprise with companies like Lockheed Martin and Bell.
Pilots to production: Enterprise AR/VR 1.0 has seen many pilot projects, but relatively few full production rollouts. This is beginning to change, with companies like Walmart (with STRIVR) beginning to move into full production.
Inside baseball to brands: TheAR/VR industry is still debating the merits of using AR, VR, MR, XR or spatial computing to describe itself, as well as spending a lot of time focused on internal plumbing across the stack. But consumers and enterprises outside of early adopters don’t care. They buy brands that deliver against critical use cases rather than just tech, which requires a clearer focus on users and how to market to them to succeed.
Blue Sky to data driven: Many AR/VR 1.0 companies have been coy about their numbers, with independent data sources hard to come by in the early market. Developments like Digi-Capital’s AR/VR Analytics Platform have made it difficult to hide, with hard data/analytics now available to answer granular questions about roadmaps, country rollouts, investments, valuations and more.
Everyone else to Apple: If Apple launches smartphone-tethered smartglasses in late 2020, AR/VR 2.0 could have its “iPod moment,” where a major new form factor introduces the starting point for a long-term mass consumer market. It’s worth noting that this might not be the industry’s “iPhone moment,” as even with this catalyst we aren’t looking at a mass consumer market in the next five years.
Even though we’re looking at a potential $80 billion to $90 billion AR/VR market by 2023, AR/VR 2.0 won’t be the finished article. That could take a lightweight pair of standalone smartglasses, capable of replacing your iPhone at the same price. There are formidable technical and content challenges to reach that vision of AR/VR 3.0, and there’s AR/VR 2.0 to navigate first.
It’s going to be an exciting time, and we can’t wait to see what comes next.