For many, 2016 was the year augmented reality (AR) became real. Pokemon Go took over the world last summer, superimposing 3D creatures anywhere in the world players wanted to point their smartphones. Snapchat became Snap, Inc. and gave its users a simple AR extension of the social application in the form of Snapchat Spectacles (if you can get a pair). Microsoft released the HoloLens Development Edition, the first iteration of the company's immersive, head-mounted AR experience. The technology we're seeing now only scratches the surface of the audacious sci-fi vision that the companies comprising the AR industry have for the future.
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In the meantime, there are still massive technological, business, and societal challenges to scale before we can see the world through Tony Stark's Iron Man cockpit. For the most mature AR technology currently on the market, look to the enterprise.
Business-focused AR apps are already beginning to make an impact across a number of industries. Platforms such as Vuforia let developers build headset or smartphone-based AR apps for any scenario or customer use case, from e-commerce and marketing to manufacturing, design, and multimedia. At the same time, Microsoft HoloLens and a growing market of AR headsets from Lenovo, ODG, Vuzix, and others are already rolling out and in use by early adopters across the medical, industrial, and retail fields and a host of other enterprise settings.
At a recent event at Microsoft's New York headquarters entitled, "Disruptive Technologists: The Augmented Reality Experience," Microsoft joined a number of AR startups for a panel discussion on the current state of AR. Among the panelists were Nick Landry, Senior Technical Evangelist for Microsoft HoloLens; Lindsay Boyajian, Chief Marketing Officer (CMO) of AR startup Augment; and Alpert Guler, Software Engineer at Pandora Reality. The discussion included AR business models and monetization strategies, the various technical and cultural challenges facing the AR industry, the latest drama surrounding the curious case of Magic Leap, and how headset makers can avoid the same fate as their doomed AR forefather Google Glass.
Augmented Reality vs. Mixed Reality
There's an important distinction to make within the current AR landscape. There's the sort of AR we can already experience through apps such as Pokemon Go, and then there are the more immersive headset-based experiences that companies such as Microsoft and Magic Leap are calling "mixed reality" (MR). Microsoft's Landry explained some of the more technical differences between basic smartphone AR and headset-based MR (which is not yet consumer-ready).
"There's augmented reality, there's virtual reality, and then there's...mixed reality," explained Microsoft's Nick Landry. "You could argue mixed reality is just another form of AR, but AR is often associated with just adding an overlay of information or objects to things with a heads-up display. Playing Pokemon Go is traditional AR but it breaks the immersion in a situation where you'll see a Pokemon on top of an object like a wall, when the wall should be hiding the Pokemon."
"With mixed reality, we have the ability to create real holograms; they're real objects made of light and sound," Landry continued. "If I put a [computer-generated] tiger beside this podium [next to me], if you were wearing a device like HoloLens, you would see the tiger disappear behind the podium. It's real-world objects occluding virtual objects. Mixed reality is a blend of two worlds: the world we live in and the synthetic world of bits and bytes."
AR Business Models: B2B vs. B2C
Consumer awareness of AR is still relatively low. Microsoft's Landry said that, while the business-to-consumer (B2C) model is popular in the mobile app economy and with end-user devices, AR doesn't quite have the user awareness and market penetration to make that model viable yet.
Instead, he said Microsoft is marketing HoloLens in a business-to-business (B2B) fashion but with the end goal of getting the technology to consumers through targeted, branded experiences. Essentially, Microsoft is building and selling customized HoloLens apps to businesses that, in turn, will sell or market that immersive experience to consumers, which he referred to it as a "B2B2C model." Landry gave Microsoft's partnership with home improvement retail giant Lowe's as a prime example. The company is currently piloting HoloLens-based kitchen remodeling AR experiences in stores.
"Lowe's is piloting a HoloLens application in their stores: they built an app with us where they help a user make kitchen buying choice," explained Landry. "The user walks into the corner of the store where they have a bland kitchen corner set up, then they put on the HoloLens and see what the kitchen looks like with different colors and appliances. You don't have to sit down with a bunch of catalogs of different types of wood and tiles for the floor tiles and countertops. The operator can change those colors and choices on the fly, for example, if you say you want to see granite countertops. The customer can get up close and look at different angles without having to hold up a phone."
This kind of B2B or B2B2C model fits with how Augment and Pandora Reality market their respective technologies, which are smartphone- rather than headset-based. Augment's omni-channel solution embeds the AR experience within an e-commerce provider's online catalog or shopping interface, as a natural extension of the shopping experience, with the goal of increasing conversions. Pandora works similarly, directly marketing its AR tech to businesses such as architecture firms and furniture makers.
"We create apps for interior designers, furniture companies, real estate companies, etc., to visualize objects but not through glasses," said Pandora's Guler. "IKEA was the first to create an augmented reality furniture catalog where you scan the pages and then change the furniture colors. Today, companies like Augment and us build apps that let you design an entire apartment in augmented reality."
Advertising and Monetization
Augment's Boyajian pointed out that these kinds of practical, shopping-focused AR experiences solve a major pain point that loses online retailers billions of dollars a year: returns and warehouse costs. Consumers get to try out a product in its real size in their home, in the color and style they want, and then order it knowing exactly what they'll get spatially, without worrying whether or not a piece of furniture will fit in a room or through a door.
"Over the past 10 or 15 years, we've seen e-commerce accelerate around the Amazon model. First we had product pages with text, then photos, now 360-degree photos. And the next evolution of that is augmented reality: experiencing that product in your home in real size," said Boyajian. "Our [software developer kit or SDK] is embedded into the retailer's app. So, when you tap the 'View at Home' or 'View in 3D' button, it integrates the camera in your smartphone or tablet and our 3D engine scales the object to the size of the room."
The more interesting question is how AR companies plan to approach long-term monetization. Microsoft's Landry said the industry should look to Hollywood for inspiration in the form of virtual advertising and product placement. Since the dawn of the film and television industries, product placement in the background or as props on sets has served as a core financing and revenue stream. The gaming industry long ago embraced product placement as well, often as brazenly as a character eating Cup Noodles in Final Fantasy XV.
"One aspect of monetization we can bring to this world is what the TV and movie industries use a lot: product placement. There's a department on a movie production that works with brands to insert products into the movie. The billboards you see aren't random. The cars that characters drive aren't random. The drink the actor drinks isn't random. It's all negotiated as part of product placement," said Landry.
"Video game companies are doing the same thing," he said. "If I'm doing a modern-day game, you can bet there will be a Coca-Cola ad or something inserted into the game for realism. Virtual and mixed reality are all about immersion, about transporting you somewhere that doesn't exist but, at the same time, you can make it more realistic by introducing the brands you're used to seeing on a daily basis. That's going to be a new way for consumers to discover brands."
The virtual reality (VR) industry is already doubling down on product placement and VR advertising. Agencies such as Advrtas, Omnivirt, Trivver, and VirtualSky specialize in AR/VR and 360-degree advertisements, and larger companies such as Adobe are pursuing similar types of virtual product placement through solutions such as Virtual Cinema.
While there's a lot of promise for AR/VR advertising, that monetization strategy still faces an uphill battle. According to marketing firm Yes Lifecycle Marketing, only 8 percent of brands and marketers currently use or plan to employ VR for advertising. Though, interestingly enough, one of the more prominent success stories in AR advertising is Snap, Inc. As it heads toward an initial public offering (IPO) with an estimated value of close to $25 billion, the company has amassed AR ad patents around image recognition and contextual ad placement, and has built an automated ad platform to generate more consistent marketing revenue."Look at Snapchat," said Augment's Boyajian. "Those are augmented reality ads. The [Sponsored Lenses] you see with brands' names is a digital asset overlaid on the real world. That's one of their biggest revenue streams right now."
AR Tech Challenges
Whether you're talking about smartphone-based AR or a MR headset, the AR industry faces a diverse and complex set of tech problems. Take Magic Leap, arguably the highest-profile AR startup in the space. The company has raised approximately $1.4 billion in funding from a star-studded list of investors, including Alibaba, Alphabet, Andreesen Horowitz, JPMorgan Chase, and Warner Bros. The goal is to create a fully realized MR device with levels of immersion and dazzling realism we've never seen outside of pop culture and the company's viral demo videos.
Magic Leap has recently been in the news, as a reported prototype was anonymously sent to Business Insider. Magic Leap CEO Rony Abovitz clarified that the leaked device was, in fact, a test rig, not a working prototype. Regardless, multiple sources have reported the company is having trouble shrinking down its technology into an attractive form factor that it can effectively market to consumers.
Magic Leap's struggles speak to a fundamental challenge with AR technology. Microsoft can afford to sink billions of dollars and years of research and development into HoloLens but a startup such as Magic Leap doesn't have that kind of time or resources. Technological innovation on the scale that Magic Leap is reaching for doesn't necessarily play nicely with a deliverables timeline and business goals.
Microsoft's Landry said that with this level of sophisticated MR, there are always technical challenges. One of the other challenges, he said, is education on multiple levels.
"It's about educating enterprises about the capabilities of not just HoloLens but the overall lens of VR/AR/MR and what you can build. It's like talking about mobility in 2007 when mobile apps were just versions of the websites we already had. It took a few years before the Airbnbs and Ubers came out and really changed our lives," said Landry. "Ultimately, it's about educating the masses about what this thing is, what you can do with it, and why you should want one. Think about the people who said they didn't need a cellphone or can do without social media. That level of disruption has to happen across companies, developers, end-users, and the public."
For smartphone-based AR apps, the tech problems are slightly simpler. Both Boyajian and Guler pointed to the lack of depth sensors in iPhones and other smartphones as a major limitation of the technology. Augment gets around this by using any denomination dollar bill as a universal tracker, using it to ground a 3D AR model in real space.
"The biggest challenge is that the iPhone doesn't have depth sensors," said Pandora's Guler. "You need to make estimations to place models in a scene. Today, you need a marker that blocks it. It's one more interaction the user has to go through after downloading the app."
The answer, as we're beginning to see, may be AR platforms such as Intel RealSense and Google's Project Tango. Tango-enabled devices include depth-sensing technology that can map 3D space. The first Tango-enabled device, the Lenovo Phab 2 Pro, is already on sale. The second, the Asus Zenfone AR, was announced last month at the Consumer Electronics Show (CES).
"Before Pokemon Go, no one really knew what AR was," said Augment's Boyajian. "Now it's top-of-mind for every consumer and every brand, and the hardware is catching up. The headsets aren't quite available for consumers yet, but we have companies like Lenovo releasing devices with Tango. Tango's platform will allow for a much smoother experience because of its room-mapping and depth-sensing technology."
Where Google Glass Went Wrong
The godfather of modern AR is the now-defunct Google Glass. Microsoft's Landry said it was the social stigma of Google Glass that ultimately sunk the product. The "Glasshole" backlash to the AR eyewear was swift and furious when the company released in 2013 and the product never quite recovered.
"I thought they should've made [Glass] a lot cheaper and flooded the market with it. If everyone has one, you're no longer the exception," said Landry. "The social stories exploded everywhere and the technology struggled. Either you go mass-market right away or they should've targeted it to be more focused on business. By making it available as something anyone could buy and walk down the street with—I don't think people were ready for that."
The privacy factor is an important consideration for AR technology such as HoloLens. Landry made clear that Microsoft doesn't record what anyone is building with HoloLens or collect any data that's not anonymized. Though, when asked if and when HoloLens would be widely available to consumers in the same way as Google Glass is, Landry gave the answer you'd expect.
"Today, the HoloLens is a developer kit. It is a device targeted for the enterprise," said Landry. "Do we have plans to bring this mainstream at a price point that will be attractive for the average consumer? Yes."
We've already seen one company learn a lesson from Google Glass, as Snap proved when it first rolled out Snapchat Spectacles. Through smart marketing, transparent recording, and by knowing its socially connected audience wasn't quite as concerned with privacy, Snap proved that an AR headset can be commercially viable to consumers.
"Google failed where Snap succeeded," said Boyajian. "They had a completely different marketing campaign, they knew their audience, and there's no stigma because you see the rotating lights when a person is recording. Will consumers adopt a headset? In this case, yes."
Watch the full "Disruptive Technologists: The Augmented Reality Experience" event below: