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Summary

Magic Leap, an augmented reality (AR) startup, valued at as much as $4.5bn in 2016, announced a major restructuring plan on 22 April that included reportedly laying off about half (1,000) of its employees. The company cited a COVID-19-related downturn but, in reality, the writing has been on the wall for quite some time. The US-based company has raised more than $2.6bn since 2010, but in its quest to build the ultimate consumer AR headset, Magic Leap burned through its funds without seeing much uptake from consumers, content creators, and developers. It is now shifting all its focus toward the enterprise – its only real option for survival. However, success is far from guaranteed.

Overfunded, overpromised, and underdelivered

After it was founded in 2010, Magic Leap operated in stealth mode until 2015, when it released a teaser concept video of its technology illustrating a seamless integration of productivity apps in addition to an immersive gaming experience involving evil robots invading an office. After a lot of speculation and rumors, the Magic Leap 1 was finally revealed in December 2017. The $2,295 headset, which started shipping in early 2018, offers a mixed reality (MR) experience similar to Microsoft HoloLens, which enables users to interact with virtual objects seemingly “placed” in the real-world environment. At launch, it was aimed at developers and “consumer-creators.”

In the following 10 years, Magic Leap raised more than $2.6bn from the likes of Alibaba, AT&T, Google, and Qualcomm. It also partnered with several content partners, including CNN, Epic Games, Peter Jackson’s Weta Workshop, and Unity. Although its technology was genuinely impressive, it was nevertheless a first-generation product in need of more development – this was reflected by the lukewarm initial reactions and reviews. Unsurprisingly, Magic Leap was unable to deliver on inflated expectations. At the end of 2019, one report suggested that the company only managed to sell 6,000 units in the first six months of its availability – significantly fewer than its CEO’s alleged goal of at least 100,000. This zealousness combined with misplaced focus on the consumer segment culminated in the current unpleasant situation.

Pivot to enterprise is sensible, but it brings new challenges

In December 2019, Magic Leap made several announcements, including Enterprise Suite, aimed at helping businesses roll out AR tools to employees, manage devices securely, and build and deploy company-specific applications. Several new partnerships with AR and virtual reality (VR) companies in the enterprise space were also announced.

At Mobile World Congress 2019 (MWC 19), Orange showcased a very compelling concept use case for MR using Magic Leap headsets and 5G connectivity, which Omdia tried (see Figure 1). The experience enabled headset wearers (sitting in separate booths) to see virtual versions of each other, which was enhanced by the ability to interact and collaboratively manipulate virtual objects on the table. This demonstration was just one example of this technology’s potential in the enterprise setting.

Although it dabbled in enterprise applications, Magic Leap has always labeled itself as a consumer device company. Now, however, Magic Leap is focusing on the enterprise in earnest. In a recent statement, CEO Rony Abovitz emphasized that the “near-term revenue opportunities are currently concentrated on the enterprise side,” which chimes with Omdia’s long-held view of this category. The company also remains committed to delivering the Magic Leap 2 headset in 2021.

Enterprise is certainly a much better fit for Magic Leap, but success in this space is far from guaranteed. AR headset makers Google, Microsoft, and Vuzix have focused on enterprises for many years and will be a force to be reckoned with. Meanwhile, several dominant immersive enterprise solutions providers have emerged, such as Ubimax and Upskill, which have long-established partnerships and relationships. It is also important to highlight that this category is still nascent and might not be big enough for Magic Leap’s near-term ambitions. Many multinational corporations are trialing AR, VR, and MR – but few are moving to mass deployment. It remains to be seen whether Magic Leap can effectively restructure, reset expectations, and find success in this fast-moving sector.

Appendix

Author

George Jijiashvili, Senior Analyst, Media & Entertainment

[email protected]

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