Carnage among Smart Glasses and AR

by Spencer Gisser | 1/18/2019

 

ODG and Meta, top players in the smart glasses and augmented reality (AR) space, are closing down. This is sobering news: both companies had received over $50M in funding, and ODG had been a darling among smart glasses manufacturers as recently as 2017. These companies had developed innovative and meaningfully differentiating technology, but it ultimately was not enough for them to succeed. That these companies failed reveals a fundamental risk to all smart glasses and AR providers: that the demand these companies anticipate will fail to appear in time. Meta and ODG have already spent themselves into oblivion without finding a revenue stream to recoup their costs, and other companies in this space may follow in their footsteps.

ODG’s fall is particularly ignominious given the enthusiasm that surrounded the company. The company was valued at $258M for a $58M Series A funding round in December 2016, and a Chinese company offered to buy the company for even more several months later. ODG’s offerings were easily among the best enterprise-ready smart glasses on the market. The company’s innovative technology provided sharp image quality and a host of other benefits that made its smart glasses highly appealing. Despite these strengths, ODG attempted to drive too many offerings at once. The company announced its R-9 glasses before its R-8 glasses had shipped, and has still not fulfilled all of its R-7 orders. ODG chewed through its funding before the fall of 2017, and was soon unable to pay its employees. A talk with Magic Leap appeared to bear fruit but ultimately fell through. Magic Leap is expected to purchase some of ODG’s patents at the upcoming sale. ODG’s assets up for sale include 107 issued patents and 83 pending applications. This is not the first time that ODG will have sold its patents: in 2014, Microsoft bought ODG patents for $150M after having considered purchasing ODG outright.

From the beginning, Meta’s value proposition was weaker than that of other AR companies. Rather than offer 3D visualization to field workers, Meta offered it to deskbound workers. Although smart glasses have generated significant interest among field service organizations, no company in the smart glasses space has found the same of desk workers. The value proposition of smart glasses for this use case is significantly different as users cannot move around to the same degree when in a relatively stationary position. Ultimately, Meta was unable to offer their solutions to the market in a way that could draw sufficient revenue.

These were not the only smart glasses and AR companies to fail recently. Blippar, a U.K.-based AR and computer vision startup that had raised over $130M, collapsed after shareholder drama blocked an emergency influx of $5M. Even though the company managed to close a $37M round as recently as September 2018, Blippar burned through its available cash before it could secure enough customers. The company is entering into administration and is letting all of its employees go while the U.K. government decides what to do with the Blippar’s assets. The company’s investors included such prominent organizations as Y Combinator, Tencent, and Comcast.

2018 has also been a hard year for smart glasses providers’ stock prices. From a high of $10.80 per share in January 2018, Vuzix’s stock has fallen to under $4.70. Kopin, another prominent smart glasses provider, has seen its stock price fall from $3.80 in January 2017 to $1.30. High revenue expectations are partially at fault, as many analysts and commentators had expected 2018 to be a year of success for smart glasses and AR. Stronger sources of revenue will be instrumental in improving lackluster stock performance in this sector.

Despite this news, the situation among smart glasses and AR providers is not all gloom and doom. Even though the collapse of prominent smart glasses and AR providers has shaken the market’s confidence, in some respects it could be seen as a sign of maturity. Meta’s value proposition was flawed at its core and would inevitably fail. ODG’s fate, too, does not signal market weakness. Instead, it is a classic case of a company that over-extended itself and suffered the consequences. It was the casualty of a phenomenon that plagues emergent markets: the temptation to be all things to all people, running before you can walk. The companies that best weather the rocky seas of an emerging market are those that choose a specific vision and see it through. For companies that remain in the field, smart glasses are growing cheaper, lighter, and more ergonomic. As the barriers to investment in smart glasses hardware lower, organizations in this space will be able to win more customers and ultimately secure steady and substantial revenue streams.

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