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Throughout the short life of the current wave of spatial computing, we’ve seen wide variance in excitement and investment. We’ve seen Magic Leap raise $2.63 billion over the past eight years, and we’ve seen early favorites like Meta, ODG and Daquri more or less dissolve.

Though it doesn’t seem so when it’s happening, these are typical industry cycles. Though there’s no sure-fire playbook, there are best practices and historical lessons to note. And one of the best vantage points can be from those who put investment dollars in play, given the requisite diligence.

In spatial computing, there’s a small handful of investors with this focused perspective, one of whom is Venture Reality Fund GP Tipatat Chennavasin. He breaks down his market observations and advice with Jason McDowall on the latest episode of the AR Show (listen or subscribe below).

So where are we in the above journey? Chennavasin sees a long road ahead but is encouraged by bleeding-edge hardware such as the Varjo XR-1 that debuted at AWE in May. Though it’s the highest-end enterprise-grade execution, it’s starting to show what’s technologically possible.

Panning back to the broader landscape, we’re also now at a point where there are tangible market signals that can inform product strategies. A few years of adoption data and perspective on what’s working can help XR tech providers calibrate their road maps. And that data will only improve.

“I feel like when we started out, it was interesting because… we had to go and invest without any kind of data, without any kind of traction. But now three and a half years since the launch of consumer VR headsets, we have a lot of data — both from our own portfolio companies, but also seeing the marketplace. And now there are companies that can put out a beta, start collecting data, and start making better decisions. And so I’m very fortunate that I can just basically [say] ‘we see this is working, now let’s make this work ten times bigger.”

As for what’s working today — beyond the bleeding edge glimpses of the future in things like XR-1 — Chennavasin points to the Hololens 2 and Oculus Quest. The latter not only hits a sweet spot of comfort, price and functionality, but it’s validated by marketplace demand, as we’ve examined.

“Oculus has finally launched the first real consumer VR device, and that’s the Oculus Quest. It combines everything that we’ve been learning and experimenting with for the past four years…And we’re seeing the market respond. Four months in, they’ve announced… $100 million in software revenue in the entire Oculus Store ecosystem over the past four years. But what’s most interesting is 20 percent of that was in the last four months. So that means we’re seeing an inflection point… We’re seeing an acceleration.”

Going deeper into market figures, Chennavasin cites Facebook’s view of what constitutes mainstream penetration. We’ve pegged that at 100 million-unit installed base, but he argues that as little as 10 million can get the flywheel spinning by attracting developers to a given platform.

We’ve almost reached that 10 million-unit threshold collectively for tier-1 (tethered) and tier-2 (standalone) VR. Moreover, developers are making real money if you consider the $20 million made by Beat Saber’s small dev team. That beats historical milestones for sector validation.

“Remember when the early mobile gaming ecosystem was being developed?…We didn’t really know if there’s a games ecosystem. But once Angry Birds was a success on the iPhone, it validated the whole category of smartphone gaming… like, this is now going to be a huge business. What’s interesting about that is… they made $6 million in their first year. Beat Saber made $20 million in their first year.”

Moving on to consumer-based mobile AR, there’s good news and bad. The good news is that it builds on a massive installed base of AR-compatible smartphones. The bad news is that the installed base also makes it more of an extension of an existing platform rather than a new one.

That in turn creates a dynamic where tech giants are advantaged, and it’s extremely hard for startups to break through. This stems from mature and supply-saturated marketplaces (think: app stores) with a high bar for exposure. Startups conversely thrive with emerging platforms.

“Mobile AR isn’t a new platform. It’s an extension of mobile… And so it’s a feature that the large incumbents can take advantage of and do well with. And so a company like Niantic can add more AR features or companies like Snap… To launch a mobile app today is just so hard for a small startup. You need a million-dollar marketing budget, and world-class IP to launch a new game…What that means for startups is going to be very important to understand. I would say when there’s a shift to a new platform, that’s the opportunity for small startups. Otherwise, the incumbents have an unfair advantage.”

As for the consumer mobile AR apps and experiences that could start to reach killer app status, Chennevasin, like us, sees lots of potential in utilities. Extending from the fun and games that have captured the most interest, high-frequency utilities like navigation could start to gain share.

“The biggest use cases of AR to date have been trying on makeup, making silly faces to send to your friends and capturing Pokemon… But I think there are some of these other applications that are out there.. when people think of the fundamental use cases of AR, the biggest category is navigation… And understanding what we want from AR that people can use every day… applications that millions or billions of people would immediately find valuable.” 

For all of the above, it’s all about timing. This reminds us of Bill Gross’ rules of success which rely on things like team and tech. But timing is the biggest of them all. Though not an asolute rule, this can be seen in high-flying AR prospects that peaked early, including Meta and ODG.

“I think the simple answer is, timing is everything…This is just the natural way things go in hardware cycles… When you’re early, it’s really hard. It’s really expensive. You put out a lot of stuff, you learn a lot of stuff, but then everyone’s learning from your mistakes… You can also look at this as the way portable or pocket computing went where the Newton completely failed, but Palm and Handspring were able to succeed… But of course, they got killed when the ultimate devices — iPhones and Android phones — came out and replaced them. I think we’re going to see that kind of same process through the evolution of this technology platform.”

Listen or subscribe to the full episode at The AR Show or below, and see our archive of past and future episode coverage here.

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