Magic Leap – Second life

Magic Leap is back and has a seat at the table.

• Magic Leap is back in contention with a new device and a funding round, but the company has not said anything that has not already been said by everyone else, leaving me wondering where it plans on finding its competitive edge outside of hardware.
• After what looked like certain death 2020 (see here), Magic Leap has clawed its way back into contention with new management, a new device, and $500m in new capital.
• The new money has been raised from existing shareholders but at a valuation of $2bn which is 70% lower than the peak valuation of $6.7bn achieved in 2019.
• However, because the money is coming from existing shareholders, they will not suffer dilution of their holdings, but they will have already marked the investment down materially in their books.
• Alongside the new money comes a new device, the Magic Leap 2 which looks a lot better than the old one.
• Magic Leap has increased the field of view significantly but interestingly, it has opted to expand it vertically far more than horizontally.
• I suspect that this is in line with its recent pivot towards the enterprise where utility is far more important than look or feel.
• In these use case scenarios, having a more complete picture of what is directly in front of you is more important than the periphery explaining this unusual decision.
• Furthermore, the device can also dim the lenses that let natural light in which will make the virtual display easier to read in bright lighting conditions.
• These characteristics combined with its much sleeker and lighter form factor (which the company states enables all day, every day wearing), are where I can see some differentiation.
• However, on the software and use case side, Magic Leap is late to the game and has a lot of ground to make up.
• As far back as 2018 (see here), it was obvious that in its initial iteration, augmented reality had to be an enterprise-focused offering.
• In response to that everyone except Magic Leap made the pivot and have been focused there pretty much ever since.
• Magic Leap only made this pivot in 2020 meaning that it has a lot of ground to make up to catch up with its rivals.
• Its new device is lighter than the others but this is partly due to the fact that it still has its compute in a puck that is connected to the headset via a cable.
• Everyone else has gone down the all-in-one route which leads their devices to have a heaver head-mounted unit than Magic Leap. But with no annoying cable.
• Despite, its late entry, Magic Leap has made some noise in the sector and has signed partnerships with Google Cloud, NVIDIA, and VMWare implying that it does have something to offer.
• It has also some endorsements from the areas that it is targeting like health care and the public sector which imply that it is also seeing some traction.
• At the same time, Magic Leap is competing against the big ecosystem companies that have very deep pockets and are able to outspend Magic Leap by orders of magnitude.
• The net result is that Magic Leap has bought itself a seat at the table with its new management, device, and funds but it still has an awful lot to prove.
• The use cases that it now talks about have migrated from cute aliens and whales to real-world scenarios but everyone else has been working on these for a much longer period of time.
• If the company really has something special outside of hardware, it is still very well hidden, and I presume that the company is deciding to keep it that way for now.
• Hence, I think this is still a long shot but if Peggy Johnson can pull this off, it will be one of the great turnarounds seen in recent times.