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Are AR and VR Becoming the Tech Bubble of the 21st Century?

Writing about augmented and virtual reality is kind of fun, as it describes a new technology that is developing incredibly fast, where nobody knows what will happen each day. There’s anticipation before the computer is warmed up and the first news from development companies starts trickling in.

We have to look at these technology fields in the same way as we have previously looked at mobile computing (smartphones and tablets), flat panel displays, social media and other important technologies that you might want to put on a pedestal. New technologies are often driven by early visionaries that define what a technology is meant to be or to become.

I am not talking about big companies here: as a matter of fact, with the exception of Sony (in the past) and Apple, large companies seem to be inept in developing such mind-changing technologies. I guess as soon as you put an MBA in charge, vision is replaced by strategic planning and new technologies can never be planned in terms of ROI or any other metric you want to throw at it.

You would be correct in the assumption that I have high hopes for AR and VR going forward. I absolutely expect my great grandchildren to look at pictures of us and saying ‘How could they live and work without AR glasses?’ As much as I expect this to become reality, I am also enough of a realist that I do not expect this kind of penetration in my lifetime.

Meanwhile, I see a dangerous trend in the investment world that reminds me strongly of the ‘Internet Bubble’ in the Silicon Valley of the 1990’s. Investments in AR/VR startup companies are becoming a must for any venture capitalist’s portfolio. Like the good old days, when they could not resist somebody talking about HTML or any other element of the Internet, VCs are becoming increasingly insane when it comes to augmented and virtual reality. “You have a glasses prototype? Let me give you some money”. This investment frenzy leads to crazy valuations of startup companies. Does this remind you of something?

Here are a few examples:

  • Facebook paid $2 billion for Oculus at a time where the first prototypes were mediocre at best.
  • Magic Leap has raised more than $1 billion in funding with a company valuation of almost $4 billion.
  • Mind Maze has raised $100 million with a company valuation of $1 billion.

If you asked ‘Mind who?’, you are not alone. This Swiss company has used virtual reality to support stroke victims and aid in their recovery. With this goal in mind they are using AR, VR, EEG and motion capture technologies to create a ‘neural virtual reality platform’. Hinting at applying this technology to consumer markets was enough to get some lead investors lined up to shell out significant amounts of money. Don’t forget, this is just the first round of investment.

However, the goal of the company matches this investment. They want to become the ‘Intel Inside’ of the AR and VR world. Every device should run on their software. I don’t know about you, but expecting them to beat Microsoft, Apple, Google, Samsung, etc. seems overly optimistic at the first glance. I would guess that a $100 million investment in software development for any of the mentioned companies is on the very low end of their respective plans.

Overall, this investment feast in AR and VR is great for the many companies that will have to make significant contributions to the technology ecosystem before these technologies can live up the hype. On the other hand, there will also be a lot of money invested in companies that will not contribute anything at all. Of course, if I knew which company would fall into either category, I would not tell you. As the saying goes, if we don’t learn from history, we are doomed to repeat our earlier mistakes. This is not only true for the wars of ancient history but also for investment strategies in the present. – NH