Hello š
Youāve landed on the first edition of Back To Reality, my space for shouting my thoughts about VR/AR/Mixed Reality into the void!
Iāll be mixing in some general startup/business posts in, as well as going to varying degrees of detail on topics big and small, so I plan to introduce each post with a TL:DR so that you know whether the post will be for you. This one is about:
Tech growth being defined in 13 year cycles (e.g. PCs in the early 80s ā Worldwide Web in the mid 90s ā Smartphones in the late 00s)
How the next generation of mixed reality headsets will be the defining piece of hardware for the next cycle of growth, and how they were enabled by the success of the Quest 2.
This is my first foray into the world of blogging so please do share any thoughts on writing style, content and general tips!
Unlucky for some - the rule of 13
The good times have ended. VCs are realising maybe profit is not so gross after all and dusting off their Unit Economics 101 textbooks, whilst founders stumble after the travelator of unlimited funding suddenly stopped moving.
However Iām an optimist at heart so, looking at the positive, from a startup perspective these tough times also represent times of opportunity for some. The following companies were founded in the doldrums of and immediately following deep economic downturns:
1970s recession (1973-1976) - Microsoft (1975), Apple (1976)
Dotcom bubble (2000 - 2003) - MailChimp (2001), Atlassian (2002), Tesla (2003), Facebook (2004)
Global financial crisis (2008 - 2010) - Airbnb (2008), Uber (2009), Slack (2009), Instagram (2010), Stripe (2010)
There are many reasons for this, one being founders are more willing to take a risk and leave what were previously safe jobs if their equity packages are now less valuable or that their previous companies they worked at went under.
However, one thing that stands out to me is that the underlying hardware innovations that drive market growth in the longer term are relatively impervious to financial crises - in fact I would go one step further to say that they are counter-cyclical.Ā
The rule of 13
Benedict Evans wrote in his presentation for 2020 - āOn the shoulders of giantsā about generation tech changes and adoption happening in overlapping S-curves (see image below)
Elaborating on this, I believe that these can be tracked from a *very* high-level in ~13 year periods which are defined by key tech developments coming in and then going mainstream, as mapped out below alongside a rough estimate of the important dates that help frame the time periods:
1955: Mainframe computers š¢
1954 - IBM 704 mainframe
1956/7 - FORTRAN first manual and compiler
1959 - COBOL designed
1968: Microprocessors ā§
1969 - Four-Phase Systems AL1
1971 - Intel 4004
1981 - Personal Computers š»
1981 - IBM introduces its first personal computer
1984 - Apple releases first Macintosh
1985 - Microsoft releases Windows
1994 - World Wide Web (Web 1.0) š§
30 April 1993 - CERN puts the World Wide Web software in the public domain
2007 - Smartphones (Web 2.0)š±
29 June 2007 - release of the Iphone
To be clear, this timeline is not intended to be a precise science nor to represent when these developments were first conceived or started use - more when they started to become widespread.
The propagation of these developments can be broken down as follows:
R&D phaseĀ
The new developments are built during periods of economic boom in a previous cycle, with strong share prices and the euphoria of bull markets unlocking funds for the longer term R&D projects which drive these long-term shifts in technology.Ā
Traction phaseĀ
A bear market and/or period of calm then follows for the first ~2 years of the new 13 year cycle, during which the technology gains some traction. A combination of key tech advancements, increasing numbers of both developers entering the space and users testing applications, leads to a continuous virtuous cycle unlocking new use cases and improvements to the technology.
Growth phaseĀ
The technology becomes mainstream as key use cases unlocked or defining piece of hardware, the new or improved hardware is then the major driver behind the next cycle of growth, driving a new bull market.Ā
Although these phases can sometimes be hard to remove from the wider macro forces at play within the 13 years - Iāve delineated the 13 year periods set out above in black on the chart of the nasdaq below.
With each consecutive period the number of people directly reached by the technology has increased - e.g. mainframes unlocking primarily engineering/scientific use cases or PCs/the web being originally mainly used by companies and the middle classes - to the point where the majority of the worldās population has access to a smartphone in some capacity.Ā
Going forwards, I believe that each S-curve will no longer increase in people reached, but rather increase how much time they use the tech for (e.g. smartphone usage vs PC usage) or in how deeply they rely on it for multiple use cases (e.g. phones replacing MP3 players, cameras and calculators for the masses as well as unlocking new use cases).
So what will be the driver of the growth of the future? The fast ones amongst you will have noted that we are already 2 years past the window for the 13 year period and we havenāt had a generation defining hardware development, or have we?
The roots of all this Quest love
Iām going to preface my next statement by saying that in hindsight I believe that the latter half of this year and the first half of next year will show the defining piece of hardware for the next 13 year period from 2020 - more on this later.
That said, I believe that the majority of the tech ecosystem is sleeping on the Oculus Quest 2 as the defining piece of hardware that drives the advent of the next major computing platform - Extended Reality (āXRā) devices or Head Mounted Displays (HMDs).Ā
For those not in the industry, XR or HMDs are umbrella terms to cover the spectrum of virtual, augmented and mixed reality headsets. Iāll try to avoid the industry favourite hobby of debating terms and acronyms, I personally prefer Synthesized Reality as recently coined by Apple to describe the spectrum of VR, MR and AR (see diagram below) than XR which is industry standard at the moment.
I believe Quest 2 will drive the advent of XR not due to its widespread adoption or revolutionary nature, there were other standalone VR devices before it (including rather obviously the original Quest) and itās sold just over 15m headsets so far. Rather it hit the following key milestones that we will look back on as a pivotal moment for HMDs and the moment when VR/XR began to move into the Traction phase:
crossing the 10m users threshold that Mark Zuckerberg had touted back in 2019 as required to create a sustainable and profitable ecosystem for developers, importantly doing so in a very short timeframe (~1 year)
Improving passthrough and releasing passthrough APIs so that developers can help accelerate XR experiences
High frequency hand tracking unlocking the potential of new UI mechanics and in-app interactions
One of the most frustrating things about working in XR for me is how much the market, not just investors but also those inside the industry seem to view the main purpose of the industry as being centered around gaming and āthe metaverseā rather than this being the landing pad for itās true purpose. At best itās the next generation of computing platform or at worst the next generation of display technologies.
Many people in the industry have referred to the Quest 2 as VRās iPhone moment however I donāt believe thatās quite true - I think itās more akin to the Blackberry in proving out the demand for and function of an internet-driven phone but lacking some of the key developments and more importantly the game changing UI that came with the iPhone.Ā
We are in the stage just before the iPhone moment where the tech is all there - see my post on Metaās prototypes and R&D spend. It just needs to be worked into a format which is compatible with the size of headset we are looking for - similar to how apps, touch screens and fast data networks existed pre-iPhone but just needed to be combined in the right form with the right UI. I think this will come with the next few generations of XR headsets now that we have stronger passthrough technologies. Having said that people tend to forget that the iPhoneās initial traction benefitted from the existing market for both mobile phones and iPods and that at launch it:
Had no app store - no third party apps were available on launch, unbelievable now when apps seem the cornerstone of what makes a smartphone. The new Apple headset is slated to be launched with a similar focus on
Suffered from painfully slow internet access - the iphone didnāt get 3G until the following model launched in 2008, the initial internet connection was not sufficient to support the vast majority of what we use our phones for today
Required a PC for setup
Despite not having the XR industriesā iPhone moment yet, it reminds me of some of the early criticisms of the iPhone, dismissing it as merely a āconvergence deviceā similar to other mp3 player phones or Steve Ballmerās classic take āThe iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaksā - very similar to current takes on VR.
Race for impact
Quest 2ās demand has however kickstarted a mixed reality arms race to get the market defining HMD, see Metaās Project Cambria, the high-end anticipated 2023 headset from Apple and Bytedanceās acquisition of Pico and increased investments in and subsidies for VR. Many of the biggest consumer focused tech companies believe that XR devices are the next big thing.
The future of the XR industry looks to have moved from a question of āifā to one of āwhenā and āwhoā. So for those skeptics who seem to make up most of the industry at the moment my question would be - what do you think you know that many of those proven to be the best capital allocators in the market at the moment donāt?Ā
However, regardless of whether you agree with me on the future of XR, the data would indicate that we are on the precipice of the next big driver of tech growth. We are pretty much at the saturation point of smartphones with relatively little innovation in the space in the last 5 years beyond improvements on what already exists. Iāve focused on the hardware elements as thatās where my interest lies at the moment, however there are software and scientific advancements that also drive growth. Ask a handful of different people who work in tech what they think will define the next cycle and youāll get a handful of different answers - even Iām also extremely excited by the advancements in AI we are seeing with Dall-E 2 and before that with GPT-3.Ā
The question to take away from this is - what do you think the defining technology will be for the next 13 years?