In my job I get to see and talk to a lot of great VR / AR companies, from indies to startups to huge organizations. A lot of them are asking the same question: “How do we make money with MR?” Similarly, some more forward looking companies ask: “How do we sensibly start with MR in our organization?” Both often run into the situation where they create solutions that don’t seem to gain traction and just bumble along.
OK, so let’s talk about the current challenges and one or two potential approaches how to create successful MR solutions (for different definitions of “success”).
First, the usual disclaimer: While the views in this article are mine, please be aware that I work for Microsoft around IoT and Mixed Reality things.
Challenge: Mixed Reality doesn’t scale, yet
If you want to make money with your MR application, you need to look at and understand the market size.
- Ignoring PSVR, the market for VR headsets is ~10 million devices. This would include Oculus Rift, Go, Quest + HTC Vive, Pro + Valve Index + Windows MR Headsets + GearVR and others.
- Optimistically, the market for AR-type headsets is around 500k devices. So Microsoft HoloLens 1st gen and 2 + Magic Leap One + Vusix M, Blade + Epson BT + Meta, Google and others. And I think Statista is wildly optimistic with those AR projections.
The biggest challenge for creating successful MR solutions is simply scale. AR hardware is still too expensive and nowhere near ready for consumer use. VR headsets are getting there, but lack a compelling use case for large scale consumer adoption. As weird as this sounds, this also disqualifies creating compelling use cases in the first place. It’s the chicken-egg problem in full force.
Assuming you create the consumer space “killer app” for MR, your total addressable market is still only 10.5 million devices right now.
Which leaves the enterprise sector. While a big company might be able to afford the hardware: How would they manage the devices? Their IT departments would have to create completely new processes around procurement, provisioning and rollout. After that, they would have to train their workforce to integrate VR / AR into their operational workflow. And finally create new processes around maintenance, service and operations.
Those factors make the total cost of ownership of the hardware alone absurdly expensive for enterprise customers.
It gets worse when we include the software. Let’s look at a very simple systems development life cycle: Planning, analysis, design, implementation, testing & integration, maintenance. While there are mature tools and processes in traditional software development, Mixed Reality development offers almost none. And I don’t mean immature tools, I mean often no tools at all.
- Planning: There is low maturity when creating and discussing use cases and requirements.
- Analysis: There are very few case studies to assess business viability.
- Design: There is a lack of UX patterns and design paradigms. Even behavior and business rules are different than in 2D screen space.
- Implementation: Only low maturity tools and frameworks available for development as well as very early generation hardware.
- Testing & integration: Very low maturity of tools, to the point where no automated testing is possible for some application tiers.
- Maintenance: While remote management solutions exist, there is a lack of experience maintaining headsets.
The total cost of ownership for creating and running a large scale MR enterprise solution now got from “absurdly expensive” to “prohibitively expensive”. Of course with a big enough sales force, you will find customers, but it won’t be sustainable.
So, stop assuming that you will create the next consumer or enterprise must-have app. It will not happen right now and even if you succeeded, your market is not big enough to sustain you.
So, how can you be successful?
Concentrate on scenarios that can only be implemented with MR
Digital Transformation means that an organization takes their current way of doing things (their production and service pipeline) and innovate (increase output or efficiency) with digital means. As a side effect this can also create new products and services in the process. Cool. But if you go along their pipeline there are always small, stubborn steps that resist being digitally transformed. You will notice these as they require a lot of manual effort, are very low tech and have a huge number of standard operating procedures attached to them.
In some cases, the reason is that 2D hand-held solutions either don’t add enough value or simply can’t be used. Most firstline workers (sales associates, delivery people, production and maintenance workers, medical staff, flight crews and so on) work in an environment where they need both hands to do their job. It might be hard to incorporate a 2D screen, even if it’s an app running on a mobile phone — the cost of switching context from work to app is high and in some cases unsafe. Using AR headsets, firstline workers can have both: a hands-free experience and heads-up awareness.
Another aspect might be spatial complexity, where the location in 3D space is extremely relevant and objects too complex to simplify / flatten in 2D. Medical students know that looking at a body in a book or even an animation is one thing, but seeing how for example organs are actually positioned against, next or on top of each other is crucial to understand the human body. The same is true for products as they get more complex. Learning how something works might be relying on understanding it spatially.
Both scenarios are interesting because it’s hard or impossible to add value with 2D screens. Sure, digital representation and animation in 2D will be better than a book, but still not what users actually need. And enterprise customers will happily live with high investment costs if there is literally no alternative to transforming previously un-transformable areas.
Have a clear focus on TCO and ROI
There is a simple reason why organization (digitally) transform their business or do any kind of innovation: To increase efficiency or effectiveness or create new business opportunities. So with any investment they will look at the total cost of ownership over time (TCO) and the return on investment (ROI).
If ROI minus TCO over time is not > 0 and indeed higher than competing initiatives, enterprise customers don’t care about your idea.
In other words: Even if you find a niche that is hands-free + heads-up or spatially complex, your solution to transform it should still create a relevant return. Nobody will pay 10 million to save one (see above, search for “prohibitively expensive”). So you should investigate specialized use cases that don’t require scale to create huge returns. Because spending 10 million to save 100 / year is a no-brainer. There are use cases where multi-million Euro TCO will easily be outweighed by savings or new revenue.
An edge case are industries where legal requirements change relatively often and operations require constant training efforts. Combine that with hands-free + heads-up or spatially complex workflows and the TCO becomes almost irrelevant as spending 10 million so that you can continue to operate might also be fine (assuming your business is big enough).
The following is a nice example by Lufthansa Cargo & 3spin. It’s about meeting training requirements in air freight, particularly around load securing. It’s a lot to learn, it’s hands-free + heads-up work, spatially complex and there are a lot of rules, regulations and compliance around it. Even better: you don’t need huge scale as there are only so many air freight loading centers. This is a 10/10 case and got well deserved recognition in the industry.
Add value, don’t replicate efforts
I usually remind MR companies that I work with that “An application is an application is an application.” The reason is that I see far too many MR teams waste time by trying to be an enterprise platform. Sure, you have a [insert MR app here], but do you really need to take care of things like asset management or user and identity management? Do you really want to spend time on infrastructure, security and compliance?
Here’s the thing: 100% of enterprise customers already have a digital infrastructure. It might not be perfect, but it’s there. It’s what they trust, it’s what their IT knows how to maintain and procurement knows how to pay, it’s what their current digital transformation efforts are focused on. If you don’t use these already established systems, your app is most likely dead.
As we learned above: MR is already expensive. Do you really want to add the costs of a CMS rollout? Including IT reviews and certifications, data privacy checks, users roles & editing workflows, data retention and versioning, the list goes on. Chances are they already have a CMS. Again, it might not be perfect for 3D data or exactly the asset type you want to use, but focus on adding value with your app. Don’t replicate what they already have, use their SSO, content and asset management, workflows and tools.
Speaking of content: Use their assets and content. Convert them if needed, but don’t recreate them. Creating content and keeping it up-to-date is really expensive. If you are working on indoor navigation and your customers already have 2D floor plan data, look into leveraging it instead of telling them that they need to re-scan every corner of their properties to even start using your solution. Again, it might not be perfect, but be the team that gets them 80% of the way now with what they have instead of a 100% in 12 months and an additional 10 million Euro investment.
Seems simple, right?
- Concentrate on scenarios that can only be implemented with MR, ideally scenarios that require hands-free, heads-up usage, working on spatially complex objects.
- Have a clear focus on TCO and ROI by looking for use-cases that create high return even without the need for scale. You can also look out for industries with big upcoming legal / compliance changes.
- Add value, don’t replicate efforts. Stick to your use-case and don’t make it too complicated. Be the easiest player to work with.
I have seen teams being successful following these guidelines. Then again, it’s a young industry and maybe it’s not the time to play it safe. Let me know what you think and I would be very interested in your own guidelines or ideas how to be successful in MR right now. And what “success” actually looks like for you. Take care.