AR Glasses and Cambridge Analytica (Yes, Again)

Ahoy Metamates! 🚢 🏴‍☠️

🆕 The TLDR This Week

• Meta preparing to announce if it will let Trump back on as ban is set to expire

• New acquisition announced: Luxexcel, the company behind Meta's project Aria

• Super interesting stats on Meta's progress in Sub-Saharan Africa here

• Notable recent moves : YJ Song ( returning), Margaret Gould Stewart (outgoing)

Update on Cambridge Analytica

It's not over until someone's wallet opens - Meta is set to fork out a massive amount in the US over Cambridge Analytica. As much at $725 per person, if the current motion is approved in SF courts.

This is concerning for two reasons: (1) cases in other countries are still hanging in the balance and (2) the likely timeline of the US settlement may overlap with the upcoming election cycle... and that could spell turbulence for the stock with potential headlines.

Here's how markets reacted last time: 

If you forgot what this is all about, here's a quick TLDR on scale - 

• 87 Millions users were affected globally (source: Vox)

• Parent company of CA had profiles on 240M Americans (BBC)

• Had 4-5k datapoints on each person (BBC)

Encore: FOIA release of Mark's full deposition by the Security Exchange Comission here.

The AR Glasses Battle

Augmented reality hardware has been mainly a military thing. Nearly every company that's tried to build a hardware product in the space got nothing but a hole in its pocket and a government contract (if they're lucky). Google, Microsoft, Snapchat... the list goes on. 

And now Meta is very likely to meet the same fate.

So why even try?

AR is a critical stepping stone to the metaverse. In lower ARPU regions, where buying a Quest = someone's annual salary, it's the only way to get people in on the new digital economy. 

• 90% of cellular phones are smartphone

• 6.57 billion smartphones (7.8B world population)

• China has the most smartphone users in the world ( Germany has the most per capita)

But - despite that, deciding to go the hardware route is high key intense and super expensive. It gives stock analysts Eval Spiegel circa 2016 vibez. That's the year Beyonce's Lemonade came out. Which is to say - stuff evolved a lot and hardware is overkill. 

To understand why AR has never gone Beyonce level mainstream, you need to first get how we got here.

AR Could Be Cursed?

It might be about how it all started. The year was 1962. The place was the theatre. The first known major use of augmented reality is called Pepper's ghost - an illusion that projects a person onto the stage through a mirror so they appear like a ghost.

Like I said- cursed from the start.

Around the same time, primitive versions of augmented reality started appearing in military applications. Most notably in fighter planes as heads up displays or HUDs - looking a little like this. This will be important later.

And then even in cars in the 60s - you have to squint *real hard* and you'll see the little "100 mph" on the windshield.

But it never really went main-stream.

Instead, this lived mostly in labs, military labs to specific. 

Harvard came up with a VR headset that precedes Occulus by 30 years - but it was far from wearable and despite its dramatic name, The Sword of Damocles, never really took off.

TLDR: Most augmented reality work early on was focused on military applications and all the good builders worked for the military too.

Fast- Forward to the (short lived)Google Glass Era

TLDR: Tech AR applications started in consumer but ended up with the military anyway.

Google Glass was the first big effort at mainstream AR ( if you don't count the NFL yellow line)

It was a flop.

The glasses had no mainstream appeal. Maybe because the commercial for them was borderline gross with 5 whole seconds of the sound of a man chewing a bagel with his mouth open. 

Meta is about to make the same mistake.

Here's why Glass failed:

• It came at a time when people had a lot of health concerns. This was during the fear craze that holding a phone on your person could give you cancer. So having something on your head 12 hours/ day was not well times to market.

• Alexa would have also flopped in 2012. Being recorded all the time was not a thing yet and so Glass was asking users to adopt too many new behaviors.

But more than anything: it had no practical application. The first version was sold to developers for $1500 and never crossed the chasm.

This hits a little close to home with the Meta Quest Pro - also priced at $1500 and geared at developers. 

Uncle Sam To The Rescue

Glass ended up with the US military for some time. 

Curiously, Microsoft's Hololens met the same fate - it was marginally more successful because it got introduced in gaming. And since no one wanted it, where did it go? You should know by now: the military.

Microsoft reportedly sold 300k devises total, with as many as 1/3 of those going to the military. Unfortunately 80% of soldiers who tried it felt sick to their stomach (fun fact: more men than women experience nausea in mixed reality).

Your taxes paid for this sick (literally) fit:

The New Use Case is Commercial

More recently, Glass itself was re-launched in May 2022 as a commercial use product - marketed as a way to supervise, reduce error and increase efficiency for manual laborers. 

MSFT did the same - most recently peddling Hololens to the manufacturing industry as well:

Some interesting stats from MSFT:

• Microsoft HoloLens 2 is delivering 177 % ROI

• Manufacturers reduced training time by 75%

• Helped teachers be 15% more efficient

• Healthcare professionals reduced the use of consumables by 80% in training

Give me a useless product- but make it FASHION

That can describe any Snapchat product - but especially the Spectacles. They are very cute but boy are they absolutely pointless. For the most part.

Metrics don't look super great:

• Sold ~ 220k units

• ~50% of users churned after a month

• SNAP took a $40M write-off with hundreds of thousands in inventory

But they're not about to give up- Spectacles came back last year for developers by invite only. Has no one learned anything from Google Glass?!

Jokes aside, Snap actually has a legit long term AR plan. Luxury goods.

 Early data collected by Goldman Sachs indicates people are highly willing to both try on and buy things using AR -especially luxury goods. The psychology around it is very simple. Most people are intimidated to go into a luxury store and uncomfortable making a huge purchase online. AR bridges both gaps.

Meta's PTSD From Apple Is Driving Right Now

Building hardware costs a lot. Competing with Apple on consumer hardware is a fool's gambit and probably 10x more expensive than the hardware (figuratively speaking).

AR glasses make no sense for Meta in all senses but one -

staying independent from Apple, which is likely to emerge the victor in consumer. As I've written before, Meta got majorly screwed once already, the relationship between both companies is strained and Apple runs a cartel with Google on the side, which is a major threat.

So that why glasses are happening.

Meta will ship anything, anything at all, to chip away at having to use Apple hardware. 

However, stock analysts only see this:

• Over 50% of Meta's "metaverse" spending is going to research & development of AR glasses (source)

• Around 40% to virtual reality,

• and around 10% to first-party content such as Horizon

ARPU FTW

Meta is building glasses not just to compete against Apple - but to capture the digital economy in lower ARPU regions. There's a disconnect here: Android has a 70.78% OS market share overall, and even higher in lower income areas of the world (source:IDC).

A hardware product is seen as a gamble by many financial analysts. 

Especially because none of AR's successful use cases so far required hardware.

Niantic /Pokemon Go

• 1B downloads since 2016

• 78M active players in the last 30 days (source)

• Revenue : $3.1B from Android, $2.8B from iOS (source)

• Only 19% of downloads are in the US (source)

A product that couldn't retain its hype fully but still monetizes well, especially outside the US - could be much larger on top of FB's social graph.

Geolocal AR is basically visual SEO - look up Apple Project Gobi, which is aiming at Google Lens.

• Google Lens @ 8B searches per year

• This grew by 12x in 2022 (ARInsider)

Baidu Visual AR Search

AR in China is booming and it's mobile-first and retail-first. Here's what Baidu is doing:

• 1B MAU

• 3,094 VR and AR patent applications in the past two years

• Opened a AR Lab in Silicon Valley and recruiting FANG engineers and scientists

Early on this effort was led by Andrew Ng, formely a Google employee and now a founder. Here's his take:

Tian Tian Pi Tu 

This Chinese app is like a Snapchat filter on steroids -  something Meta is doing as well across multiple platforms but not really creating easy ways to monetize. Most creators partner with brands to make money. This is hard to do if you don't have a following.

In China, apps like Pitu aggregate brands and help them connect to creators. It's all about commerce - helping you try on make-up, clothes, etc. Snapchat doing the same in the US but not paying much at all. 

• In the US, most creators sell on Gumroad, Etsy and Tutobay

• AR Filters go for $10-50/ each on those platforms

• Snapchat gets 6B daily AR lens plays from more than 2.5M lenses from 250k lens creators(source)

• $3.3B spent/ yr AR ad advertising overall vs $738B advertising total

Top AR lens creators can make millions every year - this would be an insane boost for folks in lower ARPU regions to participate in the digital economy. 

TikTok is also emerging strong in the filter game:

Meanwhile at Meta, it's looking a bit more like a science experiment. 

I am a long term believer in the metaverse - but I'm skeptical of incremental hardware bet. Some may say that work on glasses eventually converges with work on Quest, and that's a good point. But I think that's missing the moment to win significant ad revenue from AR advertising in the present. And in doing so, it's making it hard for stock analysts to not downgrade. 

A little monetization goes a long way - and there's a ton of lower hanging fruit in AR.

Bonus read: Understanding the death of Meitu's coolness

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