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Where AR We Going?

AR is still waiting on its moment; large tech companies will take us there

Where AR We Going?

Although it is currently viewed as one of the next major advancements in consumer technology, Augmented Reality (AR) has been a pillar of science fiction for over 100 years. The first concept of AR came about in 1901 through L. Frank Baum’s book, The Master Key. He envisioned electronic glasses that could map data onto people (referred to as the “character market”). Over 50 years later, the first attempt - and minor success - of AR came in 1957 by Morton Heilig through the Sensorama, which added additional sensations for the viewer (visuals, sounds, vibration, and smell). 

Despite these prescient applications, “Augmented Reality” as a term was not coined until 1990 by Thomas P Caudell of Boeing. Following the trend of aviation, the first legitimate AR system was developed by Louis Rosenberg at the United States Air Force’s Armstrong Research Lab, and was constructed to enable the “overlay of sensory information on a workspace to improve human productivity.”

Gaming was also an early application of the technology, as the first AR game was ARQuake in 2000. Since then, beyond AR social media filters, gaming has continued to sit at the core of AR use cases. Both Google and Apple (and Niantic in recent years) have been at the forefront of enabling AR progress with their development platforms, ARCore and ARKit.

What is Holding AR Back?

Much like Virtual Reality (VR), commercial AR use cases constantly seem to be “5 years away”. There have been moments that have brought attention to AR (e.g. the AR-enabled mobile game, Pokemon GO) but nothing has been the catalyst for widespread consumer adoption of the technology. That being said, if you move outside of gaming, there are other industries (Defense, Commerce, Education, Healthcare) with very specialized use cases that have advanced the technology within their own fields. 

The main issue with AR adoption is not the existence of practical use-cases, but rather technological barriers. For well-performing head-mounted displays (HMDs), the cost is simply too high for most consumers. Without consumer adoption of HMDs, the incentive for developers to build content and applications moves towards other AR-enabled ecosystems like mobile phones. Unfortunately, the very thing that makes AR so enticing for a consumer is lost in the midst of the mobile medium, which will always fall short of everyone’s vision of an AR experience. 

Even though phones are not a compelling ecosystem for AR, they are still a good stepping stone for building the foundation of AR applications. An area that is rarely talked about within AR is the “interaction layer” - or gesture controls. A phone enables users to interact with AR experiences exactly the same as they would engage with traditional applications. Touch, drag, zoom in, etc are all common interactions users utilize within non-AR applications. While this isn’t the future of AR (in our opinion), it is a step forward in showing users a first taste of what AR could be. 

Outside of hardware, another area that is holding back AR is the lack of content and truly innovative experiences. Today, we would argue that there is not one truly excellent AR application that has any chance at mass market consumer appeal (Pokemon GO included, as it only has ~9m daily active users today). While there are some existing AR use cases (e.g. virtual try-ons, virtually place furniture) that are interesting, the entire ecosystem lacks enough value to justify consumer excitement. When the application of AR is “just ok”, it leads the best developers to build in other areas (PC, console, mobile, web, AI, etc). 

In short, the reasons why AR is not moving quickly enough is because 1) the hardware is not affordable yet, 2) the development kits are not sophisticated enough to create novel experiences, and 3) the best developers are building elsewhere until they see enough consumer adoption. We think the first big wave is waiting on the tipping point when a large tech company releases a truly amazing piece of affordable hardware. 

Where AR We Today?

AR is one of the most exciting areas of research and development across startups and major tech companies today. Meta alone is investing $10b a year in Reality Labs, which focuses on developing both Virtual Reality (VR) and AR technology and devices (The Verge). Samsung, Google, and Qualcomm are partnering to develop a Mixed Reality platform (CNET). 

It is also rumored that Apple is going to be launching a $3,000 Mixed Reality (AR/VR) headset powered by Apple’s new xrOS (The Verge). This comes after Apple invested $410m from its Advanced Manufacturing Fund in a company called II-VI (pronounced “Two Six”), which manufactures lasers that are used in the LiDAR scanner, a key piece of tech for AR experiences (The Verge). 

Apple is expected to also release a consumer AR device, Apple Glasses, in the next few years (rumored 2026) which will run on glassOS. Additionally, we think it is likely that the processing power of these headsets/glasses will rely on your phone (which is typically nearby). Your phone could then handle computing and stream the video display to your glasses/headset (longer battery life for glasses/headsets as well) which would help optimize battery life. This could be a stepping stone for AR devices until battery power, compute, and display tech can be more compressed (literally smaller).

The main barriers to mass-market consumer AR device releases are technical limitations. Day-to-day consumer devices need to be lightweight and compact, powerful, efficient, and offer a robust experience for end users. This is why extended reality (XR) adoption has historically been for enterprise-level VR and AR use cases. Building daily use consumer XR devices is a technical feat that will likely take years to overcome (hence why people always say that it is “5 years away”). 

AR’s Major Unlock: Large Tech Companies

The chicken-and-egg problem is at the core of every potential technological innovation. The solution rarely comes overnight, but with AR there are major headwinds to consumer adoption that may require a blind jump by the large tech companies (much like Meta’s $2b bet on VR with Oculus). 

The mobile phone was the last piece of hardware that truly created an entirely new ecosystem, and it continues to generate immense economic value for 1st and 3rd party organizations. Its core value proposition was persistent internet connectivity, which spawned a thriving economy around that core consumer-hardware interaction. To get this off the ground, large tech and telecom companies invested heavily in the initial research, production, and distribution of mobile devices. It was a big bet that paid off immensely well, especially as companies like Apple and Google innovated to include touch as the primary interaction layer, which played a major role in fueling the mobile gaming industry to where it is today. 

Likewise, we believe that AR’s mass adoption will require a similar investment (bet) by the largest tech companies in the world. In order to research, produce, and distribute a sufficient volume of  AR glasses/headsets to the world, this will require billions (not millions) of dollars. Early stage companies are poorly positioned to take this large of a bet without the supporting infrastructure already in place. To that end, we believe that groups like Apple, Google, Meta, or Microsoft will be the baton holders for the future of AR. After mass adoption, an entire ecosystem and thriving economy will emerge to service that market (mirroring the history we just saw in mobile the past 30 years). 

Takeaway: AR is still awaiting its moment. This will be spearheaded by the largest tech companies in the world, as they have the balance sheets to weather the early days of slow/no adoption (this is where we are today). Once AR devices (whatever those look like) see adoption, the development community will then gravitate towards that user base (financial incentives will be aligned). To be clear, we are incredibly bullish on the AR economy being as large, if not bigger, than the mobile industry (we just are not there yet). Even today, great companies are being built in the AR space that will be perfectly positioned once mass adoption inevitably ensues. 

In our view, the next big push for AR adoption is likely going to come from Meta, Apple, and Google, yet these timelines continue to be “just 5 years out”... the wait continues.

Where AR We Going?

AR is still waiting on its moment; large tech companies will take us there

Welcome to Game Changers, the podcast that takes you beyond the games and into the heart of the gaming industry's future. Brought to you by Konvoy, a Denver-based venture capital firm investing in the platforms and technologies at the frontier of gaming. This podcast is your backstage pass to the pioneers, innovators, and visionaries who are redefining how we play and experience these virtual worlds.

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