Home Why Aren’t VCs Backing Augmented Reality?

Why Aren’t VCs Backing Augmented Reality?

Some people believe that Augmented Reality (AR), the class of technologies that place images or data on top of other views of the physical world, could be the web browser of the future. AR has rocketed out of the research labs and is catching mass market interest fast – from mobile phones displaying restaurant reviews when you look through your phone’s camera to next month’s Esquire Magazine, which you’ll be able to hold up to your webcam to see marker-based 3D “holograms” in your hands telling you jokes.

The International Symposium on Augmented and Extended Reality this month had major sponsors from all around the world, including Qualcomm, Volkswagon, Intel and Nokia. Despite all this energy, media darling startup Layar is reported to have raised…a mere $1 million investment from venture capitalists. Why are VCs not investing more in Augmented Reality? Here are three reasons why we think investment in this sector has been slow so far.

Layar is the media darling in this space, thanks to the company’s easy-to-use consumer product and dazzling demonstration videos. Earlier this week, VentureBeat broke the news of the company’s funding by European investors. (Layar declined to comment for this story.)

Total Immersion, the company that made those awesome interactive 3D baseball cards (video below) has raised two rounds of funding over the last eight years. Metaio has forthcoming consumer apps but is a major B2B business in AR already – it wouldn’t be a surprise if they’ve raised some money.

But for all the hype, this doesn’t seem to be a field that investors are rushing to fund. Why is that? There are a number of theories.

AR is Just Hype, It’s Not Useful

Lots of people are excited about AR, but is it just eye-candy? Mobile AR, the implementation most accessible to consumers today, is a little disappointing to use once you get past the initial Wow-factor.

Not everyone agrees, though, that there’s no utility here. IT analyst firm Gartner named Augmented Reality one of its Top Ten Disruptive Technologies for 2008-2012.

It is early days. People have been hoping that AR will help with things like auto repair for years and the US Marines have seen big efficiency gains in tests of AR vehicle repair with an Android phone hooked up to a pair of goggles.

Advertising and marketing seem like the low hanging fruit but there’s interest in medicine as well. Imagine anatomical models you could hold in your hand, turn around to look at and interact with or read about.

“The real impact of AR on business,” consultant Tracy Sheridan says, “is money saved in manufacturing, training, etc. [and that] has been overshadowed by its role in digital marketing.”

Since when have investors been shy about backing advertising technology, though? None the less, the perception that AR lacks real utility is undoubtedly mitigating some enthusiasm. There are other arguments that are more compelling, though.

It’s a Feature Not a Product

Companies like Yelp and UrbanSpoon have seen a lot of press coverage for adding AR views of data on top of their existing customer review iPhone apps. Companies in all kinds of verticals where location data is used will no doubt roll out AR features in coming months.

This critique makes sense. Can services like Layar, Wikitude or Tonchidot really become effective browser plays, used by millions of people to browse a wide variety of AR data sets? Or will AR simply appear as features in other, stand-alone mobile applications? Only time will tell.

Neither marker-based AR, the lesser-known but more established form of AR, nor mobile AR may prove difficult enough as technology to present a meaningful barrier to entry.

Markerless AR that processes live video? That’s a whole new story that may offer plenty of technical challenges.

Either way, the “feature not a product” concern was something we’ve heard from several people, including one VC who preferred not to be quoted.

It’s Too Early

David Hornick of August Capital offered perhaps the most convincing explanation why VCs aren’t investing more in AR.

“I’d be happy to invest in the space if there was a near term opportunity,” he told us. “The challenge for investing in emerging markets is to not get too far out ahead of the market (there was a ton of money lost getting too far ahead of the mobile market, etc.). And I think that venture firms are being particularly cautious about getting out too far ahead of trends these days.”

That makes sense. AR isn’t new, it’s been developing in academic labs for ten years or more, but effective commercial applications of it really are. These are the very early days of a new paradigm. User experience, utility and monetization strategies remain in their infancy.

The market has evolved a lot over the last 12 months, though, and answers to some of these questions will likely emerge soon. What better time could there be for daring investors to get in early?

About ReadWrite’s Editorial Process

The ReadWrite Editorial policy involves closely monitoring the tech industry for major developments, new product launches, AI breakthroughs, video game releases and other newsworthy events. Editors assign relevant stories to staff writers or freelance contributors with expertise in each particular topic area. Before publication, articles go through a rigorous round of editing for accuracy, clarity, and to ensure adherence to ReadWrite's style guidelines.

Get the biggest tech headlines of the day delivered to your inbox

    By signing up, you agree to our Terms and Privacy Policy. Unsubscribe anytime.

    Tech News

    Explore the latest in tech with our Tech News. We cut through the noise for concise, relevant updates, keeping you informed about the rapidly evolving tech landscape with curated content that separates signal from noise.

    In-Depth Tech Stories

    Explore tech impact in In-Depth Stories. Narrative data journalism offers comprehensive analyses, revealing stories behind data. Understand industry trends for a deeper perspective on tech's intricate relationships with society.

    Expert Reviews

    Empower decisions with Expert Reviews, merging industry expertise and insightful analysis. Delve into tech intricacies, get the best deals, and stay ahead with our trustworthy guide to navigating the ever-changing tech market.