Desperate to exit, a $10B price tag for Magic Leap is crazy

Augmented reality headset maker Magic Leap has struggled with the laws of physics and failed to get to market. Now it’s seeking an acquirer, but talks with Facebook and medical goods giant Johnson & Johnson led nowhere according to a new report from Bloomberg’s Ed Hammond.

After raising over $2 billion and being valued between $6 billion and $8 billion back when it still had momentum, Hammond writes that “Magic Leap could fetch more than $10 billion if it pursues a sale” according to his sources. That price seems ridiculous. It’s the kind of number a prideful company might strategically leak in hopes of drumming up acquisition interest, even at a lower price.

Startups have been getting their valuations chopped when they go public. The whole economy is hurting due to coronavirus. Augmented Reality seems less interesting than virtual reality with people avoiding public places. Getting people to strap used AR hardware to their face for demos seems like a tough sell for the forseeable future.

No one has proven a killer consumer use case for augmented reality eyewear that warrants an expensive and awkward-to-wear gadget. Our phones can already deliver plenty of AR’s value while letting you take selfies and do video chat that headsets can’t. My experiences with Magic Leap at Sundance Film Festival last year were laughably disappointing, with its clunky hardware, ghostly projections, and narrow field of view.

Apple and Facebook are throwing the enduring profits of iPhones and the News Feed into building a better consumer headset. Snapchat has built intermediary glasses since CEO Evan Spiegel thinks it will be a decade before AR headsets see mainstream adoption. AR rivals like Microsoft have better enterprise experience, connections, and distribution. Enterprise AR startup Daqri crashed and burned.

Magic Leap’s CEO said he wanted to sell 1 million of its $2300 headset in its first year, then projected it would sell 100,000 headsets, but only moved 6,000 in the first six months, according to a daming report from The Information’s Alex Heath. Alphabet CEO Sundar Pichai left Magic Leap’s board despite Google leading a $514 million funding round for the startup in 2014. Business Insider’s Steven Tweedie and Kevin Webb revealed CFO Scott Henry and SVP of creative strategy John Gaeta bailed in November. The company suffered dozens of layoffs. It lost a $500 million contract to Microsoft last year. The CEOs of Apple, Google, and Facebook visited Magic Leap headquarters in 2016 to explore an acquisition deal, but no offers emerged.

Is AR eyewear part of the future? Almost surely. And is this startup valuable? Certainly somewhat. But Magic Leap may prove to be too little too early for a company burning cash by the hundreds of millions in a market newly fixated on efficiency. A $10 billion price tag would require one of the world’s biggest corporations to believe Magic Leap has irreplicable talent and technology that will earn them a fortune in the somewhat distant future.

The fact that Facebook, which does not shy from tall acquisition prices, didn’t want to buy Magic Leap is telling. This isn’t a product with hundreds of millions of users or fast-ramping revenue. It’s a gamble on vision and timing that looks to be coming up snake eyes. It’s unclear when the startup would ever be able to deliver on its renderings of flying whales and living room dinosaurs in a form factor people actually want to wear.

 

One of Magic Leap’s early renderings of what it could supposedly do

With all their money and plenty of time before widespread demand for AR headsets materializes, potential acquirers could likely hire away the talent and make up the development time in cheaper ways than buying Magic Leap. If someone acquires them for too much, it feels like a write-off waiting to happen.

Immutouch wristband buzzes to stop you touching your face

In the age of coronavirus, we all have to resist the urge to touch our faces. It’s how the virus can travel from doorknobs or other objects to your mucus membranes and get you sick. Luckily, a startup called Slightly Robot had already developed a wristband to stop another type of harmful touching — trichotillomania, a disorder that compels people to pull out their hair.

So over the last week, Slightly Robot redesigned their wearable as the Immutouch, a wristband that vibrates if you touch your face. Its accelerometer senses your hand movement 10 times per second. Based on calibrations the Immutouch takes when you set it up, it then buzzes when you touch or come close to touching your eyes, nose, or mouth. A companion app helps you track your progress as you try to keep your dirty mitts down.

The goal is to develop a Pavlovian response whereby when you get the urge to touch your face, you don’t in order to avoid the buzzing sensation. Your brain internalizes the negative feedback of the vibration, training you with aversive conditioning to ignore the desire to scratch yourself.

“A problem the size of COVID-19 requires everyone to do their part, large or small,” says Slightly Robot co-founder Matthew Toles. “The three of us happened to be uniquely well equipped to tackle this one task and felt it was our duty to at least try.”

The Immutouch wristbands go on sale today for $50 each and they’re ready for immediate shipping. You can wear it on your dominant hand that you’re more likely to touch your face with, or get one for each arm to maximize the deterrent.

We’re not looking to make money on this. We are selling each unit nearly at cost, accounting for cost of materials, fabrication, assembly, and handling” co-founder Justin Ith insists. Unlike a venture-backed startup beholden to generating returns for investors, Slightly Robot was funded through a small grant from the University of Washington in 2016 and bootstrapped since.

Slightly Robot and Immutouch co-founders (from left): Joseph Toles, Justin Ith, and Matthew Toles

We built Immutouch because we knew we could do it quickly, therefore we had the obligation to. We all live in Seattle and we see our communities reacting to this outbreak with deep concern and fear” Slightly Robot co-founder Justin Ith tells me. “My father has an autoimmune disease that requires him to take immunosuppressant medication. Being in his late 60’s with a compromised immune system, I’m trying my best to keep the communities around him and my family clean and safe.”

How to calibrate the Immutouch wristband

Based on a study using wearable warning devices to deter sufferers of trichotillomania from ripping out their hair, Immutouch could potentially be effective. University Of Michigan researchers found the vibrations reduced long and short-term hair pulling. Ith admits you have to actually heed the warnings and not itch to instill the right habit, and it doesn’t work while you’re lying down. The Immutouch stops short of electrically shocking you like the older gadget called Pavlok that’s designed to help people quit smoking or opening Facebook.

Perhaps smartwatch makers like Apple could develop cheap or free apps to let users train themselves using hardware they already own. But until then, Ith hopes that Immutouch can gain some initial traction so “we can order larger quantities, reduce the price, and make it more accessible.”

Modern technologies like Twitter for rapidly sharing information could encourage people to take the right cautionary measures like 20-second handwashing to slow the spread of coronavirus. But having phones we constantly touch — before, during, and after we use the restroom — and then press against our faces could create a vector for infection absent from pandemics of past centuries. That’s why everyone needs to do their part to smooth out the spike of sickness so our health systems aren’t overrun.

Ith concludes, “Outbreaks like this remind us how we each individually affect the broader community and have a responsibility to not be carriers.”