ISTM #15: Will Exit VR Become the Netflix of VR?

I met Exit VR co-founder Ilya Druzhnikov on an extremely rainy night at a tech event in Pacifica. We were two of only three people who showed up, so it gave us time to talk. I learned that he and Yoni Koenig, his business partner, had devised a rare business model that promises to be lucrative and sustainable.

In 2016, at a time when both the tech and entertainment communities were going bonkers over the near-term promise of VR and AR, Ilya and Yoni decided to run a field test. They took a battered old van and converted it into a mobile VR lab. Equipped with state-of-the-industry VR gear, they would park it where people gathered in the many diverse neighborhoods of San Francisco. They would vary the price for viewing as well as the time per visit and the apps that were shown.

Like others, they encountered lots of wild enthusiasm and predictions of how immersive technologies would change everything and soon. But instead of joining the mania, they stepped back and thought about what they had seen and learned.

No Consumer Market

Unlike most VR/AR community members, they stepped back and thought about what they were seeing, and they concluded there was no consumer market for VR today and there will not be one for home entertainment for many years to come.

They saw three major obstacles:

  1. Untried. No one wants VR until they try it, and even in tech-centric San Francisco, most people had neither the opportunity nor the desire to try on a headset. VR may grab big headlines and video clips at CES and SXSW, but there is little VR or AR to try in sources where everyday people may get access.
  2. Price. Those who do try on headsets, love it, but the cost of quality gear remains steep for home users, easily costing more than $3,000 for hardware and software that is likely to be replaced a year from now with higher quality at a lower price.
  3. Space. People who like VR and have the discretionary money, often don’t have the 60-100 square feet of space at home needed for moving around with a VR headset while blind to obstacles like chairs and moving pets.

These barriers may seem obvious today, but in 2016, they were not. Most predictions were for massive adoption of VR and AR in consumer technologies. Almost every consumer media program and publication was forecasting a world where headsets were at the center of digital life and the disruptor of consumer entertainment experience.

The Exit VR guys saw a different story unfolding, one where people would come to the technology long before the technology would come to people in their homes.

They elected to become a platform play and a VR channel, not unlike what cable TV companies did before streaming, and much like what Netflix is today. Instead of developing new tech or partnering on it, they would simply make it available to people looking for leisure time amusement.

The Exit VR guys turned to Family Entertainment Centers (FECs), a well-established category. There are over 700 of them in the US and EU. Additionally, there are many family hotels with entertainment arcades, shopping centers, bowling alleys, arcades, trampoline parks, rock-climbing gyms and restaurants such as Chuck E. Cheese where more revenue is derived from games than pizza. These are places where people are already accustomed to spending a few dollars a pop for a few minutes of fun.

In all, Ilya estimates there are over 40,000 such establishments in just the US alone. Each wants to keep people coming back again and again and the best way to accomplish that is to provide new experiences, particularly ones worth talking about.

Augmented and Agnostic

According to an Exit VR survey, over 60 percent of these businesses intend to install VR kiosks in the short-term future, and in that, Exit VR found its go-to-market strategy. They have created a business-to-business category they call Augmented Spaces. While it is just VR now, Ilya says that there are AR-related plans in the near future.

They say they are in the Augmented Spaces Business, which is good. I think what they are doing will make them the Netflix of consumer AR and VR. “We are absolutely agnostic to products and technologies. We want to provide the highest quality immersive experience, using equipment that most people cannot afford to install at home,” Ilya told me.

It seems to me that’s pretty smart thinking. Today, VR offers the unique thrill of walking a plank between urban skyscrapers or etching butterflies in midair on VR Tiltbrush: By the time that becomes old hat, some other software developer will have something more thrilling to replace it, and Exit VR, serving as a brand-agnostic content distributor, will replace them with whatever is new and popular. This strategy will keep partners happy because it keeps customers coming back. It also keeps revenue flowing to Exit VR as long as innovation keeps coming, which seems to give them a ramp of infinite opportunity.

Still in its first full year out of the van, the company has installs across the US, plus orders coming in from Mexico, the EU, South Asia and the Middle East. I was told the biggest challenge they face is to scale fast enough to meet demand.

It also looks like a no-brainer for entertainment center decision makers. According to Ilya, each installation is a turnkey transaction that pays for itself in about seven-months’ time.

They are eying several new markets for later this year. It sounded to me like Healthcare has their greatest strategic attention. Ilya talked about three types of Augmented Healthcare Spaces.

Son of a Dissident

Ilya is the Russian born son of Yuri Druzhnikov, a noted Russian dissident during the Nixon-Gorbachev era. He wrote dozens of novels that are available on Amazon in English translation. In the early 70s, the elder Druzhnikov was facing either being tossed in an insane asylum or years of hard labor in a Russian Gulag, when a peace treaty was signed and the family was allowed to emigrate to Houston, where Ilya was raised from the Age of 16 until moving to California which sounded more to his liking.

While his father wrote of a freedom that he hoped would someday happen, the son talked to me about a vision of his company becoming the great enabler of a new form of learning and communicating, one which is truly immersive.

I like people I call visionary pragmatists. I think Ilya fits that description and that Exit VR may just be a company that triggers the massive sort of adoption that technologists were seeing for immersive technologies in 2016 when the company was founded.

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Score One for Humans Over Machines

Sometimes, the debate about autonomy versus augmentation feels like a competitive sporting event. I think it is more serious than that, but every now and then, it’s fun to see humans whupping the smartest of machines.  It’s sort of like Rocky taking down Apollo Creed.

Last week, IBM, whose AI-turbocharged Watson had beat grandmasters of chess and world champions at Alpha Go, took on Harish Natarajan, 31, a champion debater, with its newest intelligent machine: Miss Debater, it’s six-year-old debating machine. It was close, but the human won for now at least.

This was more than just fun and games, of course. Until now, machines have excelled only in competitions where rules are rigid and unambiguous. AI has not demonstrated an ability to deal with the nuances, ironies, spontaneity, surprises and even common sense that we humans have: it’s one of the reasons I remain opposed to fully autonomous cars.

It should be noted, that unlike Chess and AlphaGo, the debate’s victory was determined by an entirely human audience. Could this have been a new form of machine bias? Probably, but Hell, we’re still in charge, and I hope it stays that way.

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Freaky Factor Updates

Wired ran a story on Valentine’s Day about OpenAI, the nonprofit institute founded by Elon Musk and Y Combinator founder Sam Altman. The Institute is dedicated to doing for artificial intelligence what Open Source has done for code. It is dedicated to discovering and sharing technologies that benefit humankind for free.

According to the article, the OpenAI scientists just had a Frankenstein moment when they realized there may be some things that humans should not tamper with.

The OpenAI developers designed a system that can learn natural language patterns better than any previous attempt so far after feeding it eight million web pages to train it. What is newsworthy to me about this is what they did next: they stopped to consider the implications.

According to Wired, David Luan, OpenAI vice president of engineering, and fellow researchers began to imagine how it might be used for unfriendly purposes. “It could be that someone who has malicious intent would be able to generate high-quality fake news,” Luan told Wired. “It looks pretty darn real.”

And then they decided not to release the code because of concerns about the ethical implications of progress in AI.

I think this novel idea of stopping to think about social and ethical implications is a good thing to openly share. The general tech sector belief is that future technologies will repair the damages done by technologies being developed today. And yet we still have no solutions of how to stop foreign adversaries from tampering with our elections.

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Google’s Augmented Street Map

I am usually tepid about smartphone AR apps. First, they are not truly immersive, and second, it seems awkward to me to be walking around, holding a phone in front of your face. I do like them for limited motion use, such as the AR user manuals that ReFlekt keeps publishing.

But the exception might be the Google AR Maps application that Business Insider previewed last week. It allows pedestrians to do outdoors what interior map apps, such as Aisle411, does indoors. You can ask it for directions to your destination then follow virtual arrows along the sidewalk. This is very useful to anyone who has just parked and is not oriented to directions of the area.

These are the kinds of little innovations that will make us unable to live without AR to assist us. There are enormous challenges to augmenting the Earth, but it is a true killer app and Google is likely in this case to keep the developmental lead that it has in this area.

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Got Something for ISTM?

I want to provide ItSeemstoMe readers with more original content. I am looking for business stories that embrace AI, AR and non-gaming VR. If you have a story that fits this description, I would love to hear from you.

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