After Overhype And Retrenchment, Magic Leap Finds A Niche In Less Cool But Useful Augmented Reality

On the factory floor at Roscoe, Illinois-based PBC Linear, new workers don augmented-reality headsets from Magic Leap as part of their training. For the past three years, the privately held company, which manufactures bearings and actuators, has used the headsets for instruction and, more recently, for preventive maintenance and sales.

“We just saw a really cool demo for some really cool hardware and our owner wanted to invest,” says Beau Wileman, PBC Linear’s applied cobotics product manager. “The technology feels made for the industrial setting.”

That’s a far cry from the early days of Magic Leap, one of the most overhyped tech companies of the past decade. It shows both the real-world potential of its technology under CEO Peggy Johnson, who took the top spot two years ago, as well as how slow adoption has been. Augmented reality meshes digital content, such as virtual instructions or 3D images, with the real world, unlike in virtual reality where a user is fully enmeshed in the digital universe.

Six years ago, Forbes put Magic Leap and its founder Rony Abovitz on the cover of the magazine for the promise of its technology to be “a disruption machine.” The startup, which raised more than $2 billion from top investors that included Alphabet and Alibaba Group, was valued at $6.7 billion at its peak. The technology was cool, but its business model—targeting consumers who had no real reason to shell out big bucks for its ARAR
headsets—was a failure. In spring 2020, the company laid off 1,000 employees, or roughly half its workforce, in a widespread restructuring.

That September, Johnson, previously executive vice president of business development at MicrosoftMSFT
, took the reins from Abovitz. Her goal: Turn Magic Leap into a real business. Like many tech startups that promised to change consumers’ lives, Magic Leap, which last year raised funds at a reduced $2 billion valuation, found that the best uses for its technology were in industry, particularly areas like manufacturing, healthcare and defense. That’s a similar trajectory that 3D printing went through as the technology moved from the hype of targeting consumers interested in making knick-knacks to real uses by manufacturers looking to redesign parts to be lighter, cheaper and more efficient.

“There is a lot of hype, and we are not about hype at all in this Magic Leap 2.0 world,” Johnson told Forbes.

Magic Leap introduced its second-generation augmented-reality headset, known as the Magic Leap 2, on September 30. Geared toward enterprises, it’s lighter and more powerful, with better imagery, than the earlier version. The enterprise device, cloud-enabled and including security features, costs $4,999. A base model of the new device is available for $3,299.

“Consumers get all the attention for new technology. Things tend to go from tech to toy to tool.” 

The ongoing shift in strategy puts Magic Leap head-to-head with Microsoft’s HoloLens, which introduced its device in 2015 and has since struggled with the technology, as detailed in a recent Wall Street Journal story. Meta, AppleAAPL
and Alphabet are also expected to unveil their own AR headsets in the coming years. “Competition is good,” Johnson says. “It’s a sign of a healthy market.”

The competition somewhat blurs the lines between augmented reality and virtual reality, with Meta’s new Quest Pro, introduced in late October at a price of $1,500, allowing a new pass-through mode that lets a user see what’s happening around them. Johnson argues that the pass-through doesn’t allow enough precision for technical tasks such as surgery, and that to date HoloLens is the only directly competitive AR device. “We feel strongly that our field of view, which is industry leading, is the right direction for enterprise,” she says. She declined to discuss the company’s revenue or to disclose how many headsets the company has sold to date.

Total enterprise shipments for 2022 reached 1.3 million (versus almost nothing on the consumer side), and are expected to rise to 26 million in 2027, according to technology intelligence firm ABI Research. Eric Abbruzzese, ABI’s augmented-reality and virtual-reality research director, figures that there are “a few million” augmented reality headsets in the market today, with Microsoft’s HoloLens holding the lead. Magic Leap’s sales are in the thousands, he says, “absolutely under 40,000, probably under 10,000.” Johnson declined to comment on those numbers.

“If Microsoft continues to struggle with the HoloLens, there’s an opportunity to supplant them a bit,” Abbruzzese says. “The general consensus with Magic Leap is wait-and-see.…There’s going to be a question mark, fairly or not, above Magic Leap. They haven’t had enough time to erase that question mark yet.”

“There is a lot of hype, and we are not about hype at all in this Magic Leap 2.0 world.”

Before taking over as CEO, Johnson, 61, who grew up in Alhambra, California, just east of Los Angeles, had spent her career in Big Tech. She worked for 25 years at QualcommQCOM
, where she became executive vice president of global development, and then another six years at Microsoft, where she was executive vice president of business development. Considered one of Silicon Valley’s most powerful women, she was Microsoft CEO Satya Nadella’s first major hire (she received a $7.8 million signing bonus) and quickly forged strategic acquisitions and partnerships with Cyanogen and Dropbox, among others.

Before becoming CEO of Magic Leap, she had visited its facilities and seen its technology, she says. “I knew it worked,” she says. “That wasn’t broken at all. I did think the focus on consumer was not the right one.”

At Magic Leap, she figures that augmented-reality devices will eventually go through an evolution similar to mobile phones, where businesses that have both reason and cash to pay more will be the early adopters, and only later will the cost come down enough to make the devices viable for consumers. “Early mobile phones were big and heavy and expensive,” she says. “Businesses bought them because they had a reason to, and over time they got smaller and got into the hands of consumers. That seemed like the pivot that needed to take place.”

Mike Bechtel, chief futurist at Deloitte Consulting, agrees. “There’s a tendency for consumers to get all the attention for new technology,” he says. “Things tend to go from tech to toy to tool.”

“There’s going to be a question mark, fairly or not, above Magic Leap.” 

But such shifts can be slow and rocky. Natan Linder, cofounder of manufacturing software company Tulip (and 3D printing firm Formlabs), says that his company supports HoloLens and Realware, but thinks the technology isn’t really there yet. “Generally speaking, I’m a skeptic,” he says. “There are guidance and remote expert use cases, but I don’t think you need a headset for 80/20 of what AR promises versus holding a nice smartphone that can do a video call out of the box quite easily.”

For now, Magic Leap is focused on enterprise, and especially areas like industry, healthcare and defense. At PBC Linear, Johnson says, the company reduced training time from three weeks to just three days with the devices. Lowe’s, meanwhile, is using the devices to help with store layouts and restocking of shelves in cooperation with Nvidia. In healthcare, surgeons at UC Davis Children’s Hospital in Sacramento, California, used Magic Leap’s devices to help prepare for the separation of twin babies who were joined at the head. Working with Senti AR, Magic Leap’s devices can similarly help surgeons perform heart surgery more effectively by putting a 3D image of the patient’s heart in front of them during surgery to improve navigation. While Magic Leap’s devices are approved for use in surgery, that application is not yet commercially available.

“You hear people say that AR is far off,” Johnson says. “There are use cases right now with the technology in its current state. It’s not about building avatars and escaping the physical world, but about immersing in the physical world. I think sometimes that gets lost because it’s not as flashy.”