Instead Of Being Acquired For Billions, Magic Leap Lays Off Over 50% Of Workforce

The Magic Leap 1 headset
 ANSHEL SAG

Magic Leap has long been the focus of many in the VR/AR industry with the enormous amount of funds that the company has managed to raise and burn through. While the company continued to raise funds through large rounds of investment from companies across the industry, the company also meandered and focused on entertainment and showy demos before practical applications. Magic Leap was initially highly secretive and made many promises that I didn’t believe it could deliver on for quite some time. It was recently reported that the company was looking for additional funding and put some of its IP up as collateral for what I would assume would be some sort of infusion of cash through convertible debt. However, there have been multiple rumors of acquisition offers, and even that the company was looking to be acquired as recently as last month.

Market realities become real

In a public letter to employees and the public, Rony Abovitz wrote about the company’s decision to lay off a significant amount of its workers. While Magic Leap has not officially stated how many workers it laid off, the company at one time employed around 1,900 people and is rumored to have laid off as many as 1,000 people. I believe this could have been avoided, especially with the resources and expertise that Magic Leap had at its disposal. The company did a great job of building hype for the possibilities of the Magic Leap hardware and Magicverse, as the company calls it. However, I believe the hardware that the company came to market in 2018 with (the Magic Leap One) was mired by unrealistic expectations, clunky design and lots of room for improvement overall.

One of the good things that I think Magic Leap got right was trying to separate the compute from the AR optics, but I believe this was done more out of necessity because the headset is already quite hot and heavy without the compute element. Additionally, Magic Leap’s choice of compute element hardware was quite perplexing as it was effectively the only one not to use a Qualcomm XR chipset to power its hardware and instead went with a custom NVIDIA-powered design. I believe that Magic Leap’s decision to try to do everything (including manufacturing) themselves was ultimately what brought us to this point where they’ve burned through billions and are still looking for cash and any kind of meaningful revenue and profitability. The company also had a ton of mixed messaging that the first headset was a developer product and not meant for consumers but then started to sell them in AT&T stores and push consumer apps and use cases further confusing the market.

The reality of the situation is that Magic Leap failed to understand the market it was in and that enterprise was leading the way, and I believe that had a lot to do with the makeup of the company’s leadership. I wrote about the enterprise trend in XR as far back as 2017, which is when Magic Leap should have begun its pivot towards enterprise. Magic Leap’s late pivot to enterprise last year was one that many people, inside and outside of the company saw as too little, too late. Now, the company is pivoting towards the enterprise heavily and frankly, I do not think it is a good idea to just completely wipe away all the good work the company had done in consumer.

Overcorrecting

By laying off what many believe to be 1,000 people, the company effectively stops all the good work those people did, even if it did not reach many people’s hands, yet. I mean, the company laid off its Chief Content Officer, Rio Caraeff, which makes extraordinarily little sense to me because if there was something that company was producing successfully it was content. And if I recall correctly, the company is still going to need to help create content even for enterprise customers. While none of us are fully aware of the company’s financial position right now, either things are much more dire than they appear, or the company is over rotating towards enterprise and leaving good work to die on the vine. To me, this looks like an overreaction to survive rather than a well thought out company-wide shift towards a segment of the market that is more mature and showing growth and profitability for many of the companies serving it.

Wrapping Up

I think that Magic Leap is going to struggle to survive on its own without some significant help from larger players. Magic Leap was late to enterprise and way too early to consumer. It will likely suffer a similar fate as NextVR which also bet heavily on consumer for VR and even had support for Magic Leap towards the end before they were acquired by a bigger player, in this case Apple. I expect that some of the bidders for Magic Leap had already made previous offers and now that Magic Leap is in a more dire situation will be forced to settle for less money and hurt their investors. Magic Leap has a lot of interesting IP and have helped move the AR industry in a positive direction, but I think it has made a lot of mistakes and failed to recognize them soon enough.

Many of us have been talking about the fate of Magic Leap since the company came out of stealth and as things got worse, the general consensus was that Magic Leap was extremely important to the industry and that it would be a bad thing to see them fail. Many of us agreed that them acquiring so much funding and failing would put a significant cooling effect on investment in the industry, but I guess this happening during a global recession does not particularly make much of a difference for investment. While Magic Leap attempts to blame the conditions of the current economy and COVID19, anyone who knows what’s been going on with the company will say that this may have impacted financing and possibly some other factors, but the fundamental problem was that it was too late to pivot to enterprise and over-committed to consumer.

Note: Moor Insights & Strategy writers and editors may have contributed to this article.