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Magic Leap is not worth $10bn

Magic Leap One

Recently, Bloomberg reported that Magic Leap is exploring ‘strategic’ options, such as selling itself. The anonymous sources said its value could be $10bn, gauging interest from Facebook and Johnson & Johnson.

The suggested sale price is ridiculous. $10bn for a company that has reportedly sold 6,000 units is laughable. It’s like creating a luxury ice cream, selling 100 units, and then trying to sell the ice cream company for several million dollars. It’s a bit Magic Steep.

Why is Magic Leap doing this? And why are reports on the potential rejig coming now? Well, there are a few theories.

Driving up the value of Magic Leap

Josh Constine from TechCrunch has a great theory that anonymous members of the company wanted the $10bn figure to be leaked. Why? Because it could potentially draw in other companies who may approach them for a strategic partnership. Even if the result doesn’t come close to $10bn, the company wanted to leak such a high figure to drive up the potential sale cost.

Makes sense, but it’s hard to see how Magic Leap is worth anywhere near that sum. The company raised $2bn from several sources like Alibaba and Google, sure, but the actual business impact is minimal.

I am not saying the company has no value. Some of my favourite experiences from 2019 have been Magic Leap experiences. But they are niche and narrow, not the massive consumer-end demand expected from a device that wants to take over the world. The Magic Leap delivers small and powerful experiences, but none justify the cost of an expensive consumer headset.

Magic Leap
Magic Leap had great marketing in the past. Photo credit: Magic Leap.

Difficult market conditions

Investors also need to consider the state of the augmented reality market. Apple and Facebook are developing AR glasses, hoping to deliver some decent social benefits. The spectacles will also likely be designed to be fashionable, unlike the bulky steampunk vibe that the Magic Leap currently radiates.

Over the next few years, more and more augmented reality devices will come to the market to compete with Magic Leap. While it had the first(ish)-mover advantage, that benefit has all but diminished. The playing field is bare and ready for competition, with some first-generation specs coming later this year. To prepare for the competition, Magic Leap wants to develop its strategic advantages; but will anyone bite?

Perhaps it will lean on its current content to prove its benefit. Magic Leap recently announced they are working with BBC Studios, and previous partnerships with Alchemy Immersive provided some strong experiences. But in the end, Magic Leap provides the hardware that supports great software. If a good enough alternative comes along, agencies and companies can migrate easily.

A Magic Leap into the unknown

Like many, I remember the hype behind Magic Leap. The company delivered videos that showed whales leaping into the sky and crashing in the middle of a school hall, with interactable games where people can pluck virtual objects in the real world. Magic Leap felt like a game-changer, a way to engage with great content. It felt new.

Yet the lustre dimmed. After years of secrecy, a decent headset released which lacked the console-moving content that could have brought mass-adoption. The first headset showed the concept worked, but not the wider appeal they expected. After wanting to sell one million units in its first year, the figure was downgraded to 100,000. And we know what happened after that.

Perhaps Magic Leap lacks the scale that other tech giants can offer, similar to how Facebook can push Oculus units at a reasonable cost due to economies of scale. A strategic partnership could help. But if it’s a case of talent, other companies can pluck away employees without an acquisition necessary.

I never want a company to fail, and I really like the Magic Leap. But with the current state of the company or market, I do not think it will come close to the $10bn target. Their persuasive skills must be astonishing. If it does hit the number, then the leaders of Magic Leap should take up a career in politics.