On 22 April, Magic Leap announced that they were laying off employees to cope with the COVID-19 crisis. The official blog did not give any specific numbers, but Bloomberg reported that it was about 1000; that’s a thousand families and friends devastated by the business decision. All talented and hard-working, a rainy day came for the USA-based company. The layoffs coincide with a change of course, away from its consumer ventures towards enterprise matters.
Like many other businesses, COVID-19 drastically impacted Magic Leap and forced its hand with its decisions. But these decisions were coming anyway. Magic Leap was going through some troubled times, and changes were likely coming down the line. While COVID-19 was the straw that broke the camel’s back, the camel was already carrying a lot of capital (and emotional) baggage.
This is not a bad thing. I am a massive fan of the company, and have supported it for many years. I also believe in its potential, as it supplied some of my favorite immersive experiences in my time writing in the industry. But in terms of profitability, the changes were likely coming for a long time.
Magic Leap’s $10bn value
A few weeks ago, rumours spread that Magic Leap was worth $10bn. In response, a flurry of articles explored how it couldn’t be worth so much. How could it? A company that reportedly undersold headsets, making partnerships that didn’t necessarily lead to more finances.
Albert Millis, COO of Virtual Umbrella, shares the same opinion in his article: “Magic Leap believes it is valued at $10bn. We feel this is wrong… [partly because] there is a lot of bloat in their business. Meaning there’s a lot of employees doing tasks that wouldn’t be needed if they were to sell to the likes of big tech giants (think Apple, Amazon, Google, Microsoft, Facebook).
“The value of the business is therefore mostly in the engineering team, intellectual property and the vision of the management team who would have to stay on for many years to execute on this. A type of Golden handcuffs deal meaning they get paid a certain amount of salary, but they don’t actually get their full payout until the transitional period is finished.”
With a number of overheads and differing areas of focus, change was likely coming for the company. After the Series E late in 2019, it felt like Magic Leap was gathering additional funds to help it change direction.
Moving from consumer to enterprise
The blog made clear their aims: “The recent changes to the economic environment have decreased availability of capital and the appetite for longer term investments. While our leadership team, board, and investors still believe in the long-term potential of our IP, the near-term revenue opportunities are currently concentrated on the enterprise side.”
The transition makes sense. When following the money, enterprise-related activities are a winner. Sources I’ve spoken to that have partnered with Magic Leap informed me that, in many cases, the partnerships were more for PR than money. The best way of thinking about these projects was the dazzle and point-of-concept showpieces, rather than generating a large lump of cash. Such approaches could lead to more money down the line, but in the short-term it’s best to treat the approach as an investment for the future.
COVID-19 and Magic Leap
Magic Leap is one of the most hyped companies in the tech world. After years of secrecy, the product launched its first headset to great applause. Yet after the release, years of further secrecy followed, not fully unveiling their numbers as reports tricked through.
The engineers and brains within Magic Leap should be respected, as the company provides some of the most compelling experiences in the industry, I still remember fondly watching Dinosaur’s prowl through a room as David Attenborough narrated their details. I also wish them all the best for their pivot towards enterprise activities. But based on the volume of reports over the years, COVID-19 didn’t cause Magic Leap’s change in course. It was the weight of its decisions over several years, long before the pandemic.
Editor, Virtual Perceptions