In 2016, Pokemon Go broke the record for the most downloaded iOS app at launch. It raked in $1B within 7 months, which had taken Clash Royale 11 months. Catching Pokemon became a part of people’s daily lives, enhancing everything from tedious work commutes to weekend road trips. Two years later, the game is still going strong, with the highest number of players since 2016 and $104M in revenue last month, up 174% YoY.
At the heart of this success is Niantic, who has emerged as the catalyzing leader of the AR industry. Augmented reality is on the cusp of a breakout, and Niantic will be the company that leads it to mass consumer adoption.
What can we learn from VR?
As Roelof Botha once wrote, VR had to cross three hurdles to achieve consumer adoption — price, content, and fragmentation of production & distribution. Today, you can jump into VR for only $200 on Oculus Go with no extra equipment. You can also choose from a broad content catalogue that includes brand names like ESPN and Stranger Things. And finally, unifying production (Unity) allowed creators to build their games once and distribute on multiple platforms.
AR just went from $3000 to $0
In the last twelve months, AR also crossed several of the hurdles that VR faced. Prior to 2017, AR was expensive and niche, as it was only available on high-end wearable form factors (HoloLens, Google Glass) where the price barrier is even higher than VR counterparts (Oculus Rift, Vive). Then, Apple started enabling AR on iPhones with upgraded chips and cameras. This dropped the price of experiencing AR to zero and broadened distribution.
With price and distribution solved, creators can now dream of making mass market AR products, and learning AR is a sensible investment for developers. But two challenges lie ahead before this can become practical.
- Consumer awareness in a niche market. The most powerful lever of growth for any product is when a user finds out that their friends are on the platform. How do you design AR so that each incremental adopter gets their friends interested in AR, and people on the platform collectively benefit from participating (hint, sounds like network effects)?
- Steep learning curve of creating content using frontier tech. For AR to become mainstream, you need to convince a bunch of creators to learn it. This challenge is unique to content built on newly invented tech; platforms that digitize and aggregate traditional formats like audio and films (Spotify, Netflix) just need the rights to distribute, and platforms that amass UGCs (Youtube) don’t need creators to gain special skills. To convince a creator to learn new tech, AR also needs to compete with more profitable markets like console games and standard mobile apps.
As we saw with VR, building a consumer platform on frontier technology is really hard. AR tech needs to become accessible to developers, and whoever provides the tools to do so must invest in the right R&D efforts that shape how people experience AR.
Niantic is invested in both sides of the house — create category-defining AR products for consumers and enable other developers to do the same — and will reap huge benefits from being so.
More than just face filters and selfies
Many companies are currently invested in AR, but even the more innovative players like Snap and Houzz have struggled to get beyond layering AR as a creative tool on top of existing mobile use cases (take pictures, shop furniture). Niantic has invented a new category of augmented experiences — location-based AR — that sets a standard for the industry to comprehend and build towards.
In the last decade, consumer apps focused on asynchronous digital interactions (Instagram, Snap) that let people connect with each other from anywhere and anytime. This came from the point-of-view that staying connected 24/7 is better than logging off, and arguably why apps today are designed to direct people’s attention away from the physical world.
In the next decade, AR will focus on the real world by enhancing it with digital information that focus on the relevant location, social context, or the people in presence. Pokemon Go’s real innovation was the first step towards this, by creating digital content that enriched fundamental experiences in our lives, whether that be taking a new route to work to catch a rare Pokemon, or traveling to a new city and discovering new breeds.
So this begs the questions — what is the power of location-based AR, why was Pokemon Go so successful (other than the powerful IP), and how can we identify other promising AR products in the future?
Network effects in the physical world
Though Pokemon Go launched without social features, my friends and I have trekked to Dolores on countless Sundays to catch Pokemon. Location-based AR creates synchronous experiences between a high concentration of people physically present together. The ability to share experiences with friends is what makes Pokemon Go fit so seamlessly into our lives. Humans crave shared experiences, and playing the game is more fun with your friends at the same location. What better example of network effects is there?
This is the opposite of VR, which is inherently private and fully immersive. For a VR app to have network effects, it must center around social competition, communication, or collaboration. For instance, Rec Room and Bigscreen, the leading examples of companies that have achieved this, have created third places in VR where people can hang out. However, this competes for the user’s time with third places in the real world, like parks, bars, and coffee shops. On the other hand, location-based AR can enrich experiences for groups of people physically present together and already engaging with one another.
Thus, Niantic has solved the first challenge — consumer awareness — for AR to go mainstream. Each incremental friend playing Pokemon Go with you makes it more fun (and acceptable) to pull up the game wherever you are, and it organically brings on more users as it’s impossible for others to not see it.
Build once, deploy anywhere
Pokemon Go changed how everyone thought about AR. Disney, for instance, quickly followed by creating a Star Wars AR app that got people to visit retail locations. This brings us to the Real World Platform, and Niantic’s strategy to benefit from others joining the game.
As we saw with VR, learning new tech is a cost that holds developers back from building on new platforms. Today, no single option exists for cross-platform AR development; devs need ARKit for iOS, ARCore for Android, or Vuforia with Unity. In June, Niantic announced that it will open up its proprietary AR tech like occlusion and persistent/shared worlds in a cross-platform suite called Real World Platform, along with CRM, analytics, security, and social. Niantic can lower the barrier to entry for creators and allow them to reach both iOS and Android users without learning multiple specialized skills. Thus, Niantic has solved the second challenge — steep learning curve — for mass adoption of AR to become practical.
AR inventions are both costly and complex, so it’s a shrewd strategy for Niantic to sell the underlying technology to external developers; Niantic can make money multiple times from its tech and benefit from more developers participating in the market, similar to Amazon’s strategy of being its own first and best customer of AWS.
Network effects in machine learning
But this has nothing to do with Pokemon Go, other than that they’re reusing their R&D, you may ask. Though RWP and Pokemon Go may seem unrelated, network effects in data actually make RWP more powerful from Pokemon Go.
Traditionally, consumer apps capture network effects in social interactions or economic trade between users; a new user on a social graph benefits all friends of that user, and a new buyer in a marketplace benefits all sellers. Machine learning creates a new type of network effects, where the value of one additional participant is captured in training data, which makes algorithms more advanced and benefits all users of the product.
Seamless interactions between digital and physical worlds are key; as Niantic says, “[the] technology must be able to resolve minute details, to specifically digitize [publicly accessible spaces], and to model them in an interactive 3D space.” Thanks to Pokemon Go, Niantic has broader coverage of parks, malls, schools, and other public locations as training data than any other camera company. The more users, the more examples of 3D spaces, and better tech for everyone on both first party games and Real World Platform.
Easily consumable by the masses, Pokemon Go earned more revenue in the first three months ($600M) than all of VR games software in 2016. As more developers learn AR and apps reach more AR-equipped smartphones, mobile AR is projected to grow faster than VR and will reach 3B users by 2021.
Niantic has in their hands the fastest-growing mobile game in history, proprietary AR tech, and an attractive platform for developers. Pokemon Go is just the beginning and a sneak Pika into the bright future of the company.
Thanks for reading!
This article does not represents the opinions of her employer, and she has no personal affiliation with Niantic.