Mixed Reality

Gene Munster
Senior Analyst
Internet
612 303-6452
gene.a.munster@pjc.com
Travis Jakel
Research Analyst
612 303-6530
travis.s.jakel@pjc.com
Doug Clinton
Research Analyst
Internet
612 303-6530
douglas.j.clinton@pjc.com
MIXED REALITY IS THE NEXT PARADIGM
SHIFT IN MOBILE COMPUTING
 The Next Paradigm Shift in Mobile Computing is Mixed Reality (MR). We believe
virtual reality and mixed reality are the next mega tech themes through 2030. We liken
the state of virtual and mixed reality today as similar to the state of mobile phones 15
years ago. It likely will take a decade before mainstream adoption occurs as necessary
improvements in displays and applications as well as lower pricing are needed to drive
demand. The first phase will be virtual reality, which we believe will start over the
next several years, and was the primary focus of our May 2015 report entitled “Next
Mega Tech Theme Is Virtual Reality.”The second phase will be mixed reality (or
sometimes referred to as augmented reality) and is the primary focus of this report.
 How MR Will be Used. Our optimism around the theme is based on consumers’
insatiable appetite for new tech experiences: virtual and mixed reality are radically
new tech experiences. On the mixed side, reality will be blended with computing,
including seamless overlays that provide a host of information. At a high level, MR
will replace the screen as we know it – both PC and mobile. These experiences are
visual and may include interacting with your computer in a way similar to the movie
Minority Report. Applications of MR could include never forgetting someone’s
name, seeing a restaurant’s menu just by looking at the building, real time language
translation or getting directions to a certain food isle while walking through a grocery
store. The gaming experience will be taken to the next level with, for example, Call of
Duty using your living room as an environment.
 Market Size. We believe MR sales for 2016E – 2030E will follow a similar path as
smartphones during the 2001 – 2015 time frame. Based on our estimate of 200M
devices sold in 2025E and ramping significantly thereafter with 1B devices sold in
2030E. At an ASP of $500, this equates to a $500B market for hardware in 2030E. To
put that into perspective there were roughly 1B Android devices sold in 2014.
 The Winners & Losers. We see Amazon, Google, Apple, Microsoft, Himax
Techonologies and Facebook as the likely public company winners around this theme.
Apple has the most to gain given its hardware dominance, but the most to lose given
that in over 20 years, MR is likely to have replaced the iPhone. While we liken the
private side to the Wild West, we see some of the better positioned private companies
as Magic Leap, Leap Motion, Movidius, DAQRI, zSpace, Osterhout Design Group,
Lytro, WEVR, Jaunt and NextVR. In our view, likely losers include TV
manufacturers, PC and mobile phone display manufacturers who don’t come out with
a MR offering, and content companies that don’t have a VR/ MR strategy.
Risks: The two core risks to our thesis are competition and consumer appetite for MR. We
estimate there are hundreds of companies competing in the space with no clear leaders. On
the consumer side, it’s early; consumers may not see value great enough to justify wearing
a headset.
I N V E S T M E N T R E S E A R C H November 2015
Piper Jaffray does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decisions. This report should be read in conjunction with important disclosure information, including an attestation under Regulation Analyst
certification, found on pages 56 - 59 of this report or at the following site: http://www.piperjaffray.com/researchdisclosures

TABLE OF CONTENTS
Introduction.........................................................................................................................5
Virtual Reality First, Mixed Reality Second.........................................................................5
Amplified Reality..................................................................................................5
Augmented Reality................................................................................................5
Mixed Reality......................................................................................................................6
Virtual Reality ......................................................................................................6
Virtual Reality And Mixed Reality In A Single Device ..........................................6
Mixed Reality Example.........................................................................................6
Latest Investments.................................................................................................7
MR Solves an Unrecognized Problem ..................................................................................7
Technology Shift...................................................................................................8
Mixed Reality Outlook.........................................................................................8
Desire to Learn About Magic Leap, AR and HoloLens .........................................9
Consumer Excitement Growing For HoloLens ................................................... 10
Mixed Reality Head Mounted Displays (HMD)................................................................ 11
MR Optics .......................................................................................................... 13
MR For All Ages -............................................................................................... 13
Interpupillary Distance (IPD) .............................................................................. 13
Sensors In MR Headsets ..................................................................................... 13
Types of Sensors In MR Headsets....................................................................... 13
Computer Vision ............................................................................................................... 14
Two Types of Computer Vision.......................................................................... 14
Object Recognition ............................................................................................. 14
Pose Estimation................................................................................................... 15
Situational Awareness......................................................................................... 16
Chip Makers Enabling Computer Vision ............................................................ 16
Audio.................................................................................................................. 17
Eye Tracking....................................................................................................... 17
Outdoor Mixed Reality....................................................................................... 17
Latency 101......................................................................................................... 17
MR Motion Sickness........................................................................................... 17
MR Input – Natural User Interface ..................................................................... 17
MR Input Continued: Thermal Touch Input ...................................................... 18
Haptics ............................................................................................................... 18
Battery Challenges ............................................................................................................. 20
Charging Over Wi-Fi .......................................................................................... 20
Thin and Flexible Batteries ................................................................................. 20
Hydrogen Batteries ............................................................................................. 20
Optimizing Energy Use ....................................................................................... 20
Companies Working on MR Headsets............................................................................... 21
Microsoft HoloLens........................................................................................................... 21
HoloLens Launch................................................................................................ 21
Windows 10 ........................................................................................................ 22
Who is Magic Leap and What Are They Attempting To Do?............................................. 22
Magic Leap - Funding......................................................................................... 22
2 | Mixed Reality Is The Next Paradigm Shift In Mobile Computing Piper Jaffray Investment Research
November 2015

Private Software Developer Kits In The Next Year ............................................. 22
Guessing On The Business Model ....................................................................... 22
Magic Leap Technology...................................................................................... 23
Magic Leap Employees & Funding ..................................................................... 23
Magic Leap Hurdles............................................................................................ 24
Apple................................................................................................................................. 24
Google............................................................................................................................... 24
Facebook (Oculus)............................................................................................................. 25
Mixed Reality Applications Using Virtual Reality HMDs................................... 25
DAQRI – Industrial MR.................................................................................................... 26
Osterhout Design Group.................................................................................................... 26
Amazon ............................................................................................................................. 26
Military Investment In MR................................................................................................ 27
Fifth Generation Fighter Plane Includes MR...................................................................... 27
Mixed Reality Applications ............................................................................................... 28
Navigation & Weather ....................................................................................... 29
MR Telepresence (Video Call) ............................................................................ 31
MR Gaming........................................................................................................ 31
Handing Out Money To MR Developers............................................................ 33
Magic Leap “App Fests” ..................................................................................... 33
A Mixed Reality Future ..................................................................................................... 34
Average Selling Price........................................................................................... 34
Why MR Will Become Cheaper .......................................................................... 34
MR Head Mounted Display Cost ....................................................................... 35
Piper Jaffray MR Outlook / MR Expected Catalysts ........................................................ 36
Company Overviews ......................................................................................................... 37
Amazon Inc......................................................................................................... 37
Advanced Micro Devices..................................................................................... 37
Apple Inc............................................................................................................. 37
Applied Research Associates ............................................................................... 38
Atheer Labs......................................................................................................... 38
BAE Systems plc.................................................................................................. 38
CastAR By Technical Illusions............................................................................ 39
Crytek................................................................................................................. 39
Colour Holographic............................................................................................ 39
DAQRI ............................................................................................................... 39
Dextra Robotics.................................................................................................. 40
DotProduct ......................................................................................................... 40
Elbit Systems Ltd................................................................................................. 40
Epic Unreal Engine.............................................................................................. 41
Epson.................................................................................................................. 41
Eyefluence........................................................................................................... 41
Oculus Rift (Owned by Facebook)...................................................................... 41
FLARB LLC........................................................................................................ 42
FOVE.................................................................................................................. 42
Google ................................................................................................................ 42
Himax Technologies........................................................................................... 42
Intel..................................................................................................................... 43
Jaunt VR............................................................................................................. 43
Piper Jaffray Investment Research Mixed Reality Is The Next Paradigm Shift In Mobile Computing | 3
November 2015

Leap Motion ....................................................................................................... 43
Lytro................................................................................................................... 44
Magic Leap ......................................................................................................... 44
Marxent.............................................................................................................. 44
Meta ................................................................................................................... 45
Microsoft............................................................................................................ 45
Movidius............................................................................................................. 45
NextVR .............................................................................................................. 46
Nvidia................................................................................................................. 46
Occipital ............................................................................................................. 46
Osterhout Design Group..................................................................................... 47
OTOY ................................................................................................................ 47
Paracosm ............................................................................................................ 47
Pelican Imaging................................................................................................... 48
Prizmiq ............................................................................................................... 48
PTC .................................................................................................................... 48
Qualcomm .......................................................................................................... 49
Rockwell Collins................................................................................................. 49
Samsung.............................................................................................................. 49
ScopeAR ............................................................................................................. 49
SensoMotoric Instruments .................................................................................. 50
Skully.................................................................................................................. 50
Sony.................................................................................................................... 50
Unity Technologies ............................................................................................. 50
Vuzix .................................................................................................................. 51
WEVR ................................................................................................................ 51
zSpace ................................................................................................................. 51
Glossary ....................................................................................................................... 52
Covered Companies Discussed In This Report................................................................ 53
GOOG................................................................................................................ 53
AMZN................................................................................................................ 53
AAPL .................................................................................................................. 53
FB ....................................................................................................................... 53
Important Research Disclosures......................................................................................... 54
November 2015

INTRODUCTION
Our previous industry report (found here) focused on virtual reality (VR), which we believe
will take off first. We see VR as accounting for 30% of the overall money spent by
consumers for virtual environments. The second theme of mixed reality (MR) will likely be
bigger than VR, and we estimate that MR will account for the other 70% of the
opportunity for virtual environments. Since this report does not focus on VR, here’s a brief
explanation: VR is like putting on a pair of ski goggles that replace your field of view with
another world or experience that opens up possibilities for gaming, live sports, concerts,
immersive cinema and social experiences. Down the road, users will be able to virtually
attend a live NFL or NBA game with a 50 yard-line seat, listen to a live concert of your
favorite band with a front row seat, watch movies optimized for VR or visit friends in far-
away locations. Classrooms in small-town USA will be able to virtually (and relatively
inexpensively) tour the Great Wall of China, Egyptian pyramids, Stonehenge, the Coliseum,
or the inside of a factory or laboratory. The possibilities are endless.
The term “Augmented Reality” means many different things to many different people. The
term was first coined over 25 years ago by Thomas Caudell, a former Boeing researcher.
Throughout the past 25 years augmented reality has conjured up many thoughts on what it
is. Many think of the negative experience around Google Glass as defining augmented
reality. Although there is an image problem now, we believe it will be a short-term
headwind as products get launched by Magic Leap, Microsoft and others which we believe
will generate positive user experiences and rebrand the industry as “mixed reality.”
Ampliefied Reality is a traditional 2D display that information sits behind: e.g., TV,
Smartphones, Computer Screens.
Augmented Reality displays information on top of an environment, but lacks the
understanding of the physical surroundings which is necessary to overlay information on
top of one’s vision naturally.
Virtual Reality First,
Mixed Reality Second
Augmented Reality
has an image
problem
Exhibit 1
REALITY SPECTRUM AND EXAMPLE DEVICES
As you move from left to right on the reality spectrum, the digital world starts to play a
bigger role in what hear, see and feel.
Source: Piper Jaffray
Amplified Reality
Augmented Reality
Reality
Amplified
Reality
Augmented
Reality
Mixed
Reality
Virtual
Reality
TV, Movies, and
Computers
Google Glass and
Heads up displays
HoloLens and
Magic Leap
Oculus Rift, HTC Vive,
and PlaystationVR
November 2015

Mixed Reality, or "MR" for short, is the overlay of holograms on the user’s field of view.
The realistic looking holograms will interact with a user and the environment around him
or her, and can provide endless potential for the types of applications described on the first
page of the report. We believe MR will blend together the digital and physical worlds
because it is relatively inefficient to find information through a 2D device, such as a
cellphone. It is more efficient to take digital information available on the internet and place
it hands-free on top of the real world. Answers to questions such as, “where is the nearest
pizza place?” come quickly without the need to divert your attention to look down at a
cellphone. This will merge together the digital realm and our physical space to enhance our
current state of reality. See Exhibit 2 for an MR example.
Virtual Reality replaces the entire field of view with a virtual world. Further down the
roadwe expect more immersive VR experiences to be common such as to the point that you
feel present in another location.
Ultimately we believe VR and MR will converge into a single device. We believe this
convergence will happen because there are clear benefits to both technologies and the
technology will get to a point where it won’t be necessary to have two separate devices.
Being completely immersed via virtual reality allows the user to be in an alternate world
when on a plane, in the back of a car or anytime someone wants to block out reality. There
are also clear benefits of not blocking out the surrounding world and instead layering
information on top of one’s current reality.
Mixed Reality
Virtual Reality
Virtual Reality and
Mixed Reality in a
single device
Mixed Reality
Example
Exhibit 2
MIXED REALITY 2015+
The picture below demonstrates mixed reality where the directions are overlaid on top of
the sink and a video Skype session is projected on the wall. The understanding of the sink
and where the wall is is due to sensors on top of the glasses which use computer vision to
understand your surroundings.
Source: Microsoft
November 2015

Mixed reality will take time, but we believe it will profoundly change our lives. Google,
Microsoft, Apple and the U.S. Air Force and other U.S. military branches have already
made moves in the space. The first major investment came in March 2014 from Microsoft
which invested $150M in intellectual property (IP) created by Osterhout Design Group, an
MR platform that would later be incorporated into building the Microsoft HoloLens. Not
to be out done, Google last October led an investment round for $542M in Magic Leap, an
MR platform working to solve the display problem. We estimate Magic Leap’s private
valuation to be $4.5B based on reports in its latest financing round. In November 2013,
Apple acquired a 3D sensor company called PrimeSense for $345M and in May2015
acquired AR company Metaio, which has invested in the research and development of new
computer vision applications.
We believe people don’t see a need to expand beyond mobile phones because it is tough to
imagine a world where mobile phones don’t exist anymore. We see MR as a radical
innovation which is trying to solve the problem of looking down at phones and solving it by
superimposing information on the user’s reality. That level of invention, which solves a
generally unrecognized problem in order to create a new product category, or user
experience, can be difficult to recognize in the conceptual stage. We believe over the next 5
years more investors will start to recoginize MR as a paradigm shift in mobile computing
due to consumer launches of MR headsets which will give investors a glimpse of what is to
come.
Exhibit 3
AUGMENTED REALITY
The picture below shows what Google Glass looks like to a viewer looking up and to the
right. Google Glass doesn’t have an understanding of one’s physical environment and in
order to see information the user must look up and to the right at a display which,
according to Google, is the equivalent of looking at a 25 inch high-definition screen eight
feet away.
Source: Wikipedia
Latest Investments
MR Solves an
Unrecognized
Problem
November 2015

Separately, a technology shift is enabling the MR theme. One major technological challenge
that has been overcome is head tracking and the ability to know where the user is located
and where they are looking. The system needs to render graphics that appear in the real
world and stick to the place where it is supposed to be. These problems have largely been
overcome with advancements in inertial sensors, gyroscopes, camera sensors, GPS and
computer vision, all of which allow embedding information into the real world.
We expect MR to first have a significant impact in enterprise applications due to MR’s
ability to have experts (live or archived) walk people/technicians through complicated
processes. After an initial phase within enterprise we expect consumer awareness and
interest to compound and expect hardware and content sales to uptick significantly. While
we are always mindful that unforseen headwinds may emerge in the future, we don’t
immediately see factors that could cripple or stagnate MR adoption, such as negative
publicity like that associated with violent games or movies. Although we are optimistic
about MR’s adoption rate, we realize some individuals are conservative (the late majority
and laggards) and may be resistant to replace traditional ways of doing things much like
many writers relied on typewriters years after word processing made them obsolete.
Exhibit 4
MAGIC LEAP PATENT IMAGE
With virtual interfaces that can pop up anywhere, a screen is always in reach.
Source: Magic Leap Patent Filing
Technology Shift
Mixed Reality
Outlook
November 2015

The Wikipedia pages for Magic Leap and Microsoft Holographic are tracking a weekly
average of 700 page views over the past four weeks. To put this in perspective, public
companies with a market value of around $2B get roughly 200 page views per weekon
average. We believe this signals two things:
1) People are excited about Magic Leap and HoloLens and awareness is growing.
2) Interest in Augmented Reality peaked with the Google Glass launch. We believe
the interest in Google Glass was unjustified given its limited functionality.
Exhibit 5
AVERAGE WEEKLY WIKIPEDIA PAGE VIEWS: MAGIC LEAP, WINDOWS
HOLOGRAPHIC AND AUGMENTED REALIT Y
Source: Piper Jaffray & Wikipedia
Desire to Learn
About Magic Leap,
AR and HoloLens
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1/1/2012 1/1/2013 1/1/2014 1/1/2015
Augmented Reality Magic Leap Windows Holographic
Google Glass Launched
November 2015

Searches on YouTube are growing for HoloLens (owned by Microsoft), which suggests
growting consumer awareness and, in our view, is positive for the MR industry. It is,
however, tough to convey mixed reality to consumers through YouTube – a live demo is
often needed. As we push forward towards commercialization of MR devices we expect
unique marketing schemes, such as MR headsets placed in movies to help push consumers
to their local Best Buy to try one out.
Exhibit 6
YOUTUBE SEARCH TREND S: MAGIC LEAP, HOLOLENS, AUGMENTED
REALITY
Source: Piper Jaffray & Google Trends
Consumer
Excitement Growing
For HoloLens
0
10
20
30
40
50
60
70
80
90
100
1/1/2012 1/1/2013 1/1/2014 1/1/2015
Augmented reality Magic Leap HoloLens
November 2015

MIXED REALITY HEAD MOUNTED DISPLAYS (HMD)
In the past five years there have been large leaps in a variety of adjacent fields that convince
us that replacing the traditional viewing screen in ~20 years is likely to happen. More
specifically we see advancements in optics, computer vision and graphics processing units as
three of the main underpinning technologies that are needed to drive MR. Many large
challenges still lie ahead for MR and this section will be dedicated to exploring them and
potential solutions.
1) Social Acceptance – getting people to walk around with a headset.
2) New optics have to be created in order to cast realistic holograms in the field of view.
New optics must also accommodate a wide field of view.
3) The headset must incorporate a wide range of sensors to gain spatial awareness of the
user’s surroundings in order to place holograms accurately in a variety of
environments.
4) Sound coming from the hologram must account for its location relative to the user and
adjust to movement.
5) Applications must be made specifically for MR and backwards compatibility isn’t
much of an option.
6) Battery life.
Many large challenges remain for mass adoption if it is to replace the traditional screen, but
arguably the largest challenge is making it socially acceptable. For that reason we believe it
will start in commercial enterprises first due to a variety of use cases within enterprise.
After enterprises adopt MR we expect consumers to start adopting MR in the living room
and over the next 20 years we expect the traditional TV and computer screen will be
replaced by MR headsets. Families won’t be confined to one spot to watch a movie as a
large display(s) could be placed anywhere in the house. After adoption in the household and
devices become small we believe consumers will start to leave them on for day to day
activities.
To get a grasp on if MR headsets can become fashionable we must look at what they could
potentially look like. Below is an outline of what it could look like over the coming years.
Current generation I headsets are bulky compared to what is coming. Right now the
limiting factors for headset size are the optics, battery, sensors and GPU which are all
custom built for the headset. As new custom pieces and best practices are established we
expect headsets to start looking more like normal glasses.
Expect MR To
Replace Traditional
Displays
Six Challenges Being
Worked On To Bring
MR Mainstream
Enterprise First,
Household Second
Generation I MR
Headset
November 2015

Exhibit 7
GENERATION I MIXED REALITY HEADSET: 2016 -2019(PJC EST.)
Gen I vs. Gen II & III: Bulky, limited field of view (<40 degrees horizontally), expensive
(>$2,500) and limited applications.
GENERATION II MIXED REALITY HEADSET: 2020 - 2025 (PJC EST.)
Size of the MR headset shrinks and the field of view is considerably wider. Enterprise
applications are evident and average consumers start to buy headsets.
GENERATION III MIXED REALITY HEADSET: 2025+ (PJ C EST.)
MR headsets become tough to distinguish from normal glasses. They become common
among average consumers and compelling use cases are wide spread.
Sources: Generation I: Microsoft; Generation II: Magic Leap Patent; Generation III: Lusova Concept
November 2015

We believe MR will be comfortable for all age groups and the only necessary adjustment
will be accounting for how close together the user’s eyes are, known as interpupillary
distance (IPD). Kids’ eyes are typically closer together than adults’, so the optics must be
moved closer together to account for that. Currently Microsoft measures and adjusts for
one’s IPD before getting a demo of the HoloLens to help ensure an otimum experience. A
Microsoft representative did mention to us that in the future they expect the HoloLens to
have a built in IPD measurement system which would auto adjust for each user. We believe
an auto IPD adjustment system would be a big step forward for both MR and VR as both
types of headsets require adjustments for IPD.
When creating an MR headset a variety of sensors must be implemented depending on the
environment in which the device will be used. The more sensors on board mean the more
expensive, power constrained and bigger the device typically becomes. Due to these
tradeoffs when creating the headset, each headset must be developed for specific use cases.
In other words, we can’t expect an MR headset developed for indoors to perform well in an
outdoor application as it may lack the sensors necessary to do so. For instance, using GPS
in an indoor application doesn’t make sense, but it is necessary when heading outside.
Computer vision, magnetometer, GPS, Inertial Measurement Units (IMU) and network
access points are just some of the sensors that could be implemented in an MR headset.
Initially we expect consumer headsets to depend heavily on a combination of computer
vision and IMUs due to the fact we expect most users to remain indoors. MR headsets
designed for outdoor use by the military or enterprise applications might be loaded with
extra sensors such as a magnetometer to help understand where someone is looking or
heading. For the context of this paper we will focus mostly on computer vision due to it
having the biggest measurable impact on MR, in our view.
Exhibit 8
MIXED REALITY OPTICS
MR optics are handled by each company separately and no two optics solutions are the
same. At a basic level current optics incorporate a tiny projector or microdisplay, a lens
and holographic wave guides or beam splitters. Optics from companies like Magic Leap
and Microsoft are patented heavily and surrounded by secrecy. Although the optical
component suppliers are unknown, we believe Himax Technologies will initially be one of
the leaders in the space with its Liquid Crystal on Silicon microdisplay. The image below
by Piper Jaffray is a basic representation of an MR optics solution.
MR Optics
MR for All Ages -
Interpupillary
Distance (IPD)
Sensors In MR
Headsets
Types of Sensors In
MR Headsets
November 2015

Computer vision at a high level allows for a headset to understand one’s surroundings and
location. For instance if a user is walking down a road the headset will be able to identify
the stores nearby, points of interest and direction of travel. Spatial awareness is achieved
with image sensors on the headset that take in a lot of different measurements of the
surroundings. Spatial awareness allows the user of the MR headset to superimpose
geotagged information on top of the real world which unlocks next generation applications
like indoor navigation, using the environment as a video game and tracking points of
interest such as friends or family in real time.
Large Environment Awareness
Using depth cameras to scan huge areas give the device the ability to understand where one
is in large space, such as a store or mall. After an area is scanned it can be uploaded to the
cloud and does not need to be constantly updated.
Persistent Awareness
The real time mapping of objects that pop in and out of the field of view. In other words, a
set of sensors / cameras which track and adjust to moving objects.
An application of computer vision is walking into a car dealership and having your MR
glasses recognize each car. Once the make and model is identified the user can manipulate
different features on the car (e.g., color, rim type, wheel type, etc.). Many challenges still
exist when trying to identify objects with computer vision. Feature points on an object
which algorithms use to identify what the object is can be difficult to extract due to a lack
of texture, reflective lighting, or weather conditions. We believe these issues will largely be
overcome as a wide range of companies are investing heavily in techniques that will push
computer vision forward over the next five years.
Computer Vision
Two Types of
Computer Vision
Exhibit 9
THE HOLOLENS WITH SENSORS REMOVED FROM THE HEADSET
Source: Microsoft
Object Recognition
November 2015

Once an object is recognized the system must be able to determine the object’s position
(e.g., direction it faces, amount of lean to the right or left, etc.). Computer vision-based
pose estimation is computationally expensive while IMUs typically suffer from drift.
Therefore what is typically necessary in MR headsets is the use of an IMU in combination
with computer vision.
Pose Estimation
Exhibit 10
OBJECT RECOGNITION E XAMPLE
Below is a simple object recognition task and as images and surroundings get more
cluttered with objects things get more complicated. For a video that provides technical
insight into object recognition head here.
Source: UC Berkeley
November 2015

As artificial intelligence becomes better, we believe sensors attached to MR headsets will
have better situational awareness than a person will. MR headsets will have a shared
understanding of the user’s current situation, and will be able to draw upon vast databases
to select a correct solution to a problem. For instance if a person were flying out of Los
Angeles International Airport, the MR headset would be aware of a variety of things
including.
1) Location within the airport.
2) Flight time, what terminal and gate information.
3) The people with the traveler and if it’s necessary to monitor any children for their
safety.
Nvidia in Novemeber 2015 annouced the Jetson TX1 which is aimed squarely at machine
learning with applications for autonomous drones, facial recognition, behavioural analysis,
and computer vision.
Movidius is another company focusing on computer vision. They design compact, high-
performance, ultralow power, computational imaging and vision processing chips.
Movidius’ architecture delivers contextually aware experiences for consumers in mobile
and wearable devices with clear use cases for MR and VR headsets. Movidius designed the
vision processing unit or VPU which went into Google’s Project Tango. Movidius has since
released a second generation VPU called the Myriad 2.
Google & Intel in November 2015 Google stated their plans to start buiding their own
mobile chips. These chips will be aimed at including more powerful camera sensors and
support for next-generation computer vision used in virtual and mixed reality apps. In
August Intel stated their plans to work with Google to bring computer vision to android
phones.
Qualcomm has also made a bigger push into computer vision with the Snapdragon 820
which is expected to start appearing in mobile phones in the first half of 2016.
Exhibit 11
OBJECT RECOGNITION COMPLICATIONS
Computer vision in MR headsets not only must understand what the object is but also
understand an object’s position in six degrees of freedom. e.g., which way it is facing, how
far it is leaning right or left, etc.
Source: Wikipedia; Six degrees of freedom
Situational
Awareness
Chip Makers
Enabling Computer
Vision
November 2015

We believe MR audio is often thought of as not important or secondary to the experience,
however, we believe positional audio is what sells the experience and convinces the user
there is a real object in front of or behind him. The ability to re-create sound coming from a
distinct location and adjust for changes based on proximity and direction of the object
should not be overlooked.
In order for the user to feel as if the virtual object is present with them in a room it is
necessary to have accurate eye tracking. For instance if the user is interacting with a virtual
robot, the robot needs to know when the user is paying attention to it or is looking away.
Giving the virtual robot the awareness of your gaze helps to cue gestures such as waving or
speaking.
In order for MR to work outdoors some new challenges come into play including:
1) Using computer vision to understand surroundings – more sensors are necessary.
2) Displaying MR when it is bright out.
3) Varying weather conditions can alter the performance of certain sensors.
Latency is the time interval between the cause and the effect of some physical change. In a
mixed reality world, it means when the user moves his or her head how fast does the image
update to accommodate the head position? For instance, if I have a hologram of a person in
front of me and I move my head quickly, will the hologram remain in the same physical
location as before and how fast does it get updated? Latency of 50 milliseconds will feel
responsive but noticeably “laggy.” A latency of 20 milliseconds or less should provide the
minimum latency deemed acceptable.
VR still has lingering problems of motion sickness due to simulation sickness and we
believe it is important to note that MR doesn’t suffer from these problems. This is because
with MR the user can see the outside world and keep perspective on the surroundings.
Motion sickness experienced in VR tends to happen when the virtual world doesn’t match
what the body expects to happen.
Instead of a graphical user interface like computers use, MR headsets will be built around
making interactions feel as natural as possible to the user. The end goal of a natural user
interface is that it will blend the digital and physical world together. The hands will launch
applications, close applications, manipulate holograms and trigger actions in a way that
feels like second nature. We believe there are significant challenges behind developing this
user interface and best practices for MR input will arise over the next five years.
Audio
Eye Tracking
Outdoor Mixed
Reality
Latency 101
MR Motion Sickness
MR Input – Natural
User Interface
November 2015

An early example of what MR input could look like comes from Metaio (purchased by
Apple). Using a visible light camera and a thermal graphing camera, Metaio was able to
build a prototype which can scan an area for thermal energy a person emits after touching
an object. Since it searches for traces of thermal energy given off when touching something,
anything can become a touch screen or area of input. See Exhibit 13 below.
Once a user interface is developed the next step is to accurately capture what one feels when
touching a virtual object. Currently under development are haptic gloves thatprovide
vibration feedback to the skin to give the sensation of touching physical objects in midair.
Exhibit 12
USER INTERFACE IS DI FFICULT
The movie Minority Report is frequently referenced for mixed reality; however, we point
out that the user interface in the movie isn’t sufficient for MR use cases. Arm fatigue
rapidly sets in after about a minute of sticking your hands straight out in front of you. New
user interfaces need to be developed that allow for prolonged interaction with virtual
objects with little to no onset of arm fatigue.
Source: Minority Report
MR Input
Continued: Thermal
Touch Input
Exhibit 13
THERMAL TOUCH INPUT
In the picture below the person touches the table leaving behind thermal energy which is
then picked up by a light camera and thermal graphing camera which then translates it into
an input for an MR headset. A full video of this technology can be found here.
Source: Metaio
Haptics
November 2015

In the next 10 years the possibilities for haptic feedback are likely to become more advanced
by incorporating electric signals into a smart glove which could allow for virtual sensations
that would fool the brain into feeling everything from texture to temperature.
Exhibit 14
MAGIC LEAP PATENT FOR HAPTIC GLOVE
November 2015

Although computers and phones have come a long way, we are still waiting on battery
technology to catch up. Having a headset that has sensors and cameras which constantly
scan the surroundings is battery intensive. We believe new techniques and innovative
solutions will be necessary to solve the problem. Below we outline three new battery
innovations and one example of optimizing a battery efficiently to help MR become
mainstream through slimming of the head-worn display.
In June 2015 students from University of Washington wrote a paper entitled, Powering the
Next Billion Devices with Wi-Fi. In their paper they validate that current wi-fi
infrastructure can support over-the-air charging of rechargeable batteries. The students
have installed this technology in a couple of homes to recharge a camera and other devices.
Although the technology works it only provides a very limited amount of recharging.
Nonetheless, the technology is young we expect emerging battery tech like wi-fi enabled
charging to help MR become mainstream through slimming of the head-worn displays.
Samsung unveiled what it calls the ‘Stripe’ battery at the annual InterBattery 2015 expo in
October. The battery technology is thin and flexible with the potential to increase battery
life in mobile phones by as much as 50%, according to Samsung. Due to the battery’s
thinness and flexibility we think it would be ideal for an MR headset. Although there is no
word on when the battery will make its consumer product debut, we believe these types of
battery breakthroughs will eventually allow for MR headsets which look similar to glasses
in the next 15 years.
Another solution we see coming on the horizon that could suit MR’s battery demands are
hydrogen batteries. More specifically, a British company called Intelligent Energy has made
a hydrogen battery small enough to fit inside an iPhone 6 without any modifications of the
phone. According to the company, the iPhone 6 is able to operate off of the hydrogen
battery for a week before replacement of the battery is necessary. We note there are a wide
range of challenges that remain, such as hydrogen cartridges must be replaced each time
and achieving manufacturing scale to bring costs down so replacement isn’t an issue.
A unique solution that has come from Victor Bahl, research manager of the mobility
networking group at Microsoft Research and coauthor of “Energy Characterization and
Optimization of Image Sensing Toward Continuous Mobile Vision,” is that his group has
found that it’s optimal to put a sensor in a lower-power standby mode when idle and then
switch to a higher-powered idle mode before capturing the next unrecoginizable area that is
unfamilar to the headset. Bahl’s team has determined that his setup allows for battery
consumption to be reduced by 95% when performing tasks that are related to depth and
large space capturing (the types of tasks common in MR).
Battery Challenges
Charging Over wi-fi
Thin and Flexible
Batteries
Hydrogen Batteries
Optimizing Energy
Use
November 2015

COMPANIES WORKING ON MR HEADSETS
One of the most well-known and tried MR projects comes from Microsoft and is called the
HoloLens. While HoloLens has only been shown off at a handful of events, the majority of
responses to the HoloLens have been positive with negative comments generally pertaining
to its field of view. We currently speculate the field of view for the HoloLens to be 30°– 40°
horizontally and 17°–23° vertically based on a near-eye display patent by Steve Robbins
who was a Principal Hardware Engineer for the HoloLens. We believe it will be difficult to
increase the field of view due to physical limitations imposed by holographic wave guides.
We also note Microsoft Executive Kudo Tsunoda stating, “I think you’re never going to get
a full peripheral field of view, but certainly the hardware we have the field of view isn’t
exactly final. But I wouldn’t say it’s going to be hugely noticeably different either.”
Although the field of view isn’t a simple fix we believe Microsoft is investing in R&D to
find a new optics solution or to improve on its current optics solution.
Announced in October 2015, the HoloLens developer edition is expected to begin shipment
in Q1 2016 for $3,000. Although the device is slated to be released as a developer kit soon,
we believe the consumer launch is still likely 1-2 years away based on comments from
Microsoft’s CEO Satya Nadella stating, “this is going to be a five-year journey.” Once
ready for consumer release we expect a variety of practical applications that range from
shopping to gaming. At consumer launch we expect the HoloLens will retail for around
$2,000 - $3,000. Although this price seems like a lot, we also point out that the HoloLens is
essentially a computer sitting on your face and significant custom fabrications are necessary
to bring it together. In November 2015, Asus confirmed on its conference call that it intends
to bring “AR glasses” to market in 2016. Based on earlier conversations Asus had with
Microsoft we believe Asus will be making its own version of the HoloLens. Getting a large
PC maker like Asus involved with the HoloLens will be likely to bring the cost down and
push the consumer launch forward if Microsoft is willing to do so.
Microsoft HoloLens
Exhibit 15
ESTIMATION OF HOLOLE NS FIELD OF VIEW
Source: Theverge.com
HoloLens Launch
November 2015

Microsoft has stated that every Windows 10 system will come with a HoloLens API which
allows people to develop for the HoloLens. We believe the integration with Windows 10
will be key in gaining traction and could drive longer term adoption of Windows 10. We
believe initially MR will be used for enterprise applications and combining it with Windows
10 allows for easy integration as more and more compelling applications become available.
Magic Leap is a secretive MR company based out of Fort Lauderdale Florida and is
working on an MR headset to blend the virtual and real worlds. The headset they are
attempting to build projects “light fields” into individuals’ eyes, which would merge
seamlessly with the light a person takes in normally, allowing virtual objects to appear
extremely realistic with natural focus cues and a wide field of view. If the company is in fact
able to project light fields into eyes, it would be a major step forward toward achieving
truly comfortable and realistic MR.
Magic Leap is the best and least known company in MR. Best in the sense that the
company has raised almost $600M in the past two years, about 20x a typical MR private
round. The latest round included marquee investors including Google, Andreessen
Horowitz, Paul Allen’s Vulcan Ventures, Kleiner Perkins, Legendary Entertainment,
Obvious Ventures and Qualcomm Ventures; this round reportedly valued Magic Leap at
$2B. A recent article from the South Florida Business Journal suggests Magic Leap is close
to raising a $1B financing round which would value the company at $4.5B. Beyond the
significant level of investment, little else is known about Magic Leap beyond the few people
who have demoed the prototype and have raved that the experience is decades ahead of
other MR technology. While still early days, Magic Leap has the potential to change
computing as we know it, in our view, and be a driving force to a paradigm shift away from
screens to a wearable computing world. This belief is based on the quality of Magic Leap’s
investors, reports from people who have tried it and the credentials of Magic Leap
employees.
Magic Leap has said that it expects private software developer kits to be released “soon,”
which we interpret as within the next year. The level of non-disclosure these private
developers using SDK1 will be subject to is unclear, so it begs the question of when there
will be more feedback on the Magic Leap experience. Either way, we believe that Magic
Leap’s profile will increase significantly within the next year
Even less is known about the company’s long-term business model. The obvious direction
is a combination of both hardware sales and a platform business – similar to Oculus as a
platform. There is also the potential of a licensing model to allow third-party hardware to
run Magic Leap.
Windows 10
Who is Magic Leap
and What Are They
Attempting To Do?
Magic Leap -
Funding
Private Software
Developer Kits In
The Next Year
Guessing On The
Business Model
November 2015

Magic Leap’s patents published in 2014 suggest it isusing a display made up of an array of
many small curved mirrors. An optical fiber would deliver the light to the mirrors, which
would then get reflected into individuals’ eyes. The light fields that are projected into eyes
would create natural focus cues for objects that look almost indistinguishable from real
objects – something that has never been done. One of Magic Leap’s patents describes a
“magnetic liquid” that would allow the mirrors to be reprogrammed using a magnetic field
to quickly display images at different depths. Along with this new form of optics the patent
goes on to describe the incorporation of eye-tracking and motion sensors to figure out at
what depth a person’s eyes are focused.
In June 2015 CEO Rony Abovitz stated Magic Leap raised $592M; investors included
Google, Andreessen Horowitz, Paul Allen’s Vulcan Ventures, Kleiner Perkins, Legendary
Entertainment, Obvious Ventures and Qualcomm Ventures. Magic Leap has more than 400
employees with locations split between the Fort Lauderdale Area (~55%), San Francisco
Area (20%), Los Angeles Area (5%), New Zealand (3%), and Other (17%). In an interview
at MIT EmTech Digital in June 2015, CEO Rony Abovitz said the company had started
setting up pilot manufacturing lines and learning how to fabricate its device. He also said
that the company is out of the research and development phase and transitioning to real
product introduction. In July 2015, Magic Leap moved into a 260,000-sq-ft facility is South
Florida where presumably they will be setting up the pilot manufacting lines.
Exhibit 16
WHAT ITS LIKE TO WEAR MAGIC LEAP
The picture below shows a robot Magic Leap named Gimble who floats underneath a table
at Magic Leap offices. Once you look at Gimble he becomes aware of you and waves to
you. The full clip can be found here.
Source: Magic Leap
Magic Leap
Technology
Magic Leap
Employees &
Funding
November 2015

During the interview with EmTech Digital, Rony said there were two major hurdles:
applications and user interface .
Application Hurdles: This is a new area and applications have to be built from scratch. The
content created needs to be compelling enough for people to choose Magic Leap over
HoloLens, which has a headstart in the enterprise business due to its Windows OS
integration.
User Interface Hurdles: The company also needs to figure out how people will interact with
digital objects and how to make the interaction feel natural to the user.
Manufacturing of Photonic Light Field Chips: In an news article by Technology Review
entitled, “Magic Leap Needs to Engineer a Miracle” the author Katherine Bourzac outlines
that scaling up the production of silicon photonics is something Intel has struggled to do.
The toughest part is integrating photonics into a chip that allows for faster data transfer
without heating up and no degradation of signal. Supposedly Magic Leap has created a new
novel fabrication technique to create a light-field chip that relies on silicon photonics. AS
mentioned, Magic Leap is setting up pilot manufacturing lines at a manufacturing facility in
Florida and is learning how to fabricate its light-field chip for mass production.
Based on conversations with industry contacts within the virtual and mixed reality spaces,
we believe Apple has a small team exploring the mixed reality space. Apple in 2013
acquired PrimeSense (a computer vision company) and in 2015 acquired Metaio (AR &
computer vision). We believe that at the core the Apple team is likely trying to create a
wearable design that would make MR fashionable and socially acceptable. At this point, we
believe it is difficult to determine if or when these experiments might yield a product. We
believe Apple's early involvement in the space suggests the company is preparing for the
next evolution of computing beyond the iPhone. Additionally, we believe Apple's evolving
fashion advantage means that it can uniquely develop products that consumers will actually
want vs. prototype style offerings today. Below are notable hires and company acquisitions
that provide further evidence that Apple is working on an MR solution.
Notable hires/purchases for Apple:
- Nick Thompson hired in 2015; previously the lead HoloLens Audio Engineer at
Microsoft
- Grahma Myhre hired in 2014; currently a “Display Exploration Engineer”
Previously helped design the Light Field optics and micro-optics for Lytro’s Light
Field Camera
- Bennett Wilburn hired 2015; currently the “Senior Display Exploration Engineer”
Previously worked at Huawei on augmented and virtual reality
- Purchased Metaio in 2015 (AR and computer vision company)
- Purchased PrimeSense in 2013 (computer vision company w/ MR use cases)
Google is in a unique position to provide the data/information layer that powers the MR
experience. Google led an investing round for Magic Leap totalling $542M go to Magic
Leap. Beyond the data layer, Google is also dabbling in the headset space. In October 2015
the company patented a lightguide with multiple in-coupling holograms for head-mounted
displays. We note the engineer who helped patent this lightguide has since moved to
Oculus. It is unclear if Google will collaborate with Magic Leap or if Google is pursuing its
own headset with MR purposes. We believe that either way the ideal outcome for Google is
Magic Leap Hurdles
Apple
Google
November 2015

a headset that casts realistic interactive holograms with a wide field of view. We note that
Google holds 351 MR patents, according to PatentVue, behind four companies: Sony,
Samsung, IBM and Microsoft.
Although the biggest focus is on the possibility of a Google MR headset, we believe one
must consider how informational overlays will affect how people interact and view
information. We believe that as people move toward MR the way information is currently
displayed will be obsolete. Viewing information via a display will be inefficient due to MR's
ability to superimpose information on current reality. The overlay from MR glasses will
not only free hands, but also provide contextual information for the data that is currently
trapped behind a display. There will need to be a reorganization of the web from a 2D
image (computer screen) into 4D (interactive holograms). We see reorganization of the data
as a big opportunity for Google and a natural extension of what it currently does with
Google Search Engine. As an example: key points of interest could be marked around
people while they walk down the street or inside a building. Indoor directions will be made
possible and an early prototype of indoor navigation was shown off using a tablet enabled
by Google’s Project Tango.
We believe Facebook is making the most progress in the VR space, with the release of The
Rift from Oculus likely by March of 2016. There is more in our May 2015 VR report on
Oculus VR (add hyperlink to report here). As for MR, in October at the Vanity Fair New
Establishment Summit, Mark Zuckerberg revealed that Facebook is working on augmented
reality, but that “it’s a bit further out”. Although mixed reality presents far different
challenges than virtual reality we do believe there is enough overlap that it makes sense for
them to pursue both. Some areas where we expect synergies to happen between MR and
VR is computer vision to map the world around you. Although the first consumer version
of Oculus Rift won’t have any sensors built into the headset, we believe computer vision
sensors will be implemented in second or third generation VR headsets in order to bring
hands into the virtual world. Similarly, it will be necessary for MR headsets to track hands
in order for the user to manipulate virtual objects.
Notable hires for Facebook
- In October 2014, Evan Richards, a former Google Engineer who patented a
holographic waveguide for Google, was hired away by Facebook (Oculus).
- In July 2015, Pasi Saarikko, a former lead Microsoft HoloLens Optics Engineer,
was hired by Facebook (Oculus) to be their Principal Optical Engineer.
Using cameras and sensors in combination with a VR device could enable MR
functionality. The sensors attached to a VR headset can scan a room and then render the
user’s surroundings inside a headset. Objects can be superimposed on the room to create
this MR effect. Although we are excited for VR-driven MR, we believe this will only serve
as a stepping stone to other MR with see through lenses. We believe Facebook is working
on this alongside other optics that fall more in line with Microsoft and Magic Leap.
Google’s MR
Information
Opportunity
Facebook (Oculus)
Mixed Reality
Applications Using
Virtual Reality
HMDs
November 2015

DAQRI combines a hard helmet with an MR head mounted display running Qualcomm-
designed and PTC-owned Vuforia software on Android OS. It uses 12 sensors on the helmet
to enable situational awareness which allows for HD video recording, 3D mapping
capabilities, object recognition and photo capture. According to DAQRI the sensors are
able to read and understand instrument data which can be translated into a variety of
industrial applications.
Osterhout Design Group (ODG) is one the oldest MR players and was founded in 1999. In
March 2014 Microsoft acquired intellectual property from ODG for $150M. We believe the
IP created by ODG likely then found its way into the HoloLens. Beyond its selling of IP,
ODG makes the R-7 Smart Glasses which make use of a Qualcomm Snapdragon processor
along with PTC’s AR software called Vuforia. Using integrated sensors the glasses know
where the user is, where the user is looking and the direction of travel. The glasses have the
ability to overlay information onto one’s surrounding environment similar to that of the
Microsoft HoloLens. The ODG R-7 Smart Glasses are available for pre-order at a price of
$2,750 and are intended for developers.
Amazon was recently awarded a patent for an MR head mounted display which would
utilize a transparent layer in combination with a display layer. An electronic device would
signal when the MR device should use the display layer and when to use the transparent
layer. The two layers would enable objects to appear in a user’s field of view. Other than
this patent we haven’t seen any new hires that would suggest active building of an MR
headset.
Exhibit 17
VIRTUAL REALITY-DRIVEN MIXED REALITY
This person is using a Leap Motion sensor and Oculus Rift to make holograms appear in
the user’s field of view layered on top of the user’s current reality.
Source: Piper Jaffray, YouTube and Leap Motion
DAQRI – Industrial
MR
Osterhout Design
Group
Amazon
November 2015

Applied Research Associates in conjunction with substantial investment from the US
Military’s DARPA unit has completed work on an MR system known as ARC4. The
system has been in the works for the past six years and ultimately allows for mixed reality
in outdoor environments. The end goal is to enhance soldiers’ performance by allowing
them to enter missions with high awareness of their surroundings, enhanced safety, speed
and close coordination with team members.
The latest fighter jet, the F-35, from Lockheed Martin includes a mixed reality headset from
Rockwell Collins (COL, not covered) and Elbit Systems ( ESLT, not covered). The helmet
at a basic level provides navigational and targeting information. The helmet also allows a
pilot to look through the plane which is enabled by using a collection of six high-definition
video and infrared cameras on the exterior of the plane called the Distributed Aperture
System (DAS). This system allows for a full 360 degree view outside of the plane for full
situational awareness. The helmet is also equipped with night vision capabilities via an
infrared sensor along with built-in voice recognition. Although the cost of each helmet is
upwards of $400,000, we believe the technology built into headsets will be implemented in
future generation planes as the need to arm the pilot with situational awareness is
paramount.
Military Investment
In MR
Exhibit 18
MILITARY INVESTS IN MR
The picture below shows how the ARC4 would be used to feed information to a solider.
It’s all about giving people information and putting it into context. This empowers soldiers
and workers with information to make better decisions.
Fifth Generation
Fighter Plane
Includes MR
November 2015

MIXED REALITY APPLICATIONS
Long before GPS was discovered, humans used spatial skills to navigate and learn. Spatial
reasoning is a skill that we use frequently without thinking about it. At this point in time
we aren’t sure if technology dependence will hurt our spatial awareness skills. Instead of
recreating a 3D map of a scene in our head, people tend to listen for directions from the
GPS. Similarly, spatial organization of our ideas will happen using MR due to MR’s unique
ability to understand the world around us and layer critical information without the need
for us to think.
The low hanging fruit for MR is proving that mistakes and errors can be avoided using
MR. For instance, giving an employee contextual instructions helps to reduce chances of
error. An expert’s step by step directions can be superimposed on the MR user’s reality to
complete a task.
- Contextual instructions laid out on the environment enable employees to go
through uncommon procedures.
- Computer vision on headsets can inspect a scene to ensure all parts are functioning
properly.
- Engineers can utilize sensors on the headset to navigate them through a difficult
working environment.
MR will enable people to visualize projects and ideas before committing to them. This
allows engineers to preview the finished product via MR. Experimental ideas can be quickly
prototyped in a digital form without needing to waste a lot of time and money.
Humans Are Spatial
Learners
Early Benefits In
Enterprise and
Industrial
Advanced
Applications In
Enterprise
Exhibit 19
PRE-VISUALIZION USING MR
A person wearing a Microsoft HoloLens stands in front of a motorcycle and modifies parts
of the vehicle with MR.
Source: Microsoft
November 2015

Instead of looking down at the phone to get directions or weather, both could be overlaid
on top of reality which frees up the user’s hands.
Exhibit 20
OSTERHOUT DESIGN GROUP PARTNERSHIP WITH MINI
ODG has partnered with BMW-owned Mini Cooper to create MR applications for the
latest Mini Cooper. The applications range from seeing your blind spot to on-foot
navigation.
Sources: ODG and Mini
Navigation &
Weather
Exhibit 21
SKULLY MOTORCYCLE HE LMET
Skully Helmet gives situational awareness to motorcycle drivers with a rear facing camera
that is used as a heads up display inside the helmet. Other functionality of the heads up
display includes navigation and connectivity with smartphones for hands free calling or
music streaming. We note the helmet is AR due to it only providing a heads up display,
but believe MR variants of this application are in the near future.
Sources: Skully
November 2015

We believe a major reason why people don’t purchase bigger items, such as furniture, from
Amazon is due to the fact that they want see it before buying it. We believe MR will solve
this problem and allow people to visualize items before buying. Furthermore, we believe
that before painting one’s home or redoing the floor an individual would likely preview the
finished product via MR. We believe Amazon’s vast selection of items, 460M SKUs as of
October 2015, puts it at the forefront of MR and VR enabled shopping. We do recognize
scanning of so many products would be difficult, but we believe advancements in computer
vision over the next 10 years will enable high speed scanning and modeling of 3D objects.
Exhibit 22
WEATHER
An image from Magic Leap’s website which depicts visualizing weather.
Source: Magic Leap
Shopping
Exhibit 23
SHOPPING – LOWES HOLOROOM IN PA RTNERSHIP WITH MARXE NT
The picture below shows an iPad enabled with Vuforia AR software and Marxent App
pointed at a bathroom where a virtual sink sits. Six Lowes stores are expected to trial the
Holoroom starting November 2015 with more expected to come in 2016.
Education
November 2015

Inspecting a grocery item could yield nutritional values along side the item. Taking a step
back, we also note a person could use indoor navigation to navigate a grocery to store to
get to a particular item.
Instead of doing a video call with a normal camera an individual would have sensors that
utilize computer vision to capture space via 3D scanning. The 3D image that is captured by
the sensors can then be broadcast into an MR headset located far away. The MR headset
would take the 3D scan and render the scene to make it appear as if the person were
actually in the room. https://www.youtube.com/watch?v=Nzi0sm81tP4
Along with enterprise, we see gaming as a leading use for MR and we believe using the
surrounding environment as a part of the game would be appealing. Sensors from the
headset would scan the surrounding environment which would enable holograms to
interact with the user’s environment as if they knew the layout of a room. Using the
environment as a game allows for new game ideas along with re-editions of old games. Two
games that Microsoft has shown off are Project XRay and Minecraft.
Exhibit 24
INTERACTIVE LEARNING WITH ZSPACE
The picture below shows kids pulling a frog from a screen into a virtual object that they
can interact with and learn from. zSpace has provided early evidence that MR can find
success across a variety of learning environments with installs at over 250 school districts,
universities, and medical schools in the U.S. We expect MR learning solutions to continue
to grow as we believe hands on learning is better than lecture based learning methods.
Source: zSpace
Grocery Shopping
MR Telepresence
(Video Call)
MR Gaming
November 2015

We believe MR headsets will help break language barriers by being able to translate a
foreign language into subtitles displayed as holograms.
Further off we expect uncommon procedures to be done with step by step instructions using
holographic overlays. Facial recognition software will detect a patient’s name and bring up
medical records along with other important things such as vitals and breathing. We
ultimately believe computer vision in MR headsets will be able to assist in the diagnosis of a
patient.
Exhibit 25
MIXED REALITY GAMING
Project XRay (left image) is a game for the HoloLens and enables the gamer to fight against
holographic enemies that come out of the walls. Minecraft (right image) shows a person
buildinga virtual world which sits superimposed on his current environment.
Source: Microsoft
Home Entertainment
Exhibit 26
MR may allow one to design a room based on what the individual is watching. Using MR
allows for added context around what the user is watching. The patent image below shows
a person about to watch Netflix with virtual movie posters on the wall. If this person was
about to watch sports, an entirely new “room” could be designed to add to the experience.
Translate with
Subtitles
Medical
November 2015

Since there are no consumer sales of either the HoloLens or Magic Leap it is tough to get
developers on board because it will take a long time for their effort to payoff. In order to
get developers on board Microsoft is starting to dole out money to those who come up with
great applications. This is a common practice in the technology world and done in hopes of
spurring innovation. In Novemeber 2015, Microsoft handed out a total of $500,000 to five
winning universities for their innovative, academic applications. More details on which
schools and applications won can be found here.
Magic Leap has taken a more select and secretive route thus far with app development by
hosting what they call “app fests” where developers attempt to build different games and
features. In one such app fest a developer created a tool to teach someone how to make
macaroni and cheese with a digitally projected cookbook and stove “in case you’re in
college and don’t know what you’re doing,” CEO Rony Abovitz said at the WSJD
Technology Conference. At the same conference Magic Leap Chief Content Officer Rio
Caraeff pointed out that early on they are focused on gaming, entertainment, media and
communication, but expect more variety in years to come.
Exhibit 27
The top image shows Magic Leap’s device guiding a doctor through surgery. The bottom
image shows how the surgery went post-operatively.
Handing Out Money
To MR Developers
Magic Leap “App
Fests”
November 2015

A MIXED REALITY FUTURE
We believe MR will likely become mainstream (500M+) when the criteria below have been
met.
1) Realistic holograms are seamlessly overlaid with the real world.
2) Wide field of view enables the user to track the hologram at all times.
3) Compelling applications that go beyond the ordinary or mundane smartphone
applications of today.
4) Form factor start to rival glasses and sunglasses of today.
5) Cost of glasses are roughly $500 - $800
We believe MR will change a variety of landscapes over the next 10 to 20 years. The diverse
applications of MR in combination with accelerating technological improvements will lead
to mainstream adoption over the next 15 years, in our view. As mentioned, we compare
today’s MR landscape to that of smartphones 15 years ago.
Based on conversations with industry contacts we believe the starting point for MR
headsets will be upwards of $2,000. Although this price seems like a lot, we also point out
that MR headsets are essentially wearable computers sitting on the user’s face and they will
contain a significant number of custom fabrications.
We believe technology advances over the next 10 years will continue to drive down the cost
of these technologies and enable significant improvement in tracking and rendering. We
expect CPUs and GPUs of computers to continue along Moore’s Law which should enable
cheaper headsets that run off better batteries. Computer vision sensors that are found in the
headsets will continue to get smaller and cheaper. Optics will come down in price as
economies of scale start to take hold. We expect MR will gradually drop from an all-in
entry cost of $2,000+ to a more reasonable $500+ which would cost similar to today’s
smartphones.
What Does It Take
To Go Mainstream?
Average Selling Price
Why MR Will
Become Cheaper
November 2015

Exhibit 28
MIXED REALITY HEADSET SALE S
(In Millions)
PJC MR sales estimates are based on the ramp in smartphone sales from 2001 – 2015. We
believe MR sales will follow a similar path as smartphones with key inflection years for
MR headsets being 2022 and 2025.
Source: Piper Jaffray estimates
Exhibit 29
AVERAGE SELLING PRICE OF MR HEADSET
Source: Piper Jaffray estimates
MR Head Mounted
Display Cost
0
200
400
600
800
1,000
1,200
Mixed Reality Headset Sales Estimates
Form factor and content drive
widespread consumer adoption
We expect price to come down
enough for household & enterprise
sales to ramp
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2025E 2030E
November 2015

2016 – Microsoft HoloLens slated to launch developer kit. Magic Leap software developer
kit available for a select group.
2017 – We believe the first consumer headset from Microsoft will become available and will
initalliy focus on enterprise applications. Industrial MR headset by DAQRI
continues to make headway in industrial applications.
2018 – We believe Magic Leap will become available in the price range of $2,000 - $3,000.
2022 – Expect enterprise and consumer sales to ramp as prices come down and use cases
become clear.
2025 – We believe extremely useful, engaging content starts to emerge along with shrinking
of form factor which allows MR headsets to look similar to sunglasses. Sales of
traditional screens such as TVs and computer monitors start to decline.
2030 – We believe MR and VR in 2030 will significantly alter the way we communicate and
engage with our surroundings.
Piper Jaffray MR
Outlook / MR
Expected Catalysts
Exhibit 30
MR INDUSTRY OVERVIEW BY CATEGORIES
November 2015

COMPANY OVERVIEWS
Founded: 1976
Ownership: Ticker: AMZN
Category: Shopping & Head Mounted Displays (HMD)
Domain: Amazon.com
CEO: Jeff Bezos
We believe a major reason why people don’t purchase bigger items, such as furniture, from
Amazon is due to the fact that they want see it before buying it. We believe MR will solve
this problem and allow people to visualize items before buying. Furthermore, we believe
that before painting your home or redoing your floor you would likely preview the finished
product via MR. We believe Amazon’s vast selection of items, 460M SKUs as of October
2015, puts it at the forefront of MR and VR enabled shopping.
Beyond shopping we note Amazon recently was awarded a patent for an MR head mounted
display which would utilize a transparent layer in combination with a display layer. An
electronic device would signal when the MR device should use the display layer and when
to use the transparent layer. The two layers would enable objects to appear in a user’s field
of view.
Founded: 1969
Ownership: Ticker: AMD (not covered)
Category: Processing Power
Domain: amd.com
CEO: Lisa T. Su
AMD is a key maker of GPUs and custom designed chips. GPUs are a key component for
MR and VR headsets due to the amount of updating the image must go through as the user
moves his head or body. The image needs to update at over 60 frames per second and
simultaneously adjust to movements and surroundings. The object must also be displayed
with high resolution so the user is convinced the object is there.
Founded: 1976
Ownership: Ticker: AAPL
Category: Head Mounted Displays (HMD)
Domain: apple.com
CEO: Tim Cook
Based on conversations with industry contacts within the virtual and augmented reality
spaces, we believe Apple will join Facebook and Google in pursuing the VR and AR
industry, and they have a small team working and exploring the augmented reality space.
While mixed reality (as opposed to VR) is likely 10 years away from broader consumer
adoption, we believe it has the potential to be as profound a technology platform as the
smartphone today. Given the theme around augmented reality is so early, it is difficult to
size the opportunity; however, we believe Apple's early involvement in the space suggests
Amazon Inc.
Advanced Micro
Devices
Apple Inc.
November 2015

the company is preparing for the next evolution of computing. Additionally, we believe
Apple's evolving fashion advantage means that they can uniquely develop products that
consumers will actually want vs prototype style offerings today.
Founded: 1979
Ownership: Private
Category: Mixed Reality Component Supplier
Domain: ara.com
CEO: Robert H. Sues
Applied Research Associates created the ARC4 which fuses terrain information, GPS,
Inertial data, and cameras on the wearable display which allows for MR head mounted
displays to work in outdoor environments. The company is currently partnering with head
mounted displays to bring its technology to a variety of platforms to enable MR for outside
use cases. The ARC4 platform allows users to see geo-registered icons overlaid on their
real-world view. ARC4 gives situational awareness for commercial, government, or tactical
needs.
Source: Applied Research Associates
Founded: 2011
Ownership: Private
Domain: atheerlabs.com
Founder: Soulaiman Itani
Gesture-based augmented interactive reality platform for enterprises. Runs on the Android
ecosystem with backward compatibility. Depth sensing cameras allow for spatially aware
applications along with hand tracking.
Source: Atheer Labs
Founded: 1999
Ownership: Ticker: LON: BA (not covered)
Category: Head Mounted Display (HMD) – Military / Airforce
Domain: Baesystems.com
CEO: Ian King
BAE Systems is currently designing two technologies with the core idea of enhancing
situational awareness to increase the chances of winning the battle or saving lives. The first
technology is a portable command center which would be used in the case of emergency
scenarios. The user of the portable command center would be able to monitor situations
around the world by directing troops and pulling in virtual video screens that feed in from
UAVs. The second MR/VR system it is attempting to implement is a wearable cockpit. The
virtual cockpit allows for infinitely reconfigurable virtual displays and controls. This would
allow a pilot to reconfigure the cockpit to their liking based on the mission type or personal
preference.
Founded: 2013
Applied Research
Associates
Atheer Labs
BAE Systems plc
CastAR By Technical
Illusions
November 2015

Ownership: Private
Domain: CastAR.com
CEO: David Henkel-Wallace
CastAR is a head-mounted, augmented reality technology that deploys a set of projectors
and lenses to cast a 3D image onto a reflective sheet. The virtual images can be interacted
with using a controller and can be used in single or multiplayer mode. The first round of
applications for it will be aimed at interactive board games. In August 2015? The company
raised $15M led by Android Co-Founder Andy Rubin’s Playground Global Ventures.
Founded: 1999
Ownership: Private
Category: 3D Engines for MR Content Development
Domain: crytek.com
CEO: Amir Harel
Crytek is the developer of the CryENGINE® 3, which is a solution for the creation of VR
games, movies, high-quality simulations and interactive applications. According to Crytek,
the third iteration of its proprietary engine is the only all-in-one game development solution
for the PC, Xbox 360™, and PlayStation®.
Source: Crytek
Founded: 1998
Ownership: Private
Category: Optics
Domain: colourholographic.com
CEO: Johnathan Lewis
Creators of an optics system called TruLife Optics which are being sold to companies for
use in AR and MR displays. Colour Holographic also creates holograms without a head
warn display using its TruLife Holograms platform.
Founded: 2010
Ownership: Private
Domain: daqri.com
CEO: Brian Mullins
DAQRI combines a hard helmet with an MR head mounted display running Qualcomm-
designed and PTC-owned Vuforia software on Android OS. It uses 12 sensors on the helmet
to enable situational awareness which allows for HD video recording, 3D mapping
capabilities, object recognition and photo capture. According to DAQRI the sensors are
able to read and understand instrument data which can be translated into a variety of
industrial applications.
Founded: 2014
Crytek
Colour Holographic
DAQRI
Dextra Robotics
November 2015

Ownership: Private
Category: Peripherals / Haptics
Domain: dextrarobotics.com
CEO: Aler Gu
Dextra Robotics is the creator of Dexmo, a wearable mechanical exoskeleton that captures
hand motion and provides force feedback. Dexmo is aiming to bridge the barrier between
the digital and real world and gives users a sense of touch, and it is designed with the
principle of being dexterous, accurate and affordable, according to the company. While
conventional hand motion capturing approaches generally cost thousands of dollars,
Dexmo uses inexpensive rotational sensors instead of expensive sensors like IMUs and flex
sensors, and along with injection molded plastic parts the company believes the cost of the
device can be greatly reduced.
Source: Dextra Robotics
Founded: 2013
Ownership: Private
Category: Computer Vision
Domain: dotproduct3d.com
CEO: Brian Ahern
DotProduct develops and sells technology that enables mobile devices to capture dense 3D
data in real-time. The current main product (called DPI-8) is a combination of tablet
(NVIDIA SHIELD 8-inch), 3D camera (PrimeSense Carmine) and software (DotProduct
Phi.3D) that together is a complete standalone 3D imager, able to capture 3D models of
scenes and objects on the spot and in high detail. Further off we believe its computer vision
algorithms have a variety applications for MR headset.
Source: Crunchbase
Founded: 1996
Ownership: Ticker: ESLT (not covered)
Category: Head Mounted Display (HMD) – Military / Airforce
Domain: elbitsystems-us.com
CEO: Joseph Ackerman
In partnership with Rockwell Collins, Elbit Systems created the MR helmet for the F-35
fighter jet. The helmet at a basic level provides navigational and targeting information. The
helmet also allows a pilot to look through the plane which is enabled by using a collection
of six high-definition video and infrared cameras on the exterior of the plane called the
Distributed Aperture System (DAS). This system allows for a full 360 degree view outside of
the plane for full situational awareness. Elbit Systems is typically involved in developing,
manufacturing and integrating defense electronics and optics systems.
DotProduct
Elbit Systems Ltd
November 2015

Founded: 1998
Ownership: Private
Category: 3D Engines for VR Content Development
Domain: unrealengine.com
CEO: Paul Meegan
Unreal Engine is a suite of game development tools made by game developers for game
developers. Support for all the latest VR hardware including Oculus Rift, Samsung Gear
VR, Steam VR, Leap Motion, and Sony Project Morpheus.
Source: Epic Unreal Engine
Founded: 1975
Ownership: Private
Domain: epson.com
CEO: John Lang
Epson designs MR headsets for enterprise and industrial applications. Its latest headset is
the Moverio BT-2000 which is designed to help improve operational efficiency for
enterprises. Other than MR headsets Epson designs, manufactures and sells image capture
and output products for consumer, business, photography and graphics arts markets.
Source: Epson
Founded: 2013
Ownership: Private
Category: Eye Tracking
Domain: eyefluence.com
CEO: Jim Marggraff
Eyefluence partners with head mounted display (HMD) manufacturers, vertical market
leaders, and others to integrate eye tracking technology. Eye tracking is important to enable
interactions with virtual objects and has use cases in both MR and VR.
Founded: 2014
Ticker: FB
Domain: fb.com
CEO: Mark Zuckerberg
Facebook jump started the VR space in March of 2014 with the acquisition of Oculus Rift
for $2.3 billion. Details about Oculus Rift are limited, but we estimate there are about 300
employees. The company announced Oculus Story Studio in January of 2015, to create
content for Oculus. On the hardware side, Facebook has announced that Oculus hardware
will be available in the first quarter of 2016. Longer term we believe Facebook’s goal with
Oculus is to be a combination of hardware and a platform technology to enable VR. In five
years, we expect Facebook will charge a toll for third party hardware manufacturers and
developers to access the platform to sell games, experiences and products.
Epic Unreal Engine
Epson
Eyefluence
Oculus Rift (Owned
by Facebook)
November 2015

Founded: 2001
Ownership: Private
Domain: flarb.com
Founder: Ralph Barbagallo
FLARB is a computer vision team with experience developing VR and MR experiences.
Beyond entertainment applications, FLARB is working on construction and architecture
MR applications. More specifically it provides an information overlay about a building’s
internals over the real world to help construction, maintenance and remodeling of large
buildings.
Source: FLARB
Founded: 2014
Ownership: Private
Category: Eye Tracking
Domain: getfove.com
CEO: Yika Kojima
FOVE Creator is a consumer-oriented headmount display to use eye tracking. Its custom
headset and software track exactly where the eyes are looking and take action based on
that. Right now that means gaming actions such as shooting a gun at a target, but
eventually it could be used to set focus in film scenes and make MR a more natural
experience.
Source: FOVE
Founded: 1998
Ownership: Ticker: GOOG
Domain: google.com
CEO: Larry Page
We believe Google can win in mixed reality with both hardware and services. On the
hardware side, Google will take Google Glass to the next level, in our view, in part with its
$542 million investment (fall of 2014) in Magic Leap. On the services side, we believe
virtual and mixed reality applications will power the next wave of computing, and Google’s
data will be core to enabling those experiences.
Founded: 2001
Ownership: Ticker: HIMX (not covered)
Category: Mixed Reality Component Supplier
Domain: himax.com.tw
CEO: Jordan Wu
Himax is a manufacturer of liquid crystal on silicon (“LCoS”) displays which are used in
MR displays and often referred to as a picro-projector which is used in Google Glass. There
have been reports that the technology has also made its way into the Microsoft HoloLens.
Himax also makes a CMOS Image Sensor which could be implemented in MR headsets
which need small sensors for computer vision applications. While it is still early in MR we
FLARB LLC
FOVE
Google
Himax Technologies
November 2015

believe the company can benefit from this emerging theme as picro-projectors and sensors
will be implemented in a variety of MR solutions. Google took a 6.3% stake in Himax in
July 2013 as Google looked to ramp production of its Google Glass.
Founded: 1968
Ownership: Ticker: INTC (not covered)
Domain: Intel.com
CEO: Brian Krzanich
Intel’s hand tracking solution called “RealSense” tracks your hands in virtual reality and
could be implemented in mixed reality as well. Intel’s RealSense 3D camera has three lenses:
a conventional camera, an infrared camera, and an infrared laser projector. Together, the
lenses can infer depth along with tracking that responds to hand, arm, head motions, and
facial expressions. Intel also makes high powered GPUs which are necessary to run wired
VR headsets. The company holds patents around VR and MR and is expected to continue
to pursue both fields.
Founded: 2013
Ownership: Private
Category: Mixed Reality Content
Domain: jauntvr.com
CEO: Jens Christensen
Jaunt is currently focused on providing a platform for immersive cinematic VR experiences.
By employing 360-degree stereoscopic 3D imagery with ambisonic audio, Jaunt provides
audiences with access to a variety of interesting and realistic experiences. The company’s
VR experiences bring you to concerts, sporting events and story telling experiences. Jaunt
has created an end-to-end system, developing the hardware, software, tools, and
distribution channels to enable the creation of cinematic VR experiences. Jaunt's goal is to
give content creators access to the necessary tools to create interesting and entertaining VR
experiences. Over the next five years we believe the company’s technology will also enable
MR experiences.
Source: JauntVR
Founded: 2010
Ownership: Private
Domain: leapmotion.com
CEO: Michael Buckwald
The company creates motion-control software and hardware that enable people to interact
with computer applications by converting their hand and finger movements into 3D input.
Leap Motion launched their first product, the Leap Motion Controller, in 2013, and in 2014
introduced formal support around virtual reality and augmented reality experiences. The
company is currently working with a variety of OEMs and startups to embed their
technology into upcoming VR and MR devices. The company is privately funded and
headquartered in San Francisco, CA.
Intel
Jaunt VR
Leap Motion
November 2015

Founded: 2011
Ownership: Private
Category: Mixed Reality Content
Domain: lytro.com
CEO: Jason Rosenthal
Lytro has designed a new type of camera which captures Light Fields. The Light Field
camera allows light to be captured from multiple vantage points which creates an image
with color and depth. This is in contrast to a regular camera which only captures color and
intensity, but none of the light rays angular information (e.i. what direction are the colors
coming from). At the surface this doesn’t seem like a big deal, however we believe this is a
breakthrough for VR and MR. Their VR camera called Immerge will allow for an accurate
reconstruction of a scene and will allow for a user to lean into a VR environment. Leaning
into a VR environment and having the scene adjust with you is what will help make the
experience feel real. Although initially Lytro will be focused on VR we believe longer term
their Light Field technology could be used in MR.
Source: JauntVR
Founded: 2010
Ownership: Private
Domain: magicleap.com
CEO: Rony Abotiz
Magic Leap is considered the leader in developing an MR headset that consumers will
actually want to use. Overall, we see Magic Leap as a critical cog in achieving the potential
of MR as the technology places realistic holograms in one’s field of view through the use of
discreet glasses. In the fall of 2014, Google invested $542M into Magic Leap and rumors
point to an additional $1B funding round which would value them at $4.5B. The company
has over 400 employees and based out Florida. The goal of Magic Leap is building a next
generation headset to replace the desktop, PC and TV screens.
Founded: 2011
Ownership: Private
Category: Shopping
Domain: marxentlabs.com
Co-Founder and CEO: Beck Besecker
Marxent has created a shopping visualization application called VisualCommerce which
works with VR and MR devices to visualize products. It recently annouced a partnership
with Lowes to create the “Lowes Holoroom” which helps shoppers visualize products
they’ve selected in a real-world environment.
Lytro
Magic Leap
Marxent
November 2015

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