« Exchanges at Goldman Sachs

Beyond VR and AR: Extended Reality to Transform Our Lives as Consumers

2018-05-21

It's not a matter of if Extended Reality (XR) will touch all aspects of our lives-it's a matter of when, says Heather Bellini of Goldman Sachs Research. By 2025, XR is projected to generate over $100 billion in sales, with the consumer and e-commerce sectors being its biggest beneficiaries. The technology carries broad implications for healthcare, education and real estate as well. "Ultimately, this AR/VR/mixed reality movement will change the way we interact with technology forever," Bellini says.

This podcast was recorded on April 5, 2018.

All price references and market forecasts correspond to the date of this recording.

This podcast should not be copied, distributed, published or reproduced, in whole or in part. The information contained in this podcast does not constitute research or a recommendation from any Goldman Sachs entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, as to the accuracy or completeness of the statements or any information contained in this podcast and any liability therefor (including in respect of direct, indirect or consequential loss or damage) is expressly disclaimed. The views expressed in this podcast are not necessarily those of Goldman Sachs, and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs to that listener, nor to constitute such person a client of any Goldman Sachs entity.

Copyright 2018 Goldman Sachs & Co. LLC. All rights reserved.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanges of Goldman Sachs, where we discussed developments currently shaping markets. Industries in the global economy, objects seaward, global out of corporate communications. Here, the firm sum of today's technologies are starting to feel, like their staff from a science fiction movie, including virtual reality and augmented reality, the r are we between Emerge, the RNA, are you get extended reality or sometimes called ex are so what's that with a our view? Our acts are how they gonna change. The way we interact with the world around us and technology itself, Heather Bellini Business unit, leader technology. Research group in Goldman Sachs Global Investment research is here to tell us that a more Heather welcomed the programme. Thank you very much. So stop
explaining the spectrum of extended reality. Would hearing a lot about ex r r D are even mixed reality. What does it all mean and what are some of the use cases to help us think about it? A great place to level set everybody. So when we talk about it extended reality refers to the entire category of immersive experiences that someone can have. The world around. You becomes your computing interface and at our expense hence can be simply overlay of information on top of the world we live in so for example, it could be as easy as a snapchat mask if you've ever taken a picture and put a snapchat mask on top of it. be. Our experiences are completely immersive, so think about it. If you're wearing the our heads you're wearing something where your field of view is entirely block. That's not the case in a and envy are typically, it might be.
walking through the pyramids in Egypt or the great wall of China, or it could be you playing video game pursuing nerve bedroom mayor off, exactly see you are completely immersed in the world around. You is completely virtual, there's also experiences in the middle and what some people were. First It was mixed reality in these blend features of a are and they blend features of are what I mean by that is a perfect example would be, let's just say, your shopping for further. In your house, and you an empty room, and you want to see what a sofa might look like in your living room where the tape, and maybe some lamps? You could do where you'd be able to look through and see what from you know, maybe it's wayfarers pick your favorite retailer website, where you would be able to see and envision what their products would look like in your actual living room. So again it blending the worlds
You can see with images that are virtual, shoe polish report on this field back in twenty sixteen. What was them good then, and what does it look like now? Has it about this mark has been of all things. For a long time so well before we even started writing about it and its had its fits and starts, and we started paying increasing attention to it and twenty sixteen and why We ve seen over the last few years, is an even bigger focus and commitment from almost every major technology company, everyone's looking to claim their stake in the ecosystem, and investment has been increasing as a result There was a release. Last year I had eleven, that's it contribute in some ways to the growth here. Turning over about that, in the last year, you ve? Seen? Accessibility increase. You ve seen some price points drop in that's important, but I owe us eleven was very important because now, roughly seventy percent of every apple phone,
that out there, because they're not only surly upgraded to Iowa eleven at this point, but you ve seen that become a developer platform, what they call a our kid and you ve seen with the latest iphones they ve got the dual cameras for you to be able to do this work to really created a lot of interest in the developer community so we ve seen BC investment start to uptake as a result, I would say I was eleven and what you ve, seen from SAM New release from their phone as well is going to help drive the ecosystem, there's a little bit of chicken and the egg conundrum when you launch these new technologies, and this is no exception? What we ve seen with, ended in virtual reality, and so I think this is helping to start eliminate that or developers. You have developing applications that can take advantage of this technology. The more people are going to want to use it in the morning
that use, it means more units get sold and then, ultimately, the price point start to come down hard on software companies operating space. Trying to modifies the technical, g, and how might that change over time? There's different ways. You could monetize this, so you ve got players that are actually making the council's people like Facebook make jealous and oculists as a platform for which you can see these. They ve got studios, you ve got people trying to go after the gaming aspect of it. You have people trying to do enterprise applications, You have the engines right software applications. You need development environments for people to write applications to take advantage of this. There is going to be an entire ecosystem. You're gonna need hardware. For this to happen, you're, going to need and infrastructure stack of software. For this to happen, and then you're gonna have applications on top of it and by the way, there's a massive bandwidth usage. That's gonna happen when you get to things like five g, for example. That will make consumption at this time.
knowledge is much easier for them players in the market today and what kind of market share that they have? Is it easy to sort that out, given the fractured nature, the mark, a kind of depends how you want to look at it if you're looking at it from a hardware perspective, clearly, facebooks oculists would come to mind. You'd have hd see you would have play station. There's. Also people like m. There are people like Apple that, while they're, not big players today, could be big players over time. It really would depend which layer of this If you wanted to just look at rod dollars today and who, as the most market share the hardware players that I mentioned, the facebooks, the hd sees this Sony. Playstations would be the biggest market. Cherkis hardware such a big price point, typically in these types of market. You would see the software and the hardware piece of the equation be roughly the same size, so each represent fifty percent of the market, and then it would just little go from their total funding lash
four envy are was about one point: eight billion dollars- and you mentioned Vc Before- were seeing Oxy traditional VC investors blessing some large companies put money into space, you know. I can imagine why BC investors but wire different investors looking at this differently, yet we think ultimately This are v, are mixed. Reality move men wool change the way we interact with technology forever. It will be the next big computing platform. So if you look back when Mobile became big. There was a desktop revolution and then Mobile came out of nowhere and their work times when Apple, launched the first Iphone, where there were some executives that markdale, like who's gonna, want to carry a phone that this big. So people were a little bit taken off guard by how quickly more and the smartphone revolution which really helped drive mobile, became so dominant and it changed business models. The computing power in our
at today's, what a supercomputer would have had say, twenty or thirty years ago, so they entered your question is more that people have seen the type of disruption that occurred I'm to mobile, and I think they want to make sure that they are not going to follow the same patterns as other companies followed in the past, so they have to pay attention to. It you ve, put some numbers on this joint research recently increased its twenty twenty five ex our forecasts. Two: nine hundred thousand million and sales, what segments will drive growth in your projections, its across board the one that we raised most significantly in our latest forecasts, really had to do with e commerce, and that's really because, whether its Google with software development or apple, as we mentioned, where they are kid start to enable developers to create applications that can put the power of this technology into the hands of consumers, and you ve seen it, and we expect.
To really see, but you can start to see at changing the way people shop for a lot of different things. How you might look it really: they may be in the past. You would go look at when he houses- and you would spend a couple weekend doing that, but now you could do virtual walk through us and. zoom in on a certain space in the house or the apartment that you might want to look at, and you can maybe eliminate some of the ones right there. So you don't have to spend as much time so it makes you more efficient there away, as I mentioned before the furniture example seeing the so or the dining room table in your dining room before you buy it, seeing what it might look like with the type of de corps that you already have. There may be saved retailer, a lot of money in terms of shipping things and then having to restock that item. That maybe is no longer knew so there are multitude of reasons why e commerce, really benefit and continued to accelerate the sheriff
taking from the online world as a result of this type of technology, so that one in particular that we raised our forecasts for quite a bit but I want to make sure we're clear. This is going to be equally transformative in the enterprise space as well. We Ben modeling, those by different industry vertical for quite some time how health care gets delivered, will change needs being changed by this type of technology. How education is done, whether it training for doctors or training for students, you could be at a public school in New York City, but walk the great wall of China not many kids in the United States are going to get the opportunity to go. Do that, but you can really immerse yourself in this type of technology, so I think it's gonna touch all aspects of people's lives but again enterprise and consumer gonna be big beneficiaries, but the one that we raise the forecast for the most and the most recent part of the research was related to e commerce
At the very same time, you ve temper your expectations somewhat for near term adoption would key barriers to adoption today The challenges, as I mentioned before, is always the chicken in the egg. You need content to attract users by to attract more and more users. You also need lower hardware price points that Bela birds, will pay attention to this when there is a huge market for them to sell into lives units Armada headsets? I've made a this is pretty typical of any hardware market. Were price pointer, high end you're too to nourish this ecosystem and you really need the early adopters D. The weight of the market on their backs, and you know your slowly starting to see that and I think the VC funding that we mentioned before is a great example of how you're, seeing that start to change you ve got recent release of ruddy player, one, for example, which is a movie that Steven Spielberg made, which is about living in this too
of a world where there is just more awareness being drawn into this, and so we think it all happen, but typically, what you see is it all It takes a little bit longer for the market penetration of these devices. To get to a big enough point, then you start see the flywheel happen of the application ecosystem. Talk pricing. How available is stuff today and can we expect meaningful price declines? near term, at least for the hardware. You will see price declined. I mean we ve already seen. Hardware pricing come down about twenty five, thirty percent over the last few years, since we first started writing about this narrowly twenty, sixteen and hardware market that what happens you get price compression. So few kind of compare this back Hu, the pc market, in the early days, pcs, were very exe. And so now you could buy a pc for Three hundred dollars? Typically, what you see is anywhere from five to ten percent a year price degradation and the
were manufacturers benefit, even though prices were coming down because they just get better and better. producing large volume and then they get economies of scale. So what might disrupt the positive momentum? Other risks the people in the industry or investors in the industry. Are focused on at the moment is not a question of whether this ever happens. It's more just a question of when it happens and don't envision a scenario where it's five ten years now we're going to look back and say, while I can't believe we ever thought that was going to be a market, the biggest question that people have now. What are those key applications that help solve this chicken in the egg problem? you can look at what TIM Cook has been saying, an apple in public speaking engagements were ease mentioned at some point, apple problem launch a phone that will be a headset. So you look back of in Google Glass had that it was just way too early.
and maybe that'll end up being a flop. Certainly, people are spending a lot of money and time trying to figure out how to change the computing interface that we're all use to today Maybe the ear pod becomes a phone. At some point you I mean I gotta watch my that works pretty well exactly so what I hope with the neck problems always looking around in my own. So What are the ex our use cases that your most person excited about either one that there today or one that's coming the ones that I think are the most exciting today and again, there's consumer ones and there's enterprise ones, but certainly on the e commerce side. There is a lot like me unable to try and an outfit without having to go to the store and knowing that you're gonna like it on your body. that would be great versus having everything ship to your house. I'm going back till you PS the next day and shipping, eighty percent of it back, so that would be a benefit for everybody. There's really trusting, use cases there, but the
occasion. Side, I think, is one or also really focused on and passionate about, and I think that is very interesting that revolution that you can have in health care and being able to deliver health care services from maybe doctor, you're in the states that want to volunteer their time to places outside of the United they tore may be, doctors aren't is readily available or it could be helping at paramedic that's riding in the back. The ambulance connect real time with a trauma surgeon back at the hospital, so they could actually view through the glass. Is that their wearing? What really the group but he of the situation that they're gonna deal with when the ambulance might pull up to the hospital. What kind of excited about the entire market, in terms of where we think it's gonna go? People think of this whole market they think of video games. While that will be very important at some point and will be a big market, I think it's. going to change the way we engage with everything.
The first call on our family when there's a health issue of any sort, much more productive. Ones is faced time My sister in law is in doctorate in California has aimed to my sister, never works very well. That is a good way to get a red on the situate likely Fraid. So before we rap Let's talk about another high tech topic that you write about study quite a bit about is growing Mola voice in our world apple, Google, Microsoft, Amazon, all involved in voice the voice race- I guess with Digital system- Where are we in the adoption of voice. very early I mean. Everyone who has an Iphone is probably experimented with Syria at some point, Amazon. Deluxe is the front runner in that market. Right now, followed closely by Google HOMES, products. And you ve seen apple trying to get into that market with home pod. The way he can docked and communicate with devices we think will be done by voice. Things will be ten years from now voice. First, every application
voice, enabled versus right. Now, the way you interact with most apps, except maybe and very soon, demographics at this point would be your typing it, whether attend to your phone or in your computer into your tablet or what not so we do think voice will be the way that you will naturally start to communicate. there it, with your, had set that you're wearing call Jake and then just dial your number or where's. That strong that I'm going to and if you're wearing the glasses you'll just see a virtual overlay of the street you're walking on make a left, make a right middle, give you directions get you there shortly. The remote control would be a big target out. You can tell you what you need a fine, your show, all that, I believe, will happen so it'll just chain the way we communicate with the devices that we use every day, allow. The spending of us here in the digital space is on advertising, and obviously we talked about e commerce
How could voice reshape the landscape in those two places in adds bandying and in any commerce? More generally right, one of the biggest pieces of the digital market is search and It will still be very important in this market. Just the way you do, a search instead of typing will be speaking, a voice coming and what's interesting about the kind of horse race. That's going to go on in this market. Nor perspective is how does the market evolve right now, you ve got apple and Android devices and Google powers all of the Android devices for search for the most part and apple signs, partnership, agreement with Google to be the default search provider, and the question is: does that once of power start to change in a world where who's got the best voice. Enable digital assistant or veda in this case is being gonna, be an old. her not really sure is? It is gonna, be Google to differentiate your problem.
Are you gonna wanna, make sure you're using the best search engine to get the most relevant results? We think that's gonna, be the case some may be. Google has a little bit more grounds to stand. In terms of not having to pay so much and traffic acquisition cost to people like Apple, because you don't necessarily have a great alternative, case of Amazon and my colleague Keith Tear he has written about this recently, how you go about buying goods and services. So if you're using an Amazon alexa- and you say I need AAA batteries- gonna, fulfil that order using an Amazon branded battery. So that's great for Amazon. If you want a different brand, you would actually have to ask for that brand, and so it will make it easier for Amazon to help steer people more towards Amazon, goods and services, also it reduces the friction of-
e commerce in ways that another positive helps drive more and more share of e commerce, which obviously Amazon Authority, the leader Gama they had of the e commerce today and just being able to speak in to your election, say ad. lay batteries to my shopping list this week or order me too They batteries if they capture that sail and they fill it with an Amazon branded products or even if they used a third party, bran verses going physically to the store to go by those batteries by topping Amazon capture more share of the e commerce market. Search today, sir, back a lot of results, rain consort through them a little bit visually right on your phone right, computer voices trickier first product its offered up is gonna, be the dominant one, and people are gonna, sit around waiting, Rayner three results and that also work comes interesting because you start to think about for voices.
we'll digital assistance to gather or share for those items that you might want to look at. The question is: are you go? to need a screen. Are these digital? systems going to need screened over time. Some of them have, and some of them have and depending on how big your house's you're gonna have a bunch of these in your home, there might be a few places you're gonna wanna, have that screen. So if you say I wanna look at beach for Hotels in Miami you're, probably not going to want to just take the written review. What spoken to you, you're, probably going to want to see pictures of what the rooms look like, that very different If you always stay at the same hotel in Miami and you know exactly where you want to stay and then they could say, do you want to stay at the place you state at the last Three times you went to Miami that fight, and then they could kind of cut out some of the middlemen. The hoteliers could but there's gonna be case. Is where you're gonna wanna use a screen. For example, if you use
he's for a recipe. You probably want to see the recipe versus asking it to read you the recipe. Every time you forget what next in the list of steps like Iowa, do so between the technologies ex are and voice which one you see being the more transformative technology over the next five years, and why the extra reality, augmented virtual reality, mixed reality market that we are talking about. That's not evolutionary that revolutionary in terms of how we interact with technology that will ultimately be the bigger market and that's the one we think will be very transformative over the course of the next ten twenty years. If you had to say in the next three years or five years. It's a lot it harder, I would say Voice- is easier. More and more apt Can it be voice enabled over that time period, but is that the transformative market, probably
Not it's an evolutionary process in terms of how were interacting with these devices. But it's not failed changing how people communicate and do things are away thanks for joining me. Thank you will come back in a couple years and see how your predictions of panda. That concludes this episode of Exchanges- Goldman sachs- you very much for listening, and we hope you join us again next time. This bought gasters recorded on April fifth, two thousand eight teen, all price references and market forecasts correspond to the date of this recording this pot cash should not be copied, distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any represent
you can or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability there for including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this podcast are not necessarily those of Goldman Sachs and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs to that listener, nor to constitute such person a client of any Goldman Sachs Entity,
Transcript generated on 2021-10-06.