Magic Leap Clinches $280 Million from NTT DoCoMo in Latest Fundraising Round
Since its founding in 2010, Magic Leap has been something of a fundraising juggernaut raising an extraordinary $2.3 billion in multiple fundraising rounds over the past decade. And investors keep throwing money at the augmented reality startup. The latest round has been a $280 million funding raised from Japan’s biggest cellphone service provider NTT DoCoMo as part of a new partnership between the two tech companies.
And it seems Magic Leap isn’t done with the fundraising yet as it is planning on opening up its most recent fundraising round, possibly with the aim of accepting funds from both new and existing investors. The new fundraising is the latest in Magic Leap’s long drive to design its own vision of augmented reality that will be based on spatial computing and high-tech AR devices.
For NTT DoCoMo, the Magic Leap partnership is a bid to lock in strategic content partners as Japan races towards a 5G future where fast speeds, heavy data and immersive content will gradually take center-stage.
NTT DoCoMo has already obtained an approval from Japan’s regulatory authorities for its roll-out of fifth-generation (5G) networks across the country and the company plans to introduce commercial services from spring next year. As Japan’s largest mobile carrier, DoCoMo will be at the forefront in the rollout of 5G networks. Its 5G strategy is already apparent from its investment in Magic Leap: the Japanese mobile carrier is planning on seizing a share of the online subscriptions and services that are currently available as premium offerings on platforms such Amazon and Netflix.
The 5G era will be characterized by limited data usage so increasing the margins by selling more data and hiking fees will not be a viable revenue strategy. Instead, telecommunications companies will be looking to ramp up their revenues by offering a la carte services such as mixed reality that use heavy data. These immersive technologies will be the new revenue drivers.
It’s a timely and convenient partnership for NTT DoCoMo as Magic Leap is keen on building and innovating on augmented reality glasses that project digital content onto the user’s real world view. Although it has been struggling to put products into the market, Magic Leap is backed by high-powered investors including Alibaba, Google and the Saudi sovereign wealth fund and continues to attract massive capital inflows. Recently, the company began selling some expensive first-generation augmented reality headsets in the US market.
The investment will see DoCoMo become Magic Leap’s key partner in the rollout of its mixed reality products in the Japanese market. Even though the date for the Japan launch is yet to be set, DoCoMo has stated that it will be an exclusive distributor for Magic Leap products in Japan. Users will also be able to log into the Magic Leap content platform by using a DoCoMo ID. The mobile carrier is also planning to partner with Magic Leap in jointly developing content and midwifing deals with other local content partners.
There has been a lot of excitement around the rollout of 5G technology but uncertainties still linger on regarding the mobile technology’s prospects for mass adoption. While 5G will offer speeds of up to 100 times those of the current 4G networks, it is not yet known whether consumers will be willing to pay a premium price for those speeds, especially when the 4G networks are adequately meeting their needs and allows them low-latency streaming of heavy content such as games and movies. Telecom companies can therefore leverage on cutting-edge technology such as mixed reality, which require more data, in order to attract users and drive up revenues.
For DoCoMo, a mixed reality play will represent a dramatic shift in its priorities. This is particularly so as the Magic Leap partnership is coming at a time when the Japanese mobile carrier has been unveiling new pricing for its existing data plans which will reduce the tariffs by up to 40%. The move towards lower tariffs has most likely been as a result of government pressure.
NTT DoCoMO is also grappling with stiff competition from the giant Japanese ecommerce group Rakuten which is planning to roll out 4G services starting this October and which has also been granted an allocation for 5G spectrum. DoCoMo has also made a big play for 5G, investing some 795 billion yen or $7.1 billion for the deployment of 5G networks across Japan.
All in all, DoCoMo is facing multiple challenges that will put a strain on its bottom line. The company has projected that its net profits for the year ending March 2020 will plunge 13% from the previous financial year to 575 billion yen or $5.1 billion.
DoCoMO will also be grappling with the challenge of developing its content platform business. While the company has diversified its content portfolio in 4G, its offerings have so far failed to take off. This might be due to the fact the company has struggled to rope in millennials and its user-base is still strongly based on parents and the elderly.