Augmented Reality, Virtual Reality, Zuckerberg’s memo and the likely winners

Gavin Baker
8 min readMar 12, 2019


This post is a compilation of my recent Twitter threads on Augmented Reality and Virtual Reality and what I think they will mean for the current tech ecosystem. Conclusion is that as I’ve thought more about AR/VR, I am more convinced that Google and Apple are going to dominate AR at the platform level with no large technology company having a clear edge in VR, although Epic’s game Fortnite may emerge as a VR platform. And I am slowly beginning to believe that both AR and VR are more risk than opportunity for Facebook.

An upcoming book leaks a fascinating 2015 email from Zuckerberg advocating the acquisition of the game engine Unity as a way to advantage Facebook in AR/VR. In the email Zuckerberg focuses on the importance of AR/VR as a way to eliminate their “vulnerability” to Google and Apple:

“If we only build key apps but not the platform, we will remain in our current position. If we only build the platform but not the key apps, we may be in a worse position. We need to build both…We are better off the sooner the next platform becomes ubiquitous and the shorter the time we exist in a primarily mobile world dominated by Google and Apple. The shorter this time, the less our community is vulnerable to the actions of others.”

Later in the email, he ranks apps, platform services (identity, content/avatar mkts, app store, ads, payments) and hardware in order of strategic importance to success in AR/VR and notes the strangeness of Apple succeeding in reverse. Zuckerberg also observes that “in modern OSes, however, most of the value comes from advantaging the OS providers own platform services.” This is true; Android only exists to advantage and protect Google’s apps from the strategic (and financial leverage) Apple would otherwise have. And it minimizes the TAC Google has to pay, all of which is why Google gives Android away for free. TAC would be over $10b higher for Google if it did not own Android — that is how it is monetized. The Android app store is an afterthought.

Still, despite the value inherent in owning a platform, Zuckerberg believes that apps ultimately have more leverage than platforms: “If we only build the platform but not the key apps, we may be in a worse position. We need to build both.” I agree with this logic in VR where the apps are likely to be more important than the platform, but disagree in AR where I think the platform is likely to be more important than the apps. In mobile today — it is likely a wash between super apps like Facebook and platforms like Apple and Android ex China (in China, as Connie Chan pointed out in a 2015 post that is worth rereading today, WeChat is more important than any smartphone platform). It would have been interesting to see what would have happened if Apple had persisted in its one day ban of Facebook’s enterprise certificate that is essential for Facebook’s iOS app development. I suspect a world where Facebook removes it apps from Apple is more painful for Apple than Facebook in the long run.

Zuckerberg sees games are “critical” for AR/VR but “ephemeral.” Zuckerberg is brilliant man and world class CEO. Interesting that the idea that a game — like Fortnite — might emerge as the next platform had not occurred to him as of 2015. Especially given that today’s games are actually Dunbar level social networks. Ready Player One was published in 2011 and Snow Crash was published in 1992. Reading science fiction is important if one is involved in technology as either an investor or executive! Also disagree with his overall thesis for acquiring Unity in his email; I think it is unlikely that Unity — or any gaming engine — emerges as a strategic point of leverage in the AR/VR technology stack and drives superior platform services i.e. avatar or identity systems.

As noted earlier, I believe that in AR, the platform is more valuable than the apps. And hard for me to see how anyone other than Google and Apple can really create an AR experience. The smartphone will supply the processing power for the AR glasses/lenses and maps will be foundational. The combination of the new AR feature in Google Maps (get directions by looking through your phone’s camera), Lens (awesome product/feature) and Translate (semi-magical app) likely results in Google logging more user hours in AR experiences than any other company in 2019 although they will have competition from Niantic. Pokemon Go was up 84% YoY in January and perhaps more importantly, “Harry Potter: Wizards Unite” is due to be released soon. Training users to look at the real world through their phones with the expectation of a better experience will make the next consumer iteration of Google Glass (and the upcoming Apple AR glasses) much more successful.

Kevin Kelly wrote the best article yet on Augmented Reality, which he conceptualizes as “The Mirrorworld.” A few excerpts: “At first…will appear to us as a high resolution stratum of information overlaying the real world. We will interact with it, manipulate it and experience it like we do the real world…We are now at the dawn of the third platform, which will digitize the rest of the world. On this platform, all things and places will be machine-­readable, subject to the power of algorithms.

Kelly sees the Mirrorworld as being able to “immerse you without removing you from the space. You are still present, but on a different plane of reality. Think Frodo when he puts on the One Ring. Rather than cutting you off from the world, they form a new connection to it…will be the badly needed interface where we meet AIs, which otherwise are abstract spirits in the cloud…Time is a dimension in the mirror­world that can be adjusted. Unlike the real world, but very much like the world of software apps, you will be able to scroll back. History will be a verb. You will be able to lay a reconstructed 19th-century view right over the present reality. To visit an earlier time at a location, you simply revert to a previous version kept in the log…New technologies bestow new superpowers. We gained super speed with jet planes, super healing powers with antibiotics, super hearing with the radio. The Mirrorworld promises super vision.” As a sidenote, the AI I am most excited to meet is “The Oracle.” = )

Smartphones will rapidly become edge servers that power both Augmented Reality experiences and the ecosystem of wearables we will all be using — glasses, watches, earpods — for ambient computing. This is why I think the platform will be more powerful than apps in AR. The combination of wearables and AR will create new products and experiences that are difficult for me to imagine (I am an investor, not an entrepreneur or product executive!). Still, I am curious to see how long it takes for Google to insert “Minority Report” style advertising into the AR experience (5–7 years or whenever it has 1b users would be my prediction). And how long until this ad targeting is informed by our brains being read by the Pixel Buds (10–15 years?). There is no way that owning Unity — or any other game engine — would offset the overwhelming disadvantages of not owning the “edge server” powering this AR/wearables ecosystem.

I recently read a novel by Richard Morgan called “Thin Air” set on Mars in a few hundred years. In the novel, everyone has “lenses” that they wear which continuously give them a “gestalt” of how anyone they are speaking to is reacting to them along with immediately identifying any falsehoods by analyzing the other persons skin temperature, pulse, microexpressions, etc. People only have real conversations when they take their “lenses” off. I think this is where we are heading relatively quickly. Science Fiction!

So VR is Facebook’s main opportunity to create their own next generation platform given that Google and Android are likely to dominate AR. I think VR will be the reverse of AR, in that VR apps will be more valuable and may become the platform. Unfortunately, I don’t think Facebook’s existing apps will translate well to VR. Why be your Facebook persona when you can be something entirely different — that is likely to quickly become the entire point of VR. First generation VR experiences are focused on taking people to exceptional real world locations — Everest, the Pyramids, etc. But I suspect this will evolve quickly to imagined worlds, as Marc Andreessen has pointed out the possibilities are literally infinite in virtual reality. This is why Zuckerberg’s dismissal of games in the context of VR is so strange, although I suspect he no longer believes this especially given that Andreessen is on the Facebook board. I’m also hoping to try out the “Holodeck” that a16z recently invested in later this week.

The combination of reading Owen Williams “Fortnite is a place not a game,” seeing the Marshmello concert and reading Matthew Ball’s thoughts on Fortnite really crystallized my thinking on VR and where it might go. I think there is a reasonable chance that a game — whether Fortnite or another one– emerges as the dominant VR platform. i.e. A game becomes the “Oasis” from Ready Player One or the “Metaverse” from Snow Crash. And I had no idea that Epic CEO, Time Sweeney, has been focused on creating the Metaverse/Oasis for years. “As we build up towards the Metaverse” is an actual quote from Sweeney. I had thought the emergent Metaverse and Oasis like characteristics of Fortnite were happenstance and luck, but they are clearly part of a carefully considered plan. And it doesn’t sound like Facebook or Google will be able to acquire Epic given Sweeney’s stated feelings on the importance of this next generation internet being different from the current internet which is dominated by only a few companies.

Matthew Ball’s quote may seem prescient in several years: “While a 1v100 Battle Royale might seem like a strange bus to the future, the largest platforms and industry changers of the digital era were rarely built to be either. Facebook was a campus “Hot or Not”, after all, and Netflix was about avoiding DVD rental late fees.” Apart from a game emerging as a VR platform, it’s difficult to see companies with clearly dominant advantages — Google, Apple, Microsoft and Sony are all in the race. I don’t think the headsets from Vive and Facebook’s Oculus will end up being differentiating unless the aforementioned co’s are glacially slow to move their ecosystems to VR.

Net, Google and Apple are poised to benefit from the platform transition in AR and the winner(s) of VR is/are unclear at this point. But Facebook seems clearly disadvantaged in AR and at best neutrally positioned in VR.



Gavin Baker

Founder, CIO & Managing Partner, Atreides Management LP. Former Portfolio Manager, Fidelity OTC Fund. No investment advice, views his own. More: