In this review, we do detailed analysis of a futuristic start-up called Spatial.io that uses augmented reality / virtual reality to help people collaborate online for work. We identify the exact problems it tackles and the solution it offers. We also look at how it is transforming the way people interact and collaborate in the workplace by leveraging AR/VR technology. With the recent pandemic covid-19, affecting everyone globally, the service offerings of Spatial have gained further momentum. We critically review the appreciable industry potential, competitive advantage, growth avenues, and future potential of Spatial.
What Does Spatial Do?
Spatial offers an augmented virtual reality workspace that helps people to connect and collaborate in an efficient manner. Spatial ensures that its users can have the actual workspace environment while working from home. It creates an augmented 3D Avatar of its users that completely map the actual movements of the users. This 3D avatar is then projected in user’s AR/VR workspace and the users can actually communicate and collaborate online with each other as if they are working side by side.
In short, its an augmented 3D version of a Zoom or a Google Meet. People communicate with the 3D avatars of their colleagues in a cross-reality platform. Spatial offers much more convenience than conventional virtual apps like Zoom and Google link. It actually enables users to access their devices in augmented reality. This has facilitated higher efficiency and improved the ease of collaborating online with each other, especially in the current global pandemic.
Spatial operates just like any other app. But to operate, the users are required to have an AR/VR Headset in place. Spatial has an established relationship with Microsoft Hololens, the virtual reality headset. However, the app is compatible with other AR/VR headsets as well such as Quest, Magic Leap, etc. Right now, the app has the facility to allow 15-20 members in a room. The aim of the company is to increase that number to 100 to compete with mass video conferencing offerings of Zoom and Google Meet.
In terms of pricing, Spatial started offering free services once the pandemic hit the world in May 2020. It offers almost everything in its free package except for unlimited Storage. It is imitating the pricing strategy of Zoom. Spatial charges $20 per user per month for its Pro Package in which it offers unlimited storage as well as a Team Administration Panel. This charge is collected on an annual basis. Furthermore, it has custom made solutions and packages for large Enterprises with Special Features such as Priority Support, Master Service Agreement, Customized Enterprise features, etc.
The company currently has been able to get contracts from big enterprises such as Mattel, Nestle, BNP Paribas, Ford X, etc. The fact that non-tech companies have been able to successfully integrate Spatial in their workplace is a testament to the simplicity and the sector agnostic service offered by Spatial.
The Problem identified by Spatial
Pre COVID scenario
Spatial was established back in 2017 before any signs of a pandemic. People back then did not face restrictions related to travel and companies spent a huge amount on business travel. According to Statista, business travel spending increased from $250 Billion in 2011 to $304.9 Billion in 2017. Google Meets and Zoom were the alternate options at the disposal. But the level of convenience offered by these apps was not at par with the actual experience of in-person collaboration. That is why Companies did not prefer these apps as a medium of collaboration. They would rather travel and meet in person to collaborate in a professional setting than to collaborate online.
How COVID changed the scenario
But now, the pandemic has restricted the ease of travel. People cannot commute to work as freely as before which forced the organizations to look for digital solutions. Naturally, people are currently heavily reliant on Zoom and Google Meet to get their work done. But people are facing many difficulties adapting to the “New Normal”. The major issue in Zoom is that it follows a “Presenter” mode of interaction which is actually different from the normal mode of social etiquette. Besides, there are other constant issues of people speaking over, audio / video lag, which causes a lot of inconveniences.
The remote mode of operations is expected to continue post-COVID as well. But the entire dexterity of collaboration will not be possible in a video-conferencing app like Zoom. It will require many more improvements both in terms of efficiency as well as convenience.
Solution: Enter Spatial.io
Spatial offers a 3D Avatar based disruptive solution to the entire process of remote online collaboration. It provides a hassle-free experience of collaborating in an AR/VR Workspace and has been successful in mirroring the workplace environment at one’s residence by leveraging its 3D Avatar capabilities in virtual reality. Spatial ensures that the users feel the presence of their colleagues in their room while working remotely.
Additionally, it converts the entire room of the user into an “ infinite desktop” thus allowing the user to utilize his/her entire room as their personal monitor. In this way, it ensures that the “presenter mode” of collaborating is not the norm. Rather, it allows realistic social interactions via 3D Avatars, to dictate its way into the discussions, just the way an in-person meeting does. The users feel that they are in the same room as their team are interacting with them.
Addressable Market Potential for Spatial
Since COVID broke out at the start of the year, the number of users for the video conferencing apps have increased substantially. Zoom currently enjoys more than 200 Million daily active users (DAUs) globally and has been adding more and more customers. Its direct competitor Google Meet, has about 100 Million DAUs globally as revealed by Mr. Sundar Pichai in April 2020. This shows the huge demand for a platform that allows people to collaborate in difficult times like this.
According to Industry ARC, the global video conferencing market is expected to reach $6.65 Billion by 2025 growing at a CAGR of 8.5%. According to The Insight Partners, USA’s video conferencing amounted to around $2.029 Billion in 2019. They expect North America’s market to increase at a CAGR of 5.2% and reach $3.18 Billion by 2027.
The demand drivers of this industry are
- increasing demand from SMEs
- implementation of these technologies in sectors such as Education, Healthcare, etc.
The Corporate Enterprise Sector accounted for 32% of the entire industry in 2019. This trend is expected to continue with Pandemic completely changing the entire dynamics of workplace collaboration. We also expect that sectors like healthcare and education will grow exponentially and will be at par with the corporate sector in terms of Video Conferencing Industry.
According to Statista, 6 Million VR Headsets were sold in the USA in 2019, almost 33% increase from 4.65 Million in 2018. This is because of the high price point of an AR headset, which is around $3500. The cheapest VR headset is Oculus Quest costing around $299. But going forward, we expect increase in demand and decrease in prices because of the structural changes to business travel. Even corporates have understood the viability, as well as the benefits of online collaboration and this may to prove to be the main driver for the entire AR/VR industry.
Effect of 5G
Therefore, with the advent of 5G in the near future by the established telecom players in the US, the internet speed may increase 20x compared to that of 4G with higher bandwidth. Coupled with the robust SME performance (due to higher Government spending on SMEs) and structural changes to the way we collaborate because of the pandemic, we believe that the augmented virtual reality platforms may disrupt the entire video conferencing industry.
Can Spatial disrupt online collaboration?
Spatial Growth Story So Far
Spatial started out in 2016 as a niche player in an already niche market. It operated as AR/VR Tech platform for online collaboration whereas other players were majorly focusing on gaming applications. Since its inception, Spatial wanted to explore how virtual reality can change the way we collaborate. But from the perspective of a customer, the initial investment required was high majorly due to the cost of AR/VR Headset and lack of access to the fast & stable internet connection. That’s why it seemed like a niche operator before the global pandemic kicked in.
With COVID putting a complete brake on business travel, the digital mode of the operation took the center stage. Apps like Zoom, Google Meet, Microsoft Teams, etc became more popular. But none of them could ever completely replace the actual experience of working in an office. That’s the Spatial wants to disrupt.
With multiple industry observers predicting drastic structural changes to the way we collaborate, Spatial no longer looks like a niche player in a niche industry. Rather we believe, it is well placed to facilitate this “new norm” of collaborating online thus making itself a necessity service instead of a niche service.
Scalability: B2C or B2B?
Spatial currently offers 2 plans for its users- A Free version with limited storage facility and $20 per user per month with unlimited storage. We believe this does not offer much differentiation from a customer perspective and cannot convert a free customer into a paid customer. Moreover, this space gives lower margins and is already captured by bigger players. Therefore, B2C offers limited scalability for Spatial.
On the other hand, we believe the B2B space has immense potential for Spatial. The company offers a customized solution to each enterprise as per their requirements. The customized solution is key to integrate their tech-based solution for non -tech companies as well. The current customer portfolio includes companies like Mattel ( Toy Manufacturer), Nestle (FMCG Company), BNP Paribas (Financial Services), Ford X (Automobile), etc. This demonstrates the ease with which the companies can integrate Spatial into any workplace environment irrespective of the industry and how it can help them collaborate online.
The major differentiation for Spatial comes from its ability to allow customization of the “infinite desktop” feature. For Example, Mattel is able to leverage the AR/VR capabilities of Spatial to develop their prototypes. This helps Mattel save a lot of costs that they used to spend on test mantles. The 3D model building capabilities and tools offered to attach extensions and share it with the peers offers a complete package required to actually visualize and modify any product design while simultaneously collaborating online. Spatial has tailor-made certain features of their offerings to cater to the requirements of Mattel.
Therefore we believe that the business is easily scalable in the enterprise space and it can deliver maximum revenues for Spatial.
Major Costs for Spatial
Spatial has to invest a lot on building up its infrastructure to support the large user base. The data infrastructure such as server costs are slightly on the higher side because of large data and bandwidth requirements. But as 5G comes into the mainstay, products such as Amazon AWS Wavelength and other tech-based augmented reality solutions may significantly optimize the latency period as well as deal with bandwidth issues. We expect that this will bring down the data infrastructure costs going forward.
Other significant costs include extending their offerings to include other apps within their platform. For Example, Spatial is working right now on including the file sharing facility from Google drive. Currently, users can integrate their files from Figma and Slack. Some of their other extensions are yet to be incorporated in building a 3D Virtual model in Spatial’s augmented reality workspace.
These costs are basically incurred to engage as many users under the single umbrella of Spatial. Spatial is building itself up to be a one-stop-shop for users who want to collaborate online. That is why Spatial is also working on providing an SDK- Software Development Kit, which will provide a set of tools, libraries, and code samples and guide the independent software developers to create tailor made applications on their platform.
The Road Ahead
Can Spatial go Global?
This should be the main goal of the company. It cannot focus only on the US, especially if it wants to monetize the B2B space. As many MNCs, based out of the US may want to implement Spatial across their offices spread globally, therefore Spatial should be prepared to go global. MNC’s would save a lot of costs when corporate travel, especially to international destinations comes down significantly.
But there are challenges in going global. The most obvious issue is internet capabilities in developing countries. Many countries are operating on 4G and 3G right now thus making it very difficult to incorporate augmented reality on their devices. That is why, Spatial also rolled out a non-AR/VR feature that allows the users to join a virtual room from their device without the requirement of an AR/VR Headset. Obviously, the experience is nowhere close to virtual reality.
Secondly, the cost of an AR/VR headset is a major issue. Hololens 2 cost $3500. The cheapest headset is Oculus Quest at around $299. To make it more cost-friendly, Hololens started a renting model which allows the customer to use it at less than $120 per month. Going forward, we do expect a significant reduction in the prices with entry of new independent manufacturers as Virtual Reality and Augmented Reality become a mainstay in our daily life. Moreover, Spatial is device agnostic which will further help attract users.
Therefore, we believe that accessing international markets via B2B channel and targeting MNCs will help them grow further. Spatial can actually create its presence in these markets by enabling the MNCs to set up the spatial facility. In this way, Spatial can grow further with MNC’s expansion as well as its own internal expansion plans.
Potential Expansion Opportunities
We believe that Spatial can have a huge impact on the way we interact and collaborate online. It can expand its offerings to multiple facets such as customer interaction in portals like Amazon, Flipkart. Spatial can modify the entire customer experience using augmented reality.
Even the financial services industry is set to be disrupted by AR/VR technologies.
Many banks are warming up to the idea of incorporating AR/VR technology in areas of business such as Customer Self Service, Payment Experience, Client interaction, etc. In fact, some of the prominent banks are ahead of the curve and have already started incorporating Augmented Reality as well as Virtual Reality within their offerings:
- Axis Bank offers an AR-based “Branches and ATMs Near Me” service.
- Citibank has established a Holographic Workstation for its Finance and trading department thus leveraging Virtual Reality.
- Commonwealth Bank has launched an Augmented Reality based Bank Property guide app that allows users to scan any real estate property and get immediate details about the property.
Therefore, we find immense opportunities for an app like Spatial to work its way into the financial service industry and change the way professionals interact with their clients as well as collaborate online with their peers.
Exit Opportunities for VCs
Spatial a Prime Acquisition Candidate?
Spatial is all set to disrupt the existing video conferencing industry. Players like Zoom, Microsoft Teams & Google Meet, all face an inherent risk from Spatial. It is directly eating into their B-2-B customer base. Therefore, these players can choose to do a defensive M&A and stay ahead of their peers.
For Example:- If Zoom acquires Spatial and incorporates it into its own capabilities, then it can get significant lead over other video-conferencing players. Therefore, we believe that Spatial will get a lot of traction from these players.
Spatial’s 3D Avatar based technology is experiencing an increase in demand due to the pandemic. It now appears to be more of a necessity than a niche. Therefore, software giants such as Microsoft, Amazon, etc can very well go ahead and acquire the company and label it under their offerings. The synergy benefits of such a deal are immense. We believe that these software giants can get many cross-selling opportunities by incorporating Spatial.
For Example, if Microsoft acquires Spatial, then it can modify the offerings in such a way that certain exclusive settings and facilities of Spatial are available only on Hololens AR Headset. Also, synergies can arise from integrating Microsoft teams and Spatial with easy file sharing and communication. Further, Microsoft may decide to restrict such ease of access for Zoom, Google Meet, etc, which may give edge to Microsoft.
Social Media players
Social Media apps such as Facebook, Instagram are also an ideal fit for an app like Spatial which is built around 3D Avatars. This is further invigorated by the fact that Mike Krieger, the co-founder of Instagram, is one of the investors in Spatial. Spatial’s AR mode of interaction by utilizing 3D Avatars is an ideal match for social media apps. It can help them further improve the way people interact on social media apps. It can also be a logical extension of their video call and text message facilities. Therefore, we believe that there is a high probability that Spatial may be acquired by a Social Media company.
Spatial IPO: A Possibility?
Spatial can also take the traditional route of an IPO and access the public markets. The market opportunity as well as scalability is there for the taking. As spatial has already got multiple high profile businesses as its clients, we believe that IPO can also be a viable exit opportunity for Spatial, if they are not acquired before that! Moreover, the company should focus on first increasing its revenue and scale of operations to a level that IPO becomes attractive for the general public and institutional investors.
The Team behind Spatial
Mr. Anand Agarwala is the CEO and the co-founder of Spatial.io. He completed his master’s thesis in 2006 and has a Master’s Degree in Computer Science from the University of Toronto. Anand had created an App called Bumptop which was successfully acquired by Google in 2010. He has a lot of experience in building tech-based start-ups and scale them up for a potential acquisition. He has also worked with Google in the past.
Mr. Jinha Lee is the co-founder and the Chief Product Officer of Spatial. Prior to Spatial, he founded an AR technology called SpaceTop which allowed users to physically interact with the data and thus allowed the users to reach into their screens. He also created a physical pixel, ZeroN, that levitates and moves freely, as his master thesis project at MIT. Jinha has impressive work experience and was part of the designing team that created the Bradley Timepiece, a wristwatch for the Blind. He was named as one of the “35 innovators under 35” by MIT Review.
Spatial: Financial Snapshot
According to Owler, Spatial had estimated revenues of $3.2 Million in the last fiscal year. It currently allows 15-20 members in a single room. It plans to increase this number to 100 to have its Daily Active Users (DAU) to the match that of other video conferencing players like Zoom, Google Meet, Microsoft Teams, etc.
In terms of fundraising, the company has so far raised $22.3 Million from 23 investors. Following is the summary of various rounds of VC funding:-
- The company raised $8.3 Million in Seed Funding in Oct 2018 with Inovia Capital leading the investors. It had a total of 18 investors investing in this round. Prominent investors such as Kakao Ventures, Samsung Next, Lerer Hippeau invested in the seed round of Spatial.
- Spatial raised $14 Million in its Series A Funding on Jan 3, 2020. The round was again led by Inovia Capital and White Star Capital. Prominent investors invested in the company such as Baidu Ventures, Mike Kreiger, Mark Pincus, Andy Hertzfeld, etc. A total of 11 investors invested in Series A taking the total investors to 23.
The exact valuation of the company has been kept private. Anand Agarwala, CEO, and Co-Founder revealed in an interview that they are not yet prepared to divulge the information regarding valuation.
Bigger Fishes entering the Fray
There is a high possibility that Tech Giants such as Google and Microsoft may choose to start their own venture in the same space. Spatial can emerge as a potential competitor to their video conferencing platforms (Google Meet and Microsoft Teams). Therefore, they may also introduce capabilities and compete directly with Spatial. This can have seismic effects on Spatial as it depends on users having access to AR/VR headsets, which are also manufactured by these software giants. Spatial does have certain patents for their technology but a licensing deal would be ideal for Spatial to co-exist in this space.
Players like Mimesys, Next VR, Arivizio, and 8i directly compete with Spatial in AR/VR collaboration space.
- Mimesys has recently announced an exclusive partnership with Magic Leap, a VR Headset Manufacturer.
- Next VR offers live streaming of sports events on an AR/VR platform. It offers the same experience to the end-user and has raised $135 Million so far.
- 8i is an AI platform that allows filmmakers to create Holograms and helps in film making. It has raised $68 Million till now.
- Arivizio is an Augmented Reality based company that provides Augmented and Mixed Reality services for Energy, Mining, and Advanced Manufacturing Companies.
Video Conferencing players like Zoom, Google Meet, Microsoft Teams, etc compete for the same customer pie by offering solutions for the same problems. These players are very big, have deep pockets and already have a DAU to the tune of 100 million. These players have been the main mode of communication for the corporate sector the pandemic.
They are cheaper substitutes to Spatial as users do not have to make any additional purchases related to AR/VR headsets. Therefore, there is a risk of losing out to these cheaper substitutes especially if 5G adoption is not quick enough globally. This can pose a risk to the scalability of the Spatial at a global level.
There is a huge risk of sensitive data being exposed to external hack attacks. Even Zoom was a victim of an unwarranted snoop attack which created inconvenience to its users. Spatial has access to much more sensitive data because of its Augmented Reality based medium of operation. This poses higher data privacy and protection risk that needs to be addressed.
We believe that Spatial is at a critical juncture in its growth story. Mother nature has presented it with a huge opportunity to reposition itself as a necessity. It has already got an impressive clientele from diverse sectors and can use the current scenario to expand further. Further, we feel that Spatial has the potential to disrupt the way we collaborate online and give competition to large players.
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