Facebook parent in talks with Magic Leap for augmented reality deal

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Facebook’s parent company is in talks to forge a multi-year deal with augmented reality start-up Magic Leap, as the social media giant continues to pour billions of dollars into its ambition to create an avatar-filled online world called the metaverse.

According to people familiar with the early discussions, Meta is exploring ways Magic Leap could provide both intellectual property licensing and contract manufacturing in North America to help it build mainstream AR products.

Magic Leap produces custom components, including high-tech lenses and associated software, which are key technologies that might be needed to build a metaverse. However, people familiar with the talks have said that the partnership is not expected to produce a specific joint Meta-Magic Leap headset.

Two former employees said Magic Leap’s “greatest asset” is the sophistication of its “waveguides,” a technology that allows the thin glass in front of the user’s eyes to conjure realistic images at varying depths.

Meta declined to comment. Magic Leap did not confirm the talks, but said the partnerships are becoming a “significant line of business and growth opportunity for Magic Leap.”

Facebook parent’s continued interest in augmented and virtual reality comes as Apple prepares to unveil its own ‘mixed reality’ device next month, with both Big Tech groups betting such headsets will provide a lucrative new computing platform to rival mobile devices.

Meta, which has a market cap of $612 billion, has faced growing investor frustration with CEO Mark Zuckerberg’s $10 billion-a-year investment in the metaverse project, which will likely take years to turn a profit.

The metaverse’s push continued even as the company was hit by tough macroeconomic conditions and an advertising slump, which led Zuckerberg to order restructurings and layoffs of some 20,000 employees, as part of what he called his “year of efficiency “.

Meta’s interest in working with Magic Leap also comes as Silicon Valley faces mounting pressure to reduce its reliance on China for hardware manufacturing, an issue that has become more relevant to the social media company as it targets the his focus on VR and AR headsets as part of his metaverse vision.

Magic Leap, founded in 2010 and headquartered in Florida, is among the top-funded AR startups, initially generating hype and raising more than $3.5 billion in multiple rounds led by the likes of Google, Alibaba and Qualcomm.

After the Magic Leap 1 headset, released in 2018, disappointed with sales in the thousands alone, the 1,200-person company shifted its focus away from consumers and turned solely to business applications.

In 2020, Magic Leap explored a sell, including having a few interactions with Facebook that led nowhere. Another longtime investor, the Saudi Arabian Public Investment Fund, acquired a more than 50% controlling stake in the company in 2021.

CEO Peggy Johnson, who oversaw the release of Magic Leap 2 last September, alluded in a recent company blog post to a new revenue stream, saying it has “received incredible interest from all over the world.” industry to license our IP and use our patented manufacturing process to produce optics for others looking to launch their own mixed reality technology.”

Along with contract manufacturer Jabil in Mexico, Magic Leap also has the capability to assemble tens of thousands of headphones a year.

The company told the Financial Times: “Given the complexity of developing true augmented reality technologies and the complexities involved in manufacturing these optics, as well as the issues many companies experience with overseas supply chain dependencies, we have entered into several non-exclusive IP licenses and manufacturing partnerships with companies looking to enter the AR market or expand their current position.

Meta sells nearly 80% of all VR/AR headsets, thanks to its VR Quest models. But the market itself is small — less than 9 million units sold last year, according to IDC — a tenuous lead given Apple’s anticipated entry into the market at next month’s developer conference.