The reality of augmented reality in mobile

Imagine walking the streets of New York City. You turn and see Grand Central Station, point your smartphone's camera at the massive building, and up pops a display of carefully arranged information about the station's history, the departure time of the next train and, likely, some kind of special offer for one of the shops inside.  

That scenario is what augmented reality (AR) enthusiasts want to see happening on a massive scale in the wireless world. Right now though, according to analysts and representatives from companies working on AR applications and services, the movement is more potential than reality. There are a variety of business models--mainly centered on mobile marketing and advertising--that can take advantage of AR, but there are also several hurdles that will have to be overcome to achieve widespread adoption.  

Though the market opportunity simply has not materialized yet, it likely will. According to a November report from Juniper Research [1], revenue from AR will not exceed even $2 million in 2010--but will balloon to $732 million by 2014.

"It really takes eyes," said Jim McGregor, an analyst at In-Stat. "Like any other type of opportunity or advertising, it takes eyes to make it of value."   

A question of eyeballs

What is AR and why does it matter? In the simplest terms, AR represents a set of applications and services that combine a mobile device's camera, location, processing power and accelerometer or digital compass to overlay digital information on top of an actual environment. The result is a view of the real world through your smartphone's camera (as displayed on your phone's screen) with information about what you're seeing laid atop that image.

For advertisers and marketers, AR supports highly customized and interactive campaigns. For consumers, AR provides location-based services with contextualized information.

The problem? Not that many consumers know what AR is, how it works or what the benefits are. "It's something worth experimenting with, but you probably shouldn't invest a lot of money in it just yet because it doesn't have mass-market appeal," said Josh Martin, an analyst at Strategy Analytics.

In order for AR to take off, analysts and others agreed, several things have to fall into place: More end-users have to get smartphones, have to know what AR is, and have to get AR applications onto their phones.

"How do we jumpstart the ecosystem?" asked Jay Wright, the director of business development for Qualcomm's (NASDAQ:QCOM [2]) AR program. "We're providing enabling technology to the application developers for augmented reality. We need to show compelling examples of useful and/or entertaining augmented reality applications that will drive the consumer demand."

Qualcomm unveiled an AR platform and accompanying software development kit [3] optimized for Google's Android platform at its Uplinq 2010 conference. Wright said that the "level of developer interest is as significant as anything we've seen in recent times from application developers." However, he noted that "it's incumbent upon us to create some showcase applications to show what is possible and make that chicken or egg appear at the same time."

Business models abound

The good thing for companies and marketers that want to get involved in AR is that there is a seemingly endless array of business models and opportunities to try out. "The market is so new that it's still in search of a use case," said Sophie-Charlotte Moatti, the head of product management for Nokia (NYSE:NOK [4]) Point & Find. "Is it a city guide experience? A retail experience? Integration with loyalty programs? We're still trying different verticals."

One of the simplest and perhaps most compelling avenues is the one that Dutch startup Layar has taken. The company's browser, which comes pre-installed on millions of devices and is free for Android and iPhones, essentially provides AR city guides. Developers can produce "layers" that use the browser, providing information on pretty much anything--from finding skate parks to political fundraisers.

Claire Boonstra, a co-founder of Layar, said the company focuses on revenue sharing on paid content transactions as well as sales of digital goods.

Nokia too has been a major proponent of augmented reality, and its Point & Find browser is on many of its smartphones. Nokia's Moatti said the company has experimented with several different business cases.

For instance, she said, promotions of a "Body World" exhibit in London allowed users to point their phones at a poster of the event to get a free coupon--an effort meant to draw press coverage of the exhibit. Another test involved brands like Sony and Lasminute.com, and relied on a traditional marketing campaign to let people know that if they pointed their phones at billboards they could win prizes. Still another effort offered a virtual treasure hunt across London that ended with a coupon from the Store Oasis Fashion.

In each of these cases there were barriers to adoption, Moatti said, from a lack of understanding about AR in the "Body World" case to the technical limitations of getting people to follow through on the treasure hunt.

Still, she said, "there is value for consumers in instant gratification." For instance, users could be in a store such as Best Buy and point their phone at a product to get information about it as well as a potential discount if they are part of a loyalty program.

Michael Becker, North America managing director of the Mobile Marketing Association, said AR will become a unique tool for marketers because it can leverage "promotion, retention, loyalty, social media--augmented reality, as a rich medium of consumer engagement, certainly will play a role in all of those."

The challenge and the potential

Despite the numerous business models that AR can enable, many agreed that the market is still very young. The business models need to get refined, and the technology and applications need to become more prevalent for AR to thrive.

"One of the key things that we're seeing with these business models is that it has to come back to the reality of where the person is," said Mark Ollila, the head of cross media solutions at Nokia.

Ollila said AR services will need to integrate smoothly into credit card or operator billing systems. He also said location technology--via cell tower triangulations, A-GPS and digital compasses--will need to be sophisticated enough to know exactly what a person is looking at and where they are in relation to it.

But some are bullish. "It will eventually be included as a standard feature," In-Stat's McGregor predicted.   

"I think it's a cool technology and has a lot of potential," Strategy Analytics' Martin said. "Ultimately, the business case will determine whether or not this is successful."