Chi Xu – Mapping a New Reality

At the Jiemian News REAL tech conference, I had the opportunity to talk with Chi Xu, founder and CEO of Nreal, a Chinese augmented reality (AR) glasses startup. Founded in 2017, Nreal has won several prestigious international awards. Its lightweight, smartphone tethered AR glasses, Nreal Light, made headlines at the 2019 Consumer Electronics Show in Las Vegas. Nreal Light was launched through telecoms in Korea, Japan and parts of Europe, priced between $600 and $820, depending on the region.

In September of this year, Nreal announced that it raised a $100 million Series C financing round to fund its R&D and international expansion. The Series C round was led by YF Capital, NIO Capital and Angel Plus China, with participation by Sequoia Capital China, GP Capital and GL Ventures. This brings the company’s lifetime funding to a total of $171 million.

Chi received his PhD in Computer Engineering from the University of Minnesota in 2014, after which he joined mixed reality glasses manufacturer Magic Leap as a software engineer. In 2017, Xu returned to China and founded his current company.

Witty, confident and articulate, Chi Xu shared with us his insights on the AR market, why he thought 2017 was the best time to start an AR company, the differences between AR and VR, AR’s role in shaping the metaverse and what an AR-powered reality would look like in the future. This interview was truly fun and insightful, and I hope you will enjoy it as much as we did.

Yuke: There seems to have been a lot of buzz around the AR industry in 2015, but then market enthusiasm died down. My question is, what made you decide to get into AR in 2017 (as opposed to earlier)?

First off, I should clarify that when I first decided to start Nreal in 2017, the AR industry was struggling. At that time, I was working for Magic Leap and realized that the industry would experience tremendous growth in the next couple of years. AR could succeed the smartphone and evolve into the next major communication hub. However, at the time, AR was in its infancy, the technology to develop consumer hardware wasn’t fully developed, but the company was executing its vision in a completely different direction. When I was working at Magic Leap, it was 2016, but I had predicted that the market would be ready in 2021 so I felt that I was running out of time and that 2016 would be my last chance to go back to China and start an AR company. Turns out it was one of the best decisions I’ve made.

Yuke: But AR is making a comeback.  How is the current market enthusiasm for AR similar or different to what we saw in 2015?

Xu: Let me give you a few examples. Back when I was still working for Magic Leap, a high school friend of mine who had no experience in VR, AR, or any other relevant fields, told me that he wanted to do a VR startup. This is similar to what we’re seeing today. People who’ve just encountered the metaverse for the first time in their lives but are talking about it like their lives depend on it – it should raise flags. For example, when your grandparents start asking about blockchain or crypto, that would mean that there are too many outsiders flooding into an industry. This could be a sign that the market is overheated. I think it’s a good thing that people are talking about new technologies because when there is publicity, that means new opportunities are opening up. However, not everyone (or anyone for that matter) can develop a metaverse overnight or become a crypto trader in just a day. We just need to be a bit more rational.

Yuke: Explain to our readers the difference between VR and AR using plain English.

Chi: Again, I will give you a few examples. VR is short for virtual reality, and what it does is to help you escape reality. Right now, we’re sitting next to each other. If I put on a pair of VR goggles, it will (help me escape this conversation and) instantly teleport me to Madison Square Garden. It will feel as though I were sitting in the first row at a basketball game. Or, it’ll teleport you to a completely virtual world, but VR obscures your vision of the real world. So, there are limitations to VR: I wouldn’t be able to pick up my phone from the table. I wouldn’t be able to eat popcorn. I wouldn’t be able to drink my coffee. I wouldn’t be able to see you, sitting right next to me.

However, AR can permeate everyday life. It enables users to engage with a digital world layered on top of the real world, allowing them to see and communicate with people around them, be it picking up a cup of coffee in front of them, or in the case of Madison Square Garden also be able to see the physical court in from of them, but with digital enhancements like a display that shows off the latest scores or stats on each individual player.

Yuke: As you mentioned earlier, we hear the word metaverse thrown around a lot. So what are we talking about when we talk about the metaverse?

Chi: Fun fact, the sci-fi author who first came up with the concept of the metaverse was an ex-colleague of mine at Magic Leap. At that time, he coined the term“magic verse”. So “magic verse” was obviously very ahead of its time, but to explain it using simple English, we can think of “magic verse”, or metaverse as we know it today, as the next iteration of the mobile internet. What do I mean by this? Well, let’s take a look at the history of the internet. We started with a PC-based internet, which connects us to the web through our computers. Then we have the mobile internet, which allows us to do all kinds of crazy things that we take for granted today. Long story short, we can get information much faster as we’re nearly always connected to the web, which is just a glance away. As a result, our lives have changed dramatically. Human beings are connected with commodities, and now we can even stream videos on our phones. What we see in the history of the internet’s development is a pattern or trajectory of increased immersiveness. With each new iteration of the internet, we’re able to feed our brains with more information. This will happen again when the metaverse comes around and the internet reaches its next stage. Information as we experience it will increase exponentially, both in terms of the amount and in terms of its intensity.

Metaverse, to a certain extent, is the spatial iteration of the internet. Information is spatialized into, or connected with, real-world objects in real time. What we really want to do here at Nreal is to turn what we see with Jarvis in Iron Man into some kind of reality: I walk into a neighborhood. I have a virtual, digital butler who recommends and directs me to the hottest new restaurants in town based on my personal preferences. So all this information, extracted from copious amounts of data, is presented in front of my eyes (as a new kind of reality), in real time, and tailored to my preferences. I think this is what’s truly exciting about the future generation of the internet: instant, customizable and truly diverse.

When information is spatialized and presented in 3D, the efficiency of our interaction with the internet will significantly improve. This is what I think the whole idea of the metaverse is trying to accomplish. It is extremely ambitious, but looking back on the history of the internet, we realize that its growth and prosperity are inseparable from the perfection of software architecture, which both gave rise to new opportunities, new companies, and made old companies, old modes of interaction obsolete. With the arrival of new technologies and software architecture comes new efficiency and business models, and I’m really excited to see how all this is going to unfold.

Yuke: You mentioned that the metaverse can lead to an exponential growth in the amount of information we receive at any given moment, but is information overload necessarily a good thing? What are some of the potential drawbacks of AR technology?

Chi: That’s an excellent question, and a philosophical one. While philosophy isn’t really my area of expertise, what I can tell you is that the increase in information will most certainly lead to an increase in entropy and chaos. What becomes important, then, is the proper distribution of information. Let’s take a look at Douyin (the Chinese version of TikTok). What they do really well is use an algorithm to recommend a complicated system of short videos to its users in a way that they like. I believe that in the future, with the explosion of information, the metaverse will also take on a more active role in making recommendations to its participants. Now, some people might fear that the metaverse will get so powerful that it could take control over our lives, but I don’t think that’s necessarily the case. Technology itself isn’t inherently good or evil. It’s how we use it that makes it good or evil. The most important thing now is for us (tech companies) to set some ground rules on how to process information, because, as I said, with the development of VR and AR, the amount of information available to us will grow exponentially. Looking back on history, the internet has actually experienced unchecked growth. The ethics of technology was never anyone’s concern. All we cared about was profitability. That said, I believe that if given another chance, big tech companies would treat these issues more seriously. They would try to set boundaries for themselves and their users and pursue profitability without creating too many negative externalities.

Yuke: What do you think the future of AR/VR will look like?

Chi: I don’t think change will happen overnight, but in three to five years, there will definitely be some kind of technological revolution. If you think about it, fifteen years ago, who would have thought that our phones would turn out the way they are today? Similarly, it’s hard for us now to imagine that back in the day, people used pagers to reach each other, just like future generations would find it perplexing that we use phones, these weird-looking little boxes to connect with the outside world. Technological innovations have changed our lives in very important ways, and I believe that 10 years from now, more exciting things will happen. People will start to depend on mixed reality glasses as though they were a necessity. Our future reality will be digital as much as it is physical, and it’s only accessible through these special glasses. If you think about it this way, mixed reality glasses are really the equivalent of regular glasses, because without them, you can’t see the world clearly.

Yuke: Give us a timeline for when the majority of the population on this planet will start wearing AR glasses.

Chi: Well, it’s hard to make predictions, but I think it will take at least ten years for half of the world’s population to just begin adopting these special glasses. One interesting thing I should note is that the glasses are really quite special, because if you put them on, it is impossible for you to take them off. Another interesting trend I’ve noticed is that the daily active users (DAU) for phones have actually started declining since last year, which means that 2020 was really the pinnacle year of smartphone usage. We’re starting to see new terminals and devices cut into our smartphone screen time, including electric vehicles, wearables like Nreal Light, and more. This trend is irreversible.

When we start to notice that with each new generation of the iPhone, the only real difference is the camera, that’s when we know the technology is losing steam, and the windows for market growth opportunities are narrowing. The smartphone industry as a whole is losing momentum and I truly believe that the golden age of the mobile internet is over. There are detectable patterns across industries. When growth slows down, new things need to be invented.

Yuke: How big is your company? And how much money do you spend on R&D?

Chi: We have less than 300 people, and over 70% of our money goes into R&D. Why is R&D so important? Again, we can look back on history. The first generation of smartphones would not have been possible without 3G technology, just as streaming videos on our mobile devices would have been unimaginable without 4G. Similarly, 5G technology has its own unique application, especially in China, but most of them are facing businesses rather than retail customers. Looking abroad, AR has actually been the only viable business-to-customer (B2C) application for 5G technology. History has shown us that hardware always paves the way for software, from which a diverse ecosystem is constructed on top. But whoever creates that ecosystem will monopolize the entire industry.

Yuke: A rather pragmatic question: How profitable is the current VR market?

Chi: I think what we do is actually quite different from VR, because VR technology has developed to a point where it can be easily adopted by big companies to create interesting content and even a whole ecosystem around it. People are already becoming familiar with this product category including how it looks and how it should be interacted with. What this means is that smaller companies will face greater barriers to entry. The business model of VR is actually quite similar to that of game consoles, which are struggling to turn a profit, especially in China, because of the prevalence of mobile games.

That said, I think the future of VR will see some sort of convergence with the metaverse. The functionality of VR will be increasingly social and entertainment-focused. This will introduce new opportunities. But then again, VR technology has evolved to a point where the competitiveness of a company is really dependent on its ability to build better, more expansive ecosystems, and isn’t so much on developing the product itself, as the hardware has mostly been standardized by this point. AR, on the other hand, is still at a stage where we are trying to define what the product should look like and how our users should interact with it.

This means that investing in the technology itself is crucially important. At Nreal, our priority has always been to recruit the best developers and create the best product. We invest heavily in R&D and focus on opportunities for vertical integrations. We’re quite confident about what we are doing.

SEE ALSO: Chinese Augmented Reality Glasses Maker Nreal Completes C Round of Financing Exceeding $100 Million

The problem now is that people always believe that there should be some kind of figurehead or a mastermind steering an entire industry. We’re obsessed with founders’ stories. We want there to be a Steve Jobs or Elon Musk to tell us what an industry should look like, and the rest of us will just follow their examples. Unfortunately, the AR industry as we know it today doesn’t have a Steve Jobs. Maybe the industry is more similar to the Warring States period in ancient China. Nreal’s goal, therefore, is to be the first Chinese company to participate in the global race to define the AR industry, and perhaps to shape its future.