Facebook parent in talks with Magic Leap over augmented reality deal

Facebook’s parent company is in talks to create a multiyear agreement 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 early discussions, Meta is exploring ways in which 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 may be required to build a metaverse. However, people with knowledge of the talks said the partnership is not expected to yield a specific joint Meta-Magic Leap headset.

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

Meta declined to comment. Magic Leap would not confirm the talks, but said that partnerships were becoming a “significant line of business and growing opportunity for Magic Leap”.

The 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 that such headsets will provide a profitable new computing platform to rival mobile devices.

Meta, which has a market capitalisation of $612bn, has faced rising investor frustration with chief executive Mark Zuckerberg’s $10bn a year investment into the metaverse project, which is likely to take years to generate profits.

The metaverse push has continued even as the company has been hit with tough macroeconomic conditions and an advertising slump, leading Zuckerberg to order restructuring and lay-offs of about 20,000 staff, as part of what he has called its “year of efficiency”.

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

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

After the Magic Leap 1 headset, released in 2018, underwhelmed with sales only in the thousands, the 1,200-strong company switched focus from consumers and turned exclusively to enterprise applications.

In 2020, Magic Leap explored a sale, including having some interactions with Facebook that did not lead anywhere. Another longtime investor, Saudi Arabia’s Public Investment Fund, took a controlling stake of over 50 per cent of the company in 2021.

Chief executive 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 an incredible amount of interest from across the industry to license our IP and utilise our patented manufacturing process to produce optics for others seeking to launch their own mixed-reality technology”.

Together with contract manufacturer Jabil in Mexico, Magic Leap also has capacity to assemble headsets in the tens of thousands a year.

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

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