A3 in customer experience: Possibilities for personalisation

The value of A3 in customer experience

This report considers the financial value to a telco of using A3 technologies (analytics, automation and AI) to improve customer experience. It examines the key area which underpins much of this financial value – customer support channels – considering the trends in this area and how the area might change in future, shaping the requirement for A3.

Calculating the value of improving customer experience is complex: it can be difficult to identify the specific action that improved a customer’s perception of their experience, and then to assess the impact of this improvement on their subsequent behaviour.

While it is difficult to draw causal links between telcos’ A3 activities and customer perceptions and behaviours, there are still some clearly measurable financial benefits from these investments. We estimate this value by leveraging our broader analysis of the financial value of A3 in telecoms, and then zooming in on the specific pockets of value which relate to improved customer experience (e.g. churn reduction).

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The diagram below illustrates that there are two parts of the customer journey where A3 will add most value to customer experience:

  1. The performance of the network, services, devices and applications is increasingly dependent on automation and intelligence, with the introduction of 5G and cloud-native operations. Without A3 capabilities it will be difficult to meet quality of service standards, understand customer-affecting issues and turn up new services at speed.
  2. The contact centre remains one of the largest influencers of customer experience and one of the biggest users of automation, with the digital channels increasing in importance during the pandemic. Understanding the customer and the agent’s needs and providing information about issues the customer is experiencing to both parties are areas where more A3 should be used in future.

Where is the financial benefit of adding A3 within a typical telco customer journey?

A3 customer experience

Source: STL Partners, Charlotte Patrick Consult

As per this diagram, many of the most valuable uses for A3 are in the contact centre and digital channels. Improvements in customer experience will be tied with trends in both. These priority trends and potential A3 solutions are outlined the following two tables:
• The first shows contact centre priorities,
• The second shows priorities for the digital channels.

Priorities in the contact centre

A3 Contact centre

Priorities in the digital channel

A3 Digital channel

Table of Contents

  • Executive Summary
  • The value of A3 in customer experience
  • Use of A3 to improve customer experience
  • The most important uses of A3 for improving the customer experience
    • Complex data
    • Personalisation
    • Planning
    • Human-machine interaction
    • AI point solution
  • Conclusion
  • Appendix: Methodology for calculating financial value
  • Index

Related Research:

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Apple Glass: An iPhone moment for 5G?

Augmented reality supports many use cases across industries

Revisiting the themes explored in the AR/VR: Won’t move the 5G needle report STL Partners published in January 2018, this report explores whether augmented reality (AR) could become a catalyst for widespread adoption of 5G, as leading chip supplier Qualcomm and some telcos hope.

It considers how this technology is developing, its relationship with virtual reality (VR), and the implications for telcos trying to find compelling reasons for customers to use low latency 5G networks.

This report draws the following distinction between VR and AR

  • Virtual reality: use of an enclosed headset for total immersion in a digital3D
  • Augmented reality: superimposition of digital graphics onto images of the real world via a camera viewfinder, a pair of glasses or onto a screen fixed in real world.

In other words, AR is used both indoors and outdoors and on a variety of devices. Whereas Wi-Fi/fibre connectivity will be the preferred connectivity option in many scenarios, 5G will be required in locations lacking high-speed Wi-Fi coverage.  Many AR applications rely on responsive connectivity to enable them to interact with the real world. To be compelling, animated images superimposed on those of the real world need to change in a way that is consistent with changes in the real world and changes in the viewing angle.

AR can be used to create innovative games, such as the 2016 phenomena Pokemon Go, and educational and informational tools, such as travel guides that give you information about the monument you are looking at.  At live sports events, spectators could use AR software to identify players, see how fast they are running, check their heart rates and call up their career statistics.

Note, an advanced form of AR is sometimes referred to as mixed reality or extended reality (XR). In this case, fully interactive digital 3D objects are superimposed on the real world, effectively mixing virtual objects and people with physical objects and people into a seamless interactive scene. For example, an advanced telepresence service could project a live hologram of the person you are talking to into the same room as you. Note, this could be an avatar representing the person or, where the connectivity allows, an actual 3D video stream of the actual person.

Widespread usage of AR services will be a hallmark of the Coordination Age, in the sense that they will bring valuable information to people as and when they need it. First responders, for example, could use smart glasses to help work their way through smoke inside a building, while police officers could be immediately fed information about the owner of a car registration plate. Office workers may use smart glasses to live stream a hologram of a colleague from the other side of the world or a 3D model of a new product or building.

In the home, both AR and VR could be used to generate new entertainment experiences, ranging from highly immersive games to live holograms of sports events or music concerts. Some people may even use these services as a form of escapism, virtually inhabiting alternative realities for several hours a day.

Given sufficient time to develop, STL Partners believes mixed-reality services will ultimately become widely adopted in the developed world. They will become a valuable aid to everyday living, providing the user with information about whatever they are looking at, either on a transparent screen on a pair of glasses or through a wireless earpiece. If you had a device that could give you notifications, such as an alert about a fast approaching car or a delay to your train, in your ear or eyeline, why wouldn’t you want to use it?

How different AR applications affect mobile networks

One of the key questions for the telecoms industry is how many of these applications will require very low latency, high-speed connectivity. The transmission of high-definition holographic images from one place to another in real time could place enormous demands on telecoms networks, opening up opportunities for telcos to earn additional revenues by providing dedicated/managed connectivity at a premium price. But many AR applications, such as displaying reviews of the restaurant a consumer is looking at, are unlikely to generate much data traffic. the figure below lists some potential AR use cases and indicates how demanding they will be to support.

Examples of AR use cases and the demands they make on connectivity


Source: STL Partners

Although telcos have always struggled to convince people to pay a premium for premium connectivity, some of the most advanced AR applications may be sufficiently compelling to bring about this kind of behavioural shift, just as people are prepared to pay more for a better seat at the theatre or in a sports stadium. This could be on a pay-as-you-go or a subscription basis.

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The pioneers of augmented reality

Augmented reality (AR) is essentially a catch-all term for any application that seeks to overlay digital information and images on the real-world. Applications of AR can range from a simple digital label to a live 3D holographic projection of a person or event.

AR really rose to prominence at the start of the last decade with the launch of smartphone apps, such as Layar, Junaio, and Wikitude, which gave you information about what you were looking at through the smartphone viewfinder. These apps drew on data from the handset’s GPS chip, its compass and, in some cases, image recognition software to try and figure out what was being displayed in the viewfinder. Although they attracted a lot of media attention, these apps were too clunky to break through into the mass-market. However, the underlying concept persists – the reasonably popular Google Lens app enables people to identify a product, plant or animal they are looking at or translate a menu into their own language.

Perhaps the most high profile AR application to date is Niantic’s Pokemon Go, a smartphone game that superimposes cartoon monsters on images of the real world captured by the user’s smartphone camera. Pokemon Go generated $1 billion in revenue globally just seven months after its release in mid 2016, faster than any other mobile game, according to App Annie. It has also shown remarkable staying power. Four years later, in May 2020, Pokemon Go continued to be one of the top 10 grossing games worldwide, according to SensorTower.

In November 2017, Niantic, which has also had another major AR hit with sci-fi game Ingress, raised $200 million to boost its AR efforts. In 2019, it released another AR game based on the Harry Potter franchise.

Niantic is now looking to use its AR expertise to create a new kind of marketing platform. The idea is that brands will be able to post digital adverts and content in real-world locations, essentially creating digital billboards that are viewable to consumers using the Niantic platform. At the online AWE event in May 2020, Niantic executives claimed “AR gamification and location-based context” can help businesses increase their reach, boost user sentiment, and drive foot traffic to bricks-and-mortar stores. Niantic says it is working with major brands, such as AT&T, Simon Malls, Starbucks, Mcdonalds, and Samsung, to develop AR marketing that “is non-intrusive, organic, and engaging.”

The sustained success of Pokemon Go has made an impression on the major Internet platforms. By 2018, the immediate focus of both Apple and Google had clearly shifted from VR to AR. Apple CEO Tim Cook has been particularly vocal about the potential of AR. And he continues to sing the praises of the technology in public.

In January 2020, for example, during a visit to Ireland, Cook described augmented reality as the “next big thing.”  In an earnings call later that month, Cook added:When you look at AR today, you would see that there are consumer applications, there are enterprise applications. … it’s going to pervade your life…, because it’s going to go across both business and your whole life. And I think these things will happen in parallel.”

Both Apple and Google have released AR developer tools, helping AR apps to proliferate in both Apple’s App Store and on Google Play.  One of the most popular early use cases for AR is to check how potential new furniture would look inside a living room or a bedroom. Furniture stores and home design companies, such as Ikea, Wayfair and Houzz, have launched their own AR apps using Apple’s ARKit. Once the app is familiar with its surroundings, it allows the user to overlay digital models of furniture anywhere in a room to see how it will fit. The technology can work in outdoor spaces as well.

In a similar vein, there are various AR apps, such as MeasureKit, that allow you to measure any object of your choosing. After the user picks a starting point with a screen tap, a straight line will measure the length until a second tap marks the end. MeasureKit also claims to be able to calculate trajectory distances of moving objects, angle degrees, the square footage of a three-dimensional cube and a person’s height.

Table of contents

  • Executive Summary
    • More mainstream models from late 2022
    • Implications and opportunities for telcos
  • Introduction
  • Progress and Immediate Prospects
    • The pioneers of augmented reality
    • Impact of the pandemic
    • Snap – seeing the world differently
    • Facebook – the keeper of the VR flame
    • Google – the leader in image recognition
    • Apple – patiently playing the long game
    • Microsoft – expensive offerings for the enterprise
    • Amazon – teaming up with telcos to enable AR/VR
    • Market forecasts being revised down
  • Telcos Get Active in AR
    • South Korea’s telcos keep trying
    • The global picture
  • What comes next?
    • Live 3D holograms of events
    • Enhancing live venues with holograms
    • 4K HD – Simple, but effective
  • Technical requirements
    • Extreme image processing
    • An array of sensors and cameras
    • Artificial intelligence plays a role
    • Bandwidth and latency
    • Costs: energy, weight and financial
  • Timelines for Better VR and AR
    • When might mass-market models become available?
    • Implications for telcos
    • Opportunities for telcos
  • Appendix: Societal Challenges
    • AR: Is it acceptable in a public place?
    • VR: health issues
    • VR and AR: moral and ethical challenges
    • AR and VR: What do consumers really want?
  • Index

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AR/VR: Won’t move the 5G needle

Introduction

This report explores the potential impact of virtual reality (VR) and augmented reality (AR) on the lives of consumers. It considers how quickly these technologies will go mass market and the implications for telcos, including those with their own entertainment proposition and those operators whose networks act as a conduit for other companies’ content.

Widespread use of VR and/or AR could fuel another major step-change in the traffic travelling over telecoms networks. All VR apps and many AR apps will require vast amounts of data to be processed to render the necessary digital images. In short, telecoms operators could and should benefit from mass-market adoption of VR and AR.

In the consumer market – the primary focus of the research stream for which this report was written – the promise of VR and AR is that they will transform digital entertainment and communications. In the 2015 report Amazon, Apple, Facebook, Google, Netflix: Whose Digital Content is King?, STL Partners identified the rise of increasingly immersive games and interactive videos enabled by VR and/or AR as one of the six key trends that could disrupt the entertainment industry.

If it lives up to its hype, VR could blur the line between live entertainment and the living room. The ultimate promise of VR is that people will be able to enjoy a movie or sports event from the inside, choosing from multiple viewpoints within a 360-degree video stream, potentially placing themselves in the midst of the action. For example, a consumer could use VR to “sit” next to the conductor at a classical music concert or alongside a manager at a football match, and hear every word he or she utters. They may even be able to experience a sports event from the perspective of an athlete by streaming live footage from mini-cameras mounted on helmets or other attire. Although still very expensive, VR production technology is already being used to create immersive games and interactive movies, as well as interactive documentaries and educational programmes.

Developing in parallel with VR, AR calls for digital graphics to be superimposed on live images of the real world. This can be used to create innovative new games, such as the 2016 phenomenon Pokemon Go, and educational and informational tools, such as travel guides that give you information about the monument you are looking at. At live sports events, spectators could use AR software to identify players, see how fast they are running, check their heart rates and call up their career statistics.

This report draws the following distinction between VR and AR

  • Virtual reality: use of an enclosed headset for total immersion in a digital 3D world.
  • Augmented reality: superimposition of digital graphics into the real world via a camera viewfinder, a pair of glasses or onto a screen fixed in the real world.

Note, an advanced form of AR is sometimes referred to as mixed reality. In this case, fully interactive digital 3D objects are superimposed on the real world, effectively mixing virtual objects and people with physical objects and people into a seamless interactive scene. For example, an advanced telepresence service could project a live hologram of the person you are talking to into the same room as you.

The net effect is that both live and living room entertainment could become much more personalised and interactive, particularly as bandwidth, latency, graphics processing and rendering technology all improve.

In time, mixed-reality services are likely to become almost universally adopted in the developed world. They will become a valuable aid to everyday living, providing the user with information about whatever they are looking at, either on a transparent screen on a pair of glasses or through a wireless earpiece. Engineers, for example, will use the technology to identify individual parts and detect faults, while consumers will rely on AR to retrieve information about whatever they are looking at, whether that be the route of an approaching bus, the menu of a nearby restaurant or the fat and salt content of a ready meal.

Contents:

  • Executive Summary
  • Takeaways for telcos
  • Introduction 
  • Progress and immediate prospects
  • VR: Virtually there?
  • Augmented reality springs back to life
  • 4K HD: Simple, but effective
  • Technical requirements
  • Image processing
  • Sensors and cameras
  • Artificial intelligence
  • Developer tools
  • Bandwidth and latency
  • Costs: Energy, weight and financial
  • Timeline for VR
  • Timeline for AR
  • Societal Challenges
  • AR: Is it acceptable in a public place?
  • VR: Health issues
  • VR and AR: Moral and ethical challenges
  • AR and VR: What do consumers really want?
  • Timelines and Forecasts
  • Conclusions for telcos
  • Opportunities for telcos

Figures:

  • Figure 1: Fantasy roleplaying title Skyrim VR has won praise from gaming critics
  • Figure 2: The definition of six degrees of freedom for VR
  • Figure 3: On paper, the Oculus Go looks impressive
  • Figure 4: Users of Ikea’s catalogue can see what furniture will look like in their room
  • Figure 5: A 3D holographic image of a sports event can appear in a living room
  • Figure 6: Google Lens can retrieve information about a shop or building you are looking at
  • Figure 7: How 3D sensors can map a room or an outdoor area in real time
  • Figure 8: Edge computing and telco cloud can get latency low enough for VR apps
  • Figure 9: The likely timeline for immersive VR with a wireless headset
  • Figure 10: The bulky Magic Leap One will be wired to a belt-mounted computer
  • Figure 11: Smart Sunglasses need to be chunky to fit in all the necessary tech
  • Figure 12: The timeline for live 3D holographic projections using wireless AR headsets
  • Figure 13: How AR and VR will develop over the next five years

AI on the Smartphone: What telcos should do

Introduction

Following huge advances in machine learning and the falling cost of cloud storage over the last several years, artificial intelligence (AI) technologies are now affordable and accessible to almost any company. The next stage of the AI race is bringing neural networks to mobile devices. This will radically change the way people use smartphones, as voice assistants morph into proactive virtual assistants and augmented reality is integrated into everyday activities, in turn changing the way smartphones use telecoms networks.

Besides implications for data traffic, easy access to machine learning through APIs and software development kits gives telcos an opportunity to improve their smartphone apps, communications services, entertainment and financial services, by customising offers to individual customer preferences.

The leading consumer-facing AI developers – Google, Apple, Facebook and Amazon – are in an arms race to attract developers and partners to their platforms, in order to further refine their algorithms with more data on user behaviours. There may be opportunities for telcos to share their data with one of these players to develop better AI models, but any partnership must be carefully weighed, as all four AI players are eyeing up communications as a valuable addition to their arsenal.

In this report we explore how Google, Apple, Facebook and Amazon are adapting their AI models for smartphones, how this will change usage patterns and consumer expectations, and what this means for telcos. It is the first in a series of reports exploring what AI means for telcos and how they can leverage it to improve their services, network operations and customer experience.

Contents:

  • Executive Summary
  • Smartphones are the key to more personalised services
  • Implications for telcos
  • Introduction
  • Defining artificial intelligence
  • Moving AI from the cloud to smartphones
  • Why move AI to the smartphone?
  • How to move AI to the smartphone?
  • How much machine learning can smartphones really handle?
  • Our smartphones ‘know’ a lot about us
  • Smartphone sensors and the data they mine
  • What services will all this data power?
  • The privacy question – balancing on-device and the cloud
  • SWOT Analysis: Google, Apple, Facebook and Amazon
  • Implications for telcos

Figures:

  • Figure 1: How smartphones can use and improve AI models
  • Figure 2: Explaining artificial intelligence terminology
  • Figure 3: How machine learning algorithms see images
  • Figure 4: How smartphones can use and improve AI models
  • Figure 5: Google Translate works in real-time through smartphone cameras
  • Figure 6: Google Lens in action
  • Figure 7: AR applications of Facebook’s image segmentation technology
  • Figure 8: Comparison of the leading voice assistants
  • Figure 9: Explanation of Federated Learning

Telco Cloud: Translating New Capabilities into New Revenue

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Preface

The telecoms industry is embracing network virtualisation and software defined networking, which are designed to both cut costs and enable greater agility. Whilst most operators have focused on the operating and capital cost benefits of virtualisation, few have attempted to define the range of potential new services that could be enabled by these new technologies and even fewer have attempted to forecast the associated revenue growth.

This report outlines:

  • Why and how network functions virtualisation (NFV), software defined networking (SDN) and distributed compute capabilities could generate new revenue growth for telcos.
  • The potential new services enabled by these technologies.
  • The revenue growth that a telco might hope to achieve.

This report does not discuss the cost, technical, organisational, market or regulatory challenges operators will need to overcome in making the transition to SDN and NFV. STL Partners (STL) also acknowledges that operators are still a long way from developing and launching some of the new services discussed in this paper, not least because they require capabilities that do not exist today. Nevertheless, by mapping the opportunity landscape for operators, this report should help to pave the way to fully capturing the transformative potential of SDN and NFV.

To sense-check our findings, STL has tested the proposed service concepts with the industry. The new services identified and modelled by STL were shared with approximately 25 telecoms operators. Hewlett Packard Enterprise (HPE) kindly commissioned and supported this research and testing programme.

However, STL wrote this report independently, and the views and conclusions contained herein are those of STL.

Introduction

The end of growth in telecoms…?

Most telecoms operators are facing significant competitive pressure from rival operators and players in adjacent sectors. Increased competition among telcos and Internet players has driven down voice and messaging revenues. Whilst demand for data services is increasing, STL forecasts that revenue growth in this segment will not offset the decline in voice and messaging revenue (see Figure 5).

 Figure 5: Illustrative forecast: revenue decline for converged telco in advanced market

Source: STL Partners analysis

Figure 5 shows STL forecasts for revenues over a six-year horizon for an illustrative converged telco operating in an advanced market. The telco, its market characteristics and the modelling mechanics are described in detail later in this report.

We believe that existing ‘digital’ businesses (representing consumer digital services, such as IPTV and managed services for enterprises) will not grow significantly on an organic basis over the next six years (unless operators are able to radically transform their business). Note, this forecast is for a converged telco (mobile and fixed) addressing both enterprise and consumer segments; we anticipate that revenues could face a steeper decline for non-converged, consumer-only or enterprise-only players.

Given that telcos’ cost structures are quite rigid, with high capex and opex requirements to manage infrastructure, the ongoing decline in core service revenue will continue to put significant pressure on the core business. As revenues decline, margins fall and telcos’ ability to invest in innovation is curbed, making it even harder to find new sources of revenue.

New technologies can be a catalyst for telco transformation

However, STL believes that new technologies have the potential to both streamline the telco cost structure and spur growth. In particular, network functions virtualisation (NFV) and software-defined networking (SDN) offer many potential benefits for telcos.

Virtualisation has the potential to generate significant cost savings for telcos. Whilst the process of managing a transition to NFV and SDN may be fraught with challenges and be costly, it should eventually lead to:

  • A reduction in capex – NFV will lead to the adoption of generic common-off-the-shelf (COTS) hardware. This hardware will be lower cost, able to serve multiple functions and will be more readily re-usable. Furthermore, operators will be less tied to vendors’ proprietary platforms, as functions will be more openly interchangeable. This will increase competition in the hardware and software markets, leading to an overall reduction in capital investment.
  • Reduction of opex through automation. Again, as services will be delivered via software there will be less cost associated with the on-going management and maintenance of the network infrastructure. The network will be more-centrally managed, allowing more efficient sharing of resources, such as space, power and cooling systems.
  • Product lifecycle management improvements through more integrated development and operations (devops)

In addition to cost savings, virtualisation can also allow operators to become more agile. This agility arises from two factors:

  1. The nature of the new infrastructure
  2. The change in cost structure

As the new infrastructure will be software-centric, as opposed to hardware-centric, greater levels of automation will be possible. This new software-defined, programmable infrastructure could also increase flexibility in the creation, management and provisioning of services in a way that is not possible with today’s infrastructure, leading to greater agility.

Virtualisation will also change the telco cost structure, potentially allowing operators to be less risk-averse and thereby become more innovative. Figure 6 below shows how virtualisation can impact the operating model of a telco. Through virtualisation, an infrastructure player becomes more like a platform or product player, with less capital tied-up in infrastructure (and the management of that infrastructure) and more available to spend on marketing and innovation.

Redefining the cost structure could help spur transformation across the business, as processes and culture begin to revolve less around fixed infrastructure investment and more-around software and innovation.

Figure 6: Virtualisation can redefine the cost structure of a telco

Source: STL Partners analysis

This topic is explored in detail in the recent Executive Briefings: Problem: Telecoms technology inhibits operator business model change (Part 1) and Solution: Transforming to the Telco Cloud Service Provider (Part 2).

 

  • Preface
  • Executive Summary
  • Introduction
  • The end of growth in telecoms…?
  • New technologies can be a catalyst for telco transformation
  • Defining ‘Telco Cloud’
  • How Telco Cloud enables revenue-growth opportunities for telcos
  • Connect services
  • Perform services
  • Capture, Analyse & Control services
  • Digital Agility services
  • Telco Cloud Services
  • Service Overview: Revenue vs. Ease of Implementation
  • 15 Service types defined (section on each)
  • The Revenue Opportunity
  • Model overview
  • Sizing the revenue potential from Telco Cloud services
  • Timeline for new service launch
  • Breaking down the revenues
  • Customer experience benefits
  • Conclusions
  • Appendix
  • Modelling Assumptions & Mechanics
  • Service Descriptions: Index of Icons

 

  • Figure 1: Defining Telco Cloud
  • Figure 2: Overview of Telco Cloud categories and services
  • Figure 3: Telco Cloud could boost revenues X% higher than the base case
  • Figure 4: Breakdown of Telco Cloud revenues in 2021
  • Figure 5: Illustrative forecast: revenue decline for converged telco in advanced market
  • Figure 6: Virtualisation can redefine the cost structure of a telco
  • Figure 7: Defining Telco Cloud
  • Figure 8: Telco Cloud Service Categories
  • Figure 9: Telco Cloud will enable immersive live VR experiences
  • Figure 10: Telco Cloud can enable two-way communication in real-time
  • Figure 11: Overview of Telco Cloud categories and services
  • Figure 12: Telco Cloud Services: Revenue versus ease of implementation
  • Figure 13: Telco X – Base case shows declining revenues
  • Figure 14: Telco X – Telco Cloud services increase monthly revenues by X% on the base case by Dec 2021
  • Figure 15: Telco X – Timeline of Telco Cloud service launch dates
  • Figure 16: Telco X (converged) – Net new revenue by service category (Dec 2021)
  • Figure 17: Telco Y (mobile only) – Net new revenue by service category (Dec 2021)
  • Figure 18 Telco Z (fixed only) – Net new revenue by service category (Dec 2021)
  • Figure 19: Modelling Mechanics

Augmented Reality: Is there a valuable role for telcos?

 

This Analyst Note covers:

  • Augmented Reality Today
  • What is AR?
  • Why AR Now?
  • AR Ecosystem Roles
  • AR Browsers
  • AR Application Examples
  • Telcos’ “toes in the water”
  • Three Alternate Visions of Telcos’ Role in AR
  • Conclusions and Next Steps

Augmented Reality Today

Introduction

Augmented Reality (AR) is a hot topic right now, attracting much of the hype that was reserved for apps a few years ago. But what’s beyond the hype? Is AR simply the next stage of development for existing value propositions, or will it bring with it entirely new propositions that offer new revenue streams for the Telecoms ecosystem?

In this Analyst Note, we explain what Augmented Reality is, why it is developing so quickly now and lay out three possible roles that telcos could develop in order to monetise the AR explosion in ways they haven’t with apps in general.

This analysis was written in collaboration with Christine Perey, Perey Research and Consulting, a world expert in the AR field, who is working in association with Telco 2.0 at our forthcoming AMERICAS, EMEA and APAC Executive Brainstorms and on further research publications.

What is AR?

In simple terms, ‘Augmented Reality’ applications and technologies bring users information that exists in the digital world and presents it automatically and intuitively in association with things in the real, or physical, world. Often, but not always, this information is from the web.

AR is about creating, making explicit and displaying the relationships between the real and virtual worlds.

At the highest level, AR can be seen as the latest evolution in information search, viewing and, ultimately, to its manipulation by the user. It’s part of an evolution: the Web made Internet-based information accessible to audiences through websites and, when there proved to be too many web sites, with search engines. Search brought information access into the reach of everyone, everyday on a separate screen. With AR, digital information can be automatically ‘connected’, in context, to real world objects.

This can take many different structures but is best described as a three-stage process.

  1. Sensors in the user’s device (such as camera, GPS and/or compass, microphone, even a thermometer) detect a ‘condition’ in the local environment – say the visual image of a recognisable geographic feature like a mountain or famous building.
  2. The application or ‘system’ finds the digital data (any text, image, 3D model, video, URL, sound, etc.) that has previously been associated with the specific condition in the local environment identified by the sensor.
  3. The digital information is presented visually (or aurally) to the user in such a way that it is ‘synchronized’ with the real world. It is only presented as long as the condition remains the same. When the user’s condition changes, e.g. they move away from the object, the digital information disappears or is replaced with new information if the sensors are triggered by another condition.

This is illustrated in the example below.

Figure 1 – Sensors triggered by the environment deliver relevant data

Augmented Reality Illustration

Source: PEREY Research and Consulting

For a service to be seen as Augmented Reality, all three of these steps have to take place. To illustrate some differentiating features of AR services, let’s compare two services: first without AR, then with AR.

  • Non-AR Location Based Applications Example. A basic GPS location service detects where you are. You then search your smartphone for information about restaurants nearby and these appear as points on a map around you. These are augmentations – virtual information with the real data that you input. The processes are neither automatic nor seamless..
  • AR Location Based Applications Example. The sensors of the Wikitude Drive AR service detect your location and direction of travel. To direct you, arrows are automatically generated and ‘registered’ on a live in-car video of the road ahead of you (not on a map view). Instead of a manual search, the ‘Yelp’ mobile AR application takes location information from the GPS and compass, identifies the local businesses in its database which are nearby, and returns local information that is overlaid on the live video where the business is visible.

‘Augmented Reality’ can be seen as sitting on a continuum with ‘Reality’ at one end and ‘Virtual Reality’ on the other. Augmentation can be used both ways – to augment the virtual world with real objects and to augment the real world with virtual data. An example of ‘Augmented Virtuality’ is a soldier training environment in which the “world”, be it urban or forest, is synthesised and virtual, and where there are other real, ‘flesh and blood’ people operating at the same time. The soldier sees both the virtual world and the real people in one view. To help bring this to life we have annotated Milgram’s Continuum with some examples below.

Figure 2 – Milgram’s Continuum from real to virtual

Augmented Reality Milgram's Continuum

Why AR Now?

AR is not a new development. In fact, it’s been studied in one dimension or another in labs for over 20 years. However, the opportunities that emerged around mid-2009 have given the subject appeal and many practical, real-world applications are now possible. The most important developments have been the release of new sensor-laden and processor rich smartphones with touch interfaces connected to cloud services by faster networks.

In addition to enhancements in computing power, devices are increasingly pre-packed with GPS, compass, accelerometers and gyroscopes, adding to the now ubiquitous cameras and microphones. Thermometers, RFID and other wireless sensors are also appearing. At the same time a critical amount of information is available in digital format, meaning the potential for bringing the real and virtual worlds together through a mobile device is huge.

  • Other important developments adding momentum to Augmented Reality include:
  • Improved computer vision algorithms increasing the reliability with which the feed from a camera can be matched with images in a database;
  • Real time information is increasingly becoming the default, especially “local” (LBS) when the user is in transit and social information being updated in real time;
  • Contextual services are better understood as having value to end users (e.g., get a coupon when you enter a store, not after you have left);
  • The emergence of 3D (on the web, in cinema and on TV) is improving 3D technology that lends itself well to AR for visualization of information over 3D objects.

Combined, these trends have led to an upsurge in AR activity including by mobile operators. However, to date, this has been piecemeal and predominantly focused on customer acquisition and promotional activities. For example, Orange UK launched a free iPhone app and AR service for the Glastonbury Festival and others have released similar apps around special events.

So, what kinds of companies are the most active in Augmented Reality?

AR Ecosystem Roles

The Mobile AR Ecosystem is composed of companies each occupying one or more of five segments:

  • Merchants/Brands;
  • Content Publishers;
  • Enabling Technology Providers;
  • Packaging Companies;
  • and Distribution/Discovery Providers.

Each of these segments contributes a valuable role in the process of connecting the physical world and the digital world. As shown in the figure 3, we also see that the user’s own content, as it is published to social networks, could be inserted into the system as well, provided that the platform of an application developer can receive the User Generated Content (UGC) through an open API.

Figure 3 – Mobile AR Ecosystem

Augmented Reality Ecosystem Roles

 

Figure 4 provides a summary of the AR market segments, their business models, and illustrative examples.

Figure 4 – Mobile AR Ecosystem – Examples of Players

 

Role in mobile AR value chain

 

Business Model(s) for the player

 

Example companies

 

Merchants/Brands

 

Paying for advertising to promote engagement with customer, prolong/raise brand awareness and increase sales. H&M, McDonalds, Stella Artois, Starbucks, Volkswagen, Kia, Coca Cola, Walt Disney Co and dozens of others.

 

Content – providers and publishers

Creators and publishers of original digital content used to augment a real image e.g. Travel guides, educational publications, listings

 

Service revenue share or licence fee for content; paying for advertising.

 

Lonely Planet, Esquire Magazine, Yell.com (Yell has also launched its own AR browser building on its role as a content aggregator), newspaper publishers, Twitter (TwittARound, etc)

 

Enablers – technologies that enable AR at either the server or device end

Hardware: cameras, accelerometers, GPS, gyroscopes, solid state compasses, RFID, wireless sensors, head mounted displays; handheld displays; Location technologies – GPS, A-GPS;

Software: image registration technologies, recognition technologies,

 

Product/service sale or end service revenue share.

Hardware-based – component sales, promotion of mobile device sales.

 

 

Software: free, licensing or revenue share.

 

Hardware: Device manufacturers – Nokia, Sony Ericsson, Apple, Motorola;  Sensors – Aero Electronics Operations

Specialized hardware (graphics processors, sensors): Qualcomm, Intel

 

 

 

Software: Recognition technologies – Google – Goggles; Polar Rose (facial); SREnginez (architecture), Software Development Kits for specialized silicon (Qualcomm AR SDK).

Alcatel-Lucent has invested in mobile AR technologies in visual recognition (see its AR vision video here), and spun-off its project a year ago. The company which they acquired called Mobile News Channel (MNC) now has a division called dekaps which contracts with operators for custom projects using AR.

UI – ‘TAT’ The Astonishing Tribe – acquired by RIM.

 

Packaging – providing the publishing environments to app developers and communities who are then putting the AR app together  with content

App Developers are also part of the packaging segment of the ecosystem

 

Service/advertising revenue share;

Charging developers for placements;

Charge to develop, for the end service or ad funded.

 

Platforms: Layar; Mobilizy; metaio, Total Immersion.

 

There are thousands of app developers who could be using AR platforms and enablers.

 

Discover and Delivery – promoting AR to end users, reducing barriers to the discovery (e.g., pre-loading apps), distributing AR applications through app stores

 

Revenue sharing, driving data revenues, sales of more powerful handsets in bundles with data.

 

Mobile Network operators: Orange, NTT DoCoMo, KDDI.

Handset manufacturers: Nokia, Samsung, HTC.

AppStores: Apple, Android Marketplace.

 

AR Browsers

AR browser and platform providers are the leaders in the ‘packaging’ segment of Figure 3, both aggregating AR content and displaying it in a way that makes it usable for the mass market. Their key role is to mediate the interface between the user’s context and the digital data available.

Since 2009, a number of AR browsers have appeared and there are now more than six to choose from, though only three have significant market share. These AR browsers are in and of themselves applications designed with unique user experiences and into which others, the content providers, can publish their data in targeted “layers” or “channels”. End users choose the layer or channel they wish to see.

In the case of Layar and Wikitude, the platform is also available to those who seek to develop custom, dedicated apps. The content appears in an AR browser or embedded in a standalone application.

The leading AR platform and AR browser is provided by Layar, a young Dutch company that launched in June 2009. Layar’s free AR browser is the most popular with over 3.5 million users as of January 2011, of which a million are active monthly. In addition, Layar’s AR browser has been pre-loaded on over 10 M devices to date, making it easy for potentially more subscribers to discover it quickly. The company raised $14 million in its latest round of funding in November 2010.

Another of the top 3 providers, and the oldest, in terms of conceiving of a browser for AR, Mobilizy, provides its Wikitude browser. Launched in the winter of 2008-2009, Wikitude has roughly a million users, but it does not publish monthly active figures. The company has also received outside investment in the 4th quarter 2010, and while it is behind in the AR browser race, the company has taken a different strategy. The Mobilizy team has invested heavily in better understanding and moving its platform to meet the needs of those who will use AR for navigation. The Wikitude Drive application and service for smartphones uses Navteq data to not only show the arrows overlaid on the real world, but also to speak/talk to the user who is driving. Wikitude has also begun, in early 2011, to solicit more developers for its platform, playing catch up with respect to both Layar and metaio in this respect.

The third popular AR browser, Junaio, has around 500,000 users. The Junaio Glue platform is provided by metaio, one of the original AR platform companies that pre-exists the mobile AR frenzy. Metaio, a Munich-based company with offices in the US and Korea, has the distinct advantage of combining both geo-location as a source of context for the user, but also visual recognition. Metaio’s image recognition algorithms make its browser suitable for more indoor applications and services than those browsers which rely solely on GPS. Further, metaio’s combination of technologies make it attractive for those companies which wish to use mobile AR for interaction with packaging and printed media campaigns without having a dedicated application. Junaio is open and its developer community is growing rapidly.

The key to success for all of these companies is their ability to attract and support developer communities. As of October 2010, Layar had over 5,000 developers, some of which are partners and promoted as such to content owners looking for developers to create layers for them if they can’t do it for themselves. Layers can be free or paid for, providing content owners and developers with the chance to monetise their developments.

These aggregators are growing fast and the mobile AR ecosystem is building up around them and appstores, not telcos, so even at this early stage, the potential for telcos to take a complete hold of the platform is limited, unless they outright acquire the companies.

AR Application Examples

Creating AR applications is a specialised activity and requires special tools and skills. Some of the tools are open source, others available to certified developers under a wide range of conditions.

Today, the majority of AR experiences on the desktop are provided to consumers via specialized companies who design special experiences for brands to attract consumer attention. There are also innovative developers who already own databases and choose to use AR as an alternative way to “view” their data. A handful of companies are dedicated to specific AR application segments such as games, tourism services and shopping. And, finally, some creative artists use AR to entertain, provoke and make a name for themselves.

The majority of current mobile AR applications follow the standard free, freemium and occasionally paid for models of the app marketplaces they are being distributed through.

The following are indicative of the types of services that are available for end users to experience AR today.

Figure 5 – Examples of AR Apps

Service Name Differentiation Requirements

 

VouchAR

 

 

Takes the concept of location and store offers to a new level and removes the intrusion of text alerts from shops as you walk by. Using the camera as the sensor trigger, it displays discounts available in surrounding stores, restaurants etc.

 

Android app available in the UK.

 

Nesquik Factory AR Game

 

Combines AR and gesture recognition in a promotional game for Nesquik. Part of a new generation of advertising.

 

Flash-based and requires a camera.

 

H&M Promotional Vouchers

‘GoldRun’- – see here for more

 

AR game in which users search for and, using their camera and the application, collect virtual objects in order to access discount vouchers.

 

Currently available in the US and targeted at New York with an Android app expected in 2011.

 

Coke Print Advertisement

 

Using a mobile phone camera as the trigger, a print ad becomes live and provides more information, offers etc. IT doesn’t just link to a website but provides relevant and real-time information. See here.

 

iPhone and Android ‘Channel’ available in Germany with Metaio’s Junaio AR browser.

 

mtrip City Guides

 

AR city guides that identifies points of interest using the camera of a mobile phone as the sensor trigger (see here).

 

iPhone and access to iTunes AppStore.

 

WordLens by Visual Quest

 

Overlays the translation of the English text in Spanish and vice versa.

 

iPhone and access to iTunes AppStore.

 

In terms of the telecom industry’s position in the market, device and chipset manufacturers are currently most active, seeing AR as a means to drive differentiation and demand for even more powerful processors and devices.

Qualcomm is the most recognisable of the active players, having acquired a small Austrian development company in early 2010 and launched its own AR SDK in Q3 2010. Its model is to use AR to bolster the sale of its chipsets and although it supports new ways to monetise AR, this is not its major driver. Intel Capital has made a $13.4M investment in Layar as it also perceives AR as driving the requirement for faster processors.

Deutsche Telekom has also spun out a separate business unit to develop heads up displays for AR to be introduced later this year, not something that telcos are likely to do.

Telcos’ “toes in the water”

Where some telcos are entering the market, they are doing so as application or software developers, or promoting the services developed by a third party. For example, Bouygues Telecom in France released the first in-house operator-developed mobile AR look up service <Ici Infos> in November 2009 with over 900,000 unique points of interest (POI), while Telefonica has a group in Barcelona R&D which is working on its own visual search technology. NTT DoCoMo offers its smartphone subscribers the intuitive navigation services “chokkan nabi” developed under contract for DoCoMo devices.

However, just as with the broader applications market, third parties are often better placed to create the apps themselves.

In general, AR is moving more quickly than most operators can track. At the AR research community’s annual event, the International Symposium for Mixed and Augmented Reality (ISMAR) in October 2010, the announcements and proposals included:

  • A system for multi-viewer 3D visualization that is extremely easy and inexpensive to implement using a simple monitor;
  • Developments on how to track the user’s gaze and resolve the true shape of non-rigid objects (e.g., a paper map surface);
  • Developments in the area of real time sensor fusion that increase the reliability of trigger detection;
  • The ability to “cover” or disguise the existence of a marker in a video image in real time (this is extremely useful for reducing the end user aversion to markers and increasing the reliability of tracking).

We would argue that telcos are unlikely to corner the market by seeking to develop a key technology. Instead, they should look to leverage their position as the discovery and delivery segment, an essential part of the ecosystem for subscribers to discover many AR experiences. However, while this differentiates telcos from other market segments and generates greater sales of higher margin devices, it doesn’t offer great monetization directly from AR.