Table of Contents

• Product updates
• Partnerships
• M&As
• Funding

Key takeaways

• Product updates
  • AWE and WWDC boosted XR hardware launches: The industry recorded 21 device announcements (an uptick from 15 in Q1 2024 and six in Q4 2023). This included three notable devices from AWE and two from WWDC. Notable device launches included Canon’s spatial lens and BlackMagic’s Cine Immersive camera focused on spatial content creation capabilities. On the software front, the sector recorded six GenAI feature additions for a range of use cases, while Apple’s visionOS 2 came with a slew of upgrades for the Vision Pro. 
  • MEPs continued adding GenAI features while improving existing platforms: The industry recorded three GenAI updates to streamline content creation, while Roblox sought to pioneer the next generation of GenAI tools, a unified framework for creating different types of content (digital avatars, animation rigs, etc.).
  • McDonald’s and Walmart launched metaverses: McDonald's launched a standalone platform offering daily competitions with real-life rewards, while Walmart introduced a platform allowing consumers to purchase digital products and receive their real-life counterparts. Meanwhile, IKEA’s Roblox experience offered paid positions in the metaverse, a first for a major home furnishing retailer.
• Partnerships
  • XR partnerships focused on hardware manufacturers: The XR sector recorded 39 partnerships, with hardware manufacturers accounting for 85% of total partnerships. The highlight was Meta opening up its Horizon OS mixed reality operating system to third-party developers, announcing partnerships with Microsoft, Lenovo, and Asus to develop XR devices based on it.  
  • Roblox continued to dominate experience launches: We tracked 29 brand collaborations for MEP (34 in Q1 2024), with Roblox accounting for 18 virtual world launches, followed by Fortnite Creative (9). However, brand launches in The Sandbox metaverse were negligible (2), with collaborations absent in Horizon Worlds, Decentraland, VRChat, and Rec Room.

• M&A
  • XR recorded three multi-focused acquisitions: This most notably included Evercoast’s acquisition of DepthKit to bolster spatial video generation capabilities. Other acquisitions included MiniClip acquiring VR game developer FuturLab and Nitto Denko Corporation acquiring a partial stake in AR glass manufacturer TruLife Opticals.
  • MEP focused on platform consolidation: Yuga Labs sold two gaming properties to streamline focus on its Otherside metaverse, while Hyperspace acquired work metaverse platform Glue as it filed for bankruptcy. 
• Funding 
  • XR funding dropped drastically: Startups raised only USD 91 million across 20 rounds, an 89% QoQ and 72% YoY decline—the lowest quarterly funding the industry raised since our coverage of it began. In fact, the sector only recorded three companies, which raised over USD 10 million in funding rounds (Basemark, OPTIX, and apoQlar). The limited number of significant fund raises is likely due to the cyclical nature of funding for hardware manufacturers, which typically involves long development periods for their devices. Notable examples of companies that recently had major funding rounds include Magic Leap, Rokid, and XReal.
  • MEPs showed signs of recovery: MEP startups raised USD 55 million across seven rounds, a more than 10x QoQ and 44% YoY increase, backed by Animoca Brands’ USD 25 million convertible debt funding round. However, this round valued the company at USD 1 billion, down from over USD 5 billion in 2022 due to dampened sector sentiment.

• Outlook
  • GenAI tools for spatial content creation on the horizon: While current-gen foundation models can generate short-form text-to-2D videos, there remains a gap in converting 2D videos into 3D (spatial) videos, arising from a lack of training data. The rise of hardware to capture spatial videos will help bridge this gap, enabling GenAI-powered streamlined immersive content creation in the future.
  • Established MEPs will likely focus on integrating new experiences to retain player interest. For example, Epic Games’ Fortnite Creative, known for being a third-person shooter, provides tools for creators to experiment with different game genres, such as top-down gameplay and sidescrollers. Roblox on the other hand, offers a range of genres, including life-sims and massively multiplayer online role-playing games (MMORPGs).

Product updates: AWE ushers multiple XR device announcements; MEPs continue GenAI push

Analyst Take: XR saw a surge in device announcements, backed by the AWE conference. Hardware announcements included those for capturing spatial content, as the Apple Vision Pro app ecosystem doubled to over 2,000 apps in June relative to February. While XR disruptors added GenAI capabilities for a range of use cases, Roblox sought to develop the next generation of tools for its MEP, a unified GenAI framework to automate different aspects of content creation like character models and animation rigs. 

XR

• The quarter recorded the highest-ever number of XR device announcements (21) since our coverage of the industry began, fueled by three announcements made at The Augmented World Expo (AWE) and two at Apple’s flagship Worldwide Developer Conference (WWDC) (compared with 15 announcements in Q1 2024, backed by CES 2024). 

• Overall, eight devices were announced by incumbents and 13 by startups. This notably included launches of cameras by Canon and Blackmagic Studio to capture spatial videos, tailored for viewing experiences on the Apple Vision Pro, an area Apple focused heavily on at WWDC. Other announcements regarding hardware included seven AR devices, three VR headsets, and four accessories, among others.

XR devices announced in Q2 2024

• While several devices were launched during the quarter, Apple focused on rolling out its Vision Pro headset to eight countries, centered around European and Asian regions, including China. Given stringent regulations, Apple is likely to partner with a Chinese tech firm for its launch in the market, a strategy reportedly attempted by Meta. Meanwhile, the company is rumored to be focusing on launching a cheaper version of the Vision Pro by 2025 or later, given sluggish sales and an integration of Apple Intelligence into the Vision Pro.

• Other industry news included Meta restructuring its Reality Labs (XR) division into the “Metaverse” and “Wearables” segments. The move aimed to differentiate between products with XR features, such as the Quest 3 and the Ray-Ban Meta smart glasses, which do not offer AR capabilities and instead focus on AI features. 

• Meanwhile, Microsoft reportedly laid off 1,000 employees in its mixed reality department, following its decision from a year ago to make changes to its HoloLens 2 team, which subsequently led to the layoff of 10,000 employees. However, the company reaffirmed its commitment to continuing sales of its HoloLens 2 headset, also confirmed by a patent filing on a new form factor for a future headset.

• On the software front, the industry recorded a surge in updates (47, compared with 19 updates in Q1 2024; excluding Vision Pro app launches). This was led by the AR/VR platforms segment (19), which was focused on updating existing platforms, followed by the content segment (17), which was centered around streamlining XR experience creation.

• The quarter's standout software updates were driven by the two major players in the industry: Apple and Meta. This included Apple’s visionOS 2 announcement, slated for release in autumn. It focused on consumer-facing, productivity, and developer updates such as
  • Allowing users to convert 2D photos into spatial photos, facilitated via machine-learning models 
  • Improving skin-tone accuracy, hand movements, and adding animation effects for its Persona digital avatars 
  • Creating a Mac Virtual Display to extend workspaces, equivalent to two 4K monitors side by side
  • New frameworks and APIs for developers to streamline development of volumetric apps and games
  • Web video players like YouTube, Amazon, and Netflix and extra content for “Apple Immersive” videos.

• While the above updates were unique to the Vision Pro, the company had to catch up to Meta by introducing mouse and physical keyboard support in a mixed reality environment—features the Quest 3 offered since its debut last year. 

• Despite this, Apple was able to roughly double its app ecosystem to 2,000+ in June relative to its total apps in February, showcasing keen developer interest. This was aided by leading content creation platform Unity announcing support for experience creation on the visionOS 2. 

• Further, the Vision Pro added its first major VR game title (Demeo), a turn-based tabletop strategy game with RPG elements. While the device primarily focuses on immersive viewing experiences, the company also offers a dozen spatial computing game titles, accessible via its Apple Arcade subscription service, although its library of game titles is far smaller compared with the Meta Quest. 

• Conversely, Meta concentrated on enhancing its Quest 3 headset to match the visual fidelity of the Apple Vision Pro. These updates included
  • Improved mixed reality passthrough quality and reduced visual distortion, improving user immersion
  • Support for viewing spatial videos uploaded by iPhones running iOS 17 or later
  • Adding a “Travel Mode,” enabling the use of its mixed reality mode on flights. 

• Despite making several Quest 3 improvements, the company’s long-touted “Augments” feature (announced last year) was delayed, given issues with its planned architecture. The feature would have allowed "persistent spatially-anchored digital objects" in a physical space, similar to the Apple Vision Pro. In line with this, the company is exploring other improvements to provide users with a viewing experience similar to the Vision Pro. 

• In response to Apple’s surging app ecosystem, Meta announced the Quest Lifestyle App Accelerator, providing seed-stage grant funding to companies building lifestyle apps (fashion, design, cooking, etc.) for the Quest 3. The funding was specifically targeted at non-gaming applications, as the company seeks to offer a broader app variety for users.

• Apart from Apple and Meta duking it out, the industry saw six GenAI feature additions (compared with none in Q1 2024) for a range of use cases. This included
  • Microsoft’s launch of SIGMA for its HoloLens 2 headset, which utilizes LLMs to guide users through procedural tasks
  • Snap’s launch of 1) GenAI features for advertisers, allowing custom lens creation via text or image prompts, and 2) GenAI features for the generation of realistic face effects and 3D asset generation (previously announced in beta in Q1 2024)
  • Perfect Corp’s AI Makeup Transfer, which utilizes GenAI to extract makeup looks from a reference image and transpose it onto a user's face in AR
  • Inworld AI’s launch of Inworld Voice, offering GenAI-backed voice modulation features for video game characters, including those in XR
  • ARuVR’s GenAI suite for XR asset creation (3D assets and turning audio scripts into voice recordings).

• Other notable updates included
  • Microsoft’s addition of AR features to its Teams smartphone app, geared toward frontline workers
  • Google’s launch of geospatial AR content for Google Maps, providing AR content when users search for specific locations
  • Snap’s addition of AR functionality to desktops via a Google Chrome extension, allowing users to enable AR lenses directly on their webcams
  • Niantic adding support for developing experiences on the Apple Vision Pro via its 8th Wall platform.

MEP

• Roblox announced that it was developing “4D” GenAI tools capable of adding dynamic interactions to static objects. While the company offers separate GenAI tools to streamline the creation of assets and avatars, it aims to create a unified system that integrates all pipeline elements and generates them simultaneously.

• This, for example, would allow users to generate a sports car asset and customize its physics rig and other movable parts or create avatars with custom animations, including the ability to grasp tools and balance. 

• While Roblox and Fortnite Creative continued their strong player momentum, smaller players in the space struggled to maintain active users. For example, social platform VRChat laid off 30% of its staff, while Singularity 6 announced two layoff rounds, impacting ~75% of its total staff. 

• Meanwhile, Meta is set to roll out Horizon Worlds to 16 new countries, which follows past initiatives to broaden platform accessibility. It launched a mobile platform version in September 2023 and opened up its platform to US and Canadian teens over the age of 13 in April 2023. 

• We tracked 18 software updates/launches for the quarter (22 in Q1 2024). This included three GenAI-backed updates focused on virtual asset creation (compared with two in Q1 2024). The social gaming platforms segment continued to record the highest number of updates (11), followed by pure-play gaming platforms (four; backed by three updates to improve Studio369’s MetalCore game). 

• GenAI software updates included
  • Hiber’s launch of Skyscape AI, a GenAI-powered tool to turn static images into immersive 3D skyboxes
  • Victoria VR’s addition of ChatGPT-powered asset creation capabilities 
  • Readyverse Studio’s use of GenAI to create metaverse environments and other 3D assets, music, and avatar customization.

• Other notable updates from disruptors included
  • Roblox’s rollout of immersive video ads for its platform and the expansion of its marketplace policies, allowing premium members to sell 3D content
  • Today’s launch of Dreamia, an AI-backed character engine designed to influence storytelling in real-time interactions.

• Other notable updates from incumbents included
  • Microsoft’s integration of AI-backed avatar creation capabilities on its Microsoft Mesh platform
  • Epic Games’ addition of tools to streamline virtual world creation
  • Walmart’s launch of Walmart Realm, a shopping experience-focused metaverse, where users can interact with virtual products and purchase their real-life counterparts
  • McDonald’s’ launch of “My Happy Place” metaverse, allowing users to participate in daily contests offering real-life food deals.

Partnerships: XR focuses on hardware development, while Roblox dominates brand launches

Analyst Take: XR’s highlight was Meta opening its mixed reality operating system to third-party developers. By doing so, the company aims to establish a foundational platform for XR devices, akin to how Windows functions for PCs. Roblox continued to dominate MEP brand launches, with past experiences from firms in various industries reaching over 2 million monthly visits in June 2024, as per data from Metaverse Marcom.

XR

• We tracked 39 XR-related partnerships in Q2 2024, a slight decline from Q1 2024 (41), which saw a multitude of announcements in light of CES 2024. 

• The highlight of the quarter was Meta opening its HorizonOS to third-party device manufacturers. This subsequently led to a range of partnerships leveraging the OS to develop new XR devices, including 
  • Microsoft to create a limited edition Meta Quest VR headset themed around its Xbox game console
  • Lenovo to develop an XR device tailored toward entertainment, productivity, and learning
  • Asus to develop an XR gaming headset under Asus' Republic of Gamers brand.

• While Meta’s series of partnerships bodes well for the company, its partnership with LG has reportedly been halted as the latter restructures its XR division. 

• Apart from Meta, other hardware manufacturers focused on new product developments and integrations. This included the development of optics and display technologies (7) and controllers and input devices (4).

• The content segment recorded six partnerships, which focused on marketing initiatives and mixed reality content capture, while AR/VR platform collaborations were limited (five, compared with 18 in Q1 2024), which focused on platform integrations.

• Other key partnerships involving incumbents included
  • Google’s partnership with Magic Leap to launch new AR solutions and experiences
  • Microsoft’s partnership with 1) Meta to develop "Windows Volumetric Apps" for Meta Quest headsets, enabling developers to extend their software into the 3D space, and 2) Snap to integrate its AR technology into Skype for more interactive conversations
  • Meta’s partnership with 1) Qualcomm to optimize the use of the Llama 3 LLM on XR devices powered by the latter’s Snapdragon series of chips and 2) Logitech to develop the MX Ink mixed reality pen designed for its Quest headsets
  • Apple’s partnership with Canon to develop a spatial content creation lens for its Vision Pro headset
  • Vuzix’s contract with Garmin to develop the next generation of nano-imprinted waveguide-based display systems.

• Key partnerships involving disruptors included
  • Loft Dynamics’ partnership with Dufour Aerospace to create the world's first VR flight simulator specifically for eVTOL aircraft
  • Lumus’ partnership with AddOptics to create a combined lens system that places AR images at an ideal viewing distance, reducing eye strain and maintaining a clear view of the physical world
  • Sandbox VR’s partnership with Apparel Group to establish 25 new location-based experiences across the Middle East by 2028.

MEP

• Brand launches (29 in total) were concentrated across three platforms, compared with 36 experience launches across six platforms in Q2 2023.

• Virtual world launches continued to be dominated by Roblox (18, compared with 14 in Q2 2023), followed by Fortnite Creative (nine, the same as Q2 2023). However, brand launches in other metaverse platforms were negligible, with VRChat and Rec Room launching three or fewer experiences per quarter from Q2 2023 until now. 

• Notably, IKEA’s launch of a virtual store on Roblox differed from other brand collaborations, focusing on recruitment efforts rather than marketing initiatives. Additionally, the company was the first-ever to offer limited paid positions on its metaverse, with pay based on time spent on the platform alongside opportunities for promotion, reflecting its flexible career progression philosophy.

• Brands also experimented with tying digital rewards on metaverses to the real world. This included
  • Walmart, which allowed users to buy digital versions of real-world products and receive their physical counterparts alongside the embedding of AR features
  • Mondelez International, which rewarded users with brand merchandise and candy coupons
  • Six Flags, which allowed virtual currency to be redeemed for real-world discounts
  • Wow Bao, which integrated a digital scavenger hunt into its loyalty program, offering players a chance to win free food. 

• Communication services firms launched the most experiences (11), with media and entertainment accounting for 10 of these. Consumer discretionary firms followed with nine experiences, mainly from consumer durables and apparel (4) and distribution and retail (3).

Brand launches on MEPs (Q2 2024)

M&As: XR sees activity to improve spatial content creation; MEPs focus on consolidation

Analyst Take: XR’s acquisitions were multi-focused, which notably included Evercoast’s acquisition of DepthKit to bolster spatial video generation capabilities, a recurring theme this quarter. On the other hand, MEP M&A activities focused on sector consolidation, with Yuga Labs also announcing layoffs as part of its restructuring efforts.

XR

• The industry recorded three M&A activities from the quarter, including
  • Volumetric video capture platform Evercoast’s acquisition of its competitor, Depthkit
  • Miniclip Group’s acquisition of VR game development studio FuturLab
  • Japan-based Nitto Denko Corporation’s acquisition of a partial stake in AR glass manufacturer TruLife Opticals.

MEP

• The industry recorded two M&A activities for the quarter. This included 1) Yuga Labs’ sale of two game properties and their associated NFT collections to Web3 gaming studio Faraway and 2) Hyperspace’s acquisition of work metaverse platform Glue while the company filed for bankruptcy. 

Funding: XR drops significantly, while MEPs are on the rise

Analyst Take: XR funding dropped significantly; no disruptor raised more than USD 25 million in funding. The smaller funding rounds corroborated Y Combinator startups seeking smaller seed rounds, as startup founders aimed to keep ownership dilution to a minimum. The highlight for MEPs was Animoca Brands’ USD 20 million funding round, which valued the company at USD 1 billion. While the company retained its unicorn status, its valuation tumbled from over USD 5 billion in 2022 to a public valuation (via its SAND cryptocurrency token’s market cap) of USD ~765 million as of end Q2 2024. 

• XR funding fell to USD 91 million, falling 89% QoQ and 72% YoY—the lowest it's been since the beginning of our industry coverage in Q1 2022. The drastic decline comes after funding surged last quarter, backed by Magic Leap’s USD 590 million giga-round. 

• The limited number of significant fund raises was likely due to the cyclical nature of funding for hardware manufacturers, which typically involves long development periods for their devices. Apart from Magic Leap, hardware manufacturers with major funding rounds included Rokid (raised USD 112 million in November 2023 and USD 71 million in January 2024) and XReal (raised USD 60 million in January 2024).

• In contrast, MEP funding rose more than 10x on a QoQ basis to USD 55 million (a 44% YoY increase). Although impressive at first glance, funding for the industry has remained low since Q4 2022—following the “crypto winter”—as a result of lending company FTX’s bankruptcy alongside newer platforms failing to meet investor expectations for complexity and immersion. 

XR

• Despite the sharp fall in funding for hardware manufacturers, funding continued to be concentrated in the segment (~55% of the total or USD 51 million), with Basemark’s USD 24 million round being the largest recorded. 

• A majority of the funding for the AR/VR platforms segment came from medical visualization platform apoQlar and XR game ecosystem 5thScape, as other disruptors in the space raised minute amounts of funding. 

• Similarly, the content segment recorded four rounds, with disruptors raising less than USD 5 million for each round, while the location-based AR/VR segment recorded its first round since Q3 2023, given its niche appeal. 

• The industry recorded 20 funding rounds in total (compared with 24 in Q1 2024), with hardware manufacturers recording the highest number of rounds (8), followed by seven AR/VR platform rounds (compared with 8 and 16, respectively, in Q1 2024). 

• Average funds raised per round stood at USD 5 million, falling 87% QoQ and 61% YoY, given the dominance of grants, pre-seed, and seed rounds (accounting for 75% of all rounds).

• Seed rounds were the most common during the quarter (13), followed by four “other” rounds (grants and undisclosed venture rounds), raising USD 48 million in total. 

• Given a series of smaller rounds, the contribution of seed rounds to total funding increased significantly on a QoQ basis (45% from 3%). Similarly, the contribution of early rounds also rose (47% from 10%). 

MEP

• MEP funding increased by over 10x on a QoQ basis and 44% on a YoY basis to USD 55 million, largely backed by Animoca Brands’ USD 20 million debt funding round. The company successfully raised multiple rounds of funding despite a dampened funding outlook for the industry. It raised USD 11.9 million across two rounds in the previous quarter as well. 

• Investor confidence in the company is likely from the company disclosing its favorable financial position (liquid digital assets totaling USD 566 million as of April 2023). Additionally, the disclosure comes as Animoca Brands reportedly prepares to go public in 2025, following the company’s delisting on the Australian Securities Exchange in March 2020 given rule breaches.

• The social gaming platforms continued to account for the majority of MEP funding (~54% of total), with Animoca Brands focused on utilizing funds to advance product development for its “The Sandbox” metaverse.

• Today, a Web3 social metaverse’s funding round utilized its proceeds to bolster GenAI non-player characters (NPCs) and no-code creation tools—the first disruptor in the space to raise funding specifically to incorporate GenAI capabilities. 

• The industry recorded three seed and “other” rounds each (compared with only one funding round last quarter). Growth rounds have noticeably been absent for the industry since Q3 2022 (where Animoca Brands raised USD 185 million in funding).

Notable funding rounds and investors

XR

• While there were no major funding rounds for the quarter, disruptors that raised over USD 10 million in funding included 
  • Automotive AR software developer Basemark (USD 23.9 million)
  • Optical module manufacturer OPTIX (USD 15 million)
  • Mixed reality medical imaging platform apoQlar (USD 10.8 million). 

• Notable investor participation included Andreessen Horowitz (co-led Sloyd’s round; participated in Trace’s round); Sequoia Capital, Everywhere Ventures, and Index Ventures (participated in Trace’s round); and Boost VC and Alumni Ventures (participated in Sinn Studio’s round).

MEP

• Notable investors for Avalon’s funding round included Hashed and BitKraft (co-leaders) and Coinbase Ventures (participant). Other notable investors included Play Ventures (led Hypersonic Laboratories’ round) and Big Brain (co-led Today’s round).

• Additionally, Web3 firms (Animoca Brands, Avalon, Hypersonic Labs, and Today) garnered the most investor interest (~USD 42 million or ~76% of funding). 

Summary of highest-funded startups added in Q2 2024

• Eleven new XR startups and five MEP startups were added to our coverage during the quarter. 

Five highest-funded XR startups added in Q2 2024

Appendices

Appendix 1

Summary of XR product updates in Q2 2024

Summary of MEP product updates in Q2 2024

Appendix 2

Summary of XR partnerships in Q2 2024

Summary of MEP experiences launched in Q2 2024

Appendix 3

Summary of XR funding rounds in Q2 2024

Summary of MEP funding rounds in Q2 2024