Act Natural: Next Generation User Interfaces

This is the third in our series of four deep dives into our technology based investing themes – outlined in January.

Computers, and the ways in which we interact with them, have come a long way. Pre-1984, the only way to navigate a computer was by using a keyboard. Then Apple (with help from Xerox Parc) came along and introduced the world to the mouse. Suddenly, a whole host of activities became possible such as free-form graphical drawing. While this may seem trivial now, at the time it allowed for the new expansion of industries such as graphic design, publishing, and digital media, and the world hasn’t looked back since.

Fast forward to the present: we are seeing an awe-inspiring number of ways that technology is continuing to advance the user interface between humans and computers. Augmented reality, virtual reality, mixed reality (collectively “extended reality,” or XR), voice, touch screens, haptics, gestures, and computer vision, to name a few, are developing and will change the computing experience as we know it. In addition, they will create new industries and business opportunities in ways that we cannot yet imagine. At Madrona we are inspired by what is possible and ready to provide capital and company-building help for the next generation of computer interaction modalities.

We, along with many others in the industry, were wowed by the magic of VR specifically and dove in early with a couple key investments in platforms – some worked and some didn’t. We quickly came to realize that VR headset adoption wasn’t going to be as fast as initially predicted but we remain strong believers in the ability of all types of next generation user interfaces to change how we experience technology in our lives.

Last month we published our main investment themes, including a summary of our belief in next gen UI. Here is a deep dive into our updated take on the future of both voice and XR technologies.

Voice technology is becoming ubiquitous

Voice tech, more so than any other new UI in recent history, has reached consumers swiftly and relatively easily. While the most common use cases remain fairly basic, voice tech’s affordability, cross-operating system capabilities, and ease-of-use have helped drive adoption. The tech giants are pouring billions into turning their voice platforms and assistants such as Amazon Alexa, Google Assistant, and Apple’s Siri into sophisticated tools designed to become an integral part of our daily lives. Driven by their affordability (the Amazon Echo Dot sells for $30) and ease of use (all you need to do is speak), voice-enabled devices are becoming ubiquitous. Amazon recently reported that 100 million Alexa devices have been sold. Add to that the over 2 billion Apple iOS devices that come pre-loaded with Siri and the almost 1 billion (mostly Android phone) devices that come pre-loaded with Google Assistant, and it is clear that voice technology as a platform has reached unprecedented scale and market penetration in a very short period of time.

Figure 1: Smart speakers are showing the fastest technology adoption in history Source:

The key question now: how will voice become a platform for other businesses? In order for new business models to thrive off of voice technology, we think three things have to happen:

(1) Developers need new tools for creating, managing, testing, analyzing, and personalizing the voice experience
(2) Marketers need new tools for monetization and cross-device and cross-platform brand/content management, and
(3) Businesses need to adapt to a voice-enabled world and enhance their products with voice-enabled intelligence, performance, and productivity.

Similar to the early days of web and mobile, the number of voice applications is growing fast but monetization is nascent and users sometimes struggle with discoverability. For example, Alexa offers over 80,000 “skills” but if you ask most Alexa owners how they use their device, you may notice that use cases remain fairly high-level:

Figure 2: Voice assistants largely used for information & entertainment use cases. Source:

The next generation of voice is multi-modal so instead of using voice-only devices, we are moving toward a great wave of “voice-also” devices. Examples of this include Volkswagen voice recognition to make calls, voice shopping, Roku device voice commands for watching TV, Nest smart thermostat products that use Google Assistant, etc. Tech giants and startups alike are racing to integrate voice into everything, from your car “infotainment” system to your microwave and screen-first devices so they can leverage the ease-of-use of voice to unlock new functionality.

Figure 3: Many companies are springing up to help businesses create, monitor, and monetize voice applications

At Madrona, our investments in Pulse Labs and Saykara give us unique visibility into next gen voice applications and how businesses are looking to reach users with voice services. We believe that voice tech will enable new business models centered around e-commerce and advertising via multi-modal experiences. We see opportunities in creating a tools layer for voice developers and marketers as well as building intelligent vertical applications to solve specific problems. Opportunities exist in enhancing in-vehicle voice capabilities, integration across platforms and applications, home security systems, smart thermostats, and retail experiences that blend the digital and physical, to name a few.

Overall, voice technology is moving very quickly toward broad adoption. With the incredible amount of investment being put into voice technologies, both from the platform providers and from new software developers, we are looking forward to seeing breakthroughs in e-commerce, advertising, and multi-modal experiences. The first hurdle of creating an ecosystem has been cleared with voice-capable devices now in the hands (and homes) of millions of users. The true test will be finding ways to use that technology to solve a broader array of business and consumer problems, and to monetize those capabilities as impact grows.

XR interfaces – still slowly building momentum

XR is a big bet that we believe in long term but our initial estimates of a 3-5-year timeline for when it would hit critical mass (which would have been 2019-2021) were overly optimistic. As we kick off 2019, we have the benefit of time, experience in the market, and a greater appreciation for what it will take for this industry to reach the masses. Our best estimates now push mainstream adoption of ‘premium VR’ (full headset/PC) back another five years to 2024.

Microsoft’s HoloLens, which was released in late 2016, had only sold approx. 50,000 units by mid-2018 before its 100,000-unit deal with the US army was reported in Nov 2018. Hololens 2.0 is slated to be revealed later this month and so we look forward to learning more then. The much-hyped Magic Leap launched a developer product in Aug 2018, but that was not designed as a mass release. In addition, sales of advanced PC-tethered headsets amount to less than 5 million units. Why the slower-than-anticipated uptake? Mass adoption is facing many headwinds on both sides of the marketplace.

On the consumer side: head mounted devices (HMDs) are expensive (around $600 per headset + upwards of $1500 for the high-end PC needed to run the programs). Usability is also a challenge – people are still getting comfortable with the feeling of wearing HMDs for long periods of time. On top of this, there are many additional opportunities for better XR accessories (E.g., the ability to use foot pedals or “cyber shoes,” improved hand controllers, and other devices such as activity or workout aides or equipment) which will improve the immersive experience. On the brand/business side: developing and implementing a worthwhile offering in XR requires more time, resources, and patience than originally thought. In addition, when done right, XR experiences should provide something specific and unique to the business that cannot be achieved otherwise. Finally, XR platforms aren’t standardized yet and so development requires significant customization. Altogether these factors have contributed to the XR market being sub-scale. We ask ourselves now, how many millions of these HMDs need to exist, and what applications or what business verticals will need to be developed, in order for XR technology to become a self-supporting industry?

Most XR innovation to date is entertainment-based, with different approaches for attracting new users. For example, HTC’s Vive has VR rooms where you can watch whales and sea life and there are cross-platform games where you can use lightsabers to slice through oncoming hazards. Against Gravity’s Rec Room is full of communities where you can build your own virtual rooms and worlds.

A trend we’re seeing now, while the XR consumer base slowly builds, is the emergence of virtual worlds or “metaverses” (collective virtual shared spaces that are created by the convergence of virtually-enhanced physical reality and persistent virtual space) that are at first, but may not always be, primarily non-XR virtual experiences (E.g., Xbox, Twitch, mobile, or YouTube). The key here is gaining a mass following while maintaining a “call option” on the ability to allow users to flip over to an XR interface as soon as they are ready. For example, Against Gravity’s Rec Room has quests that are available in both VR and non-VR, and Epic Games’ Fortnite just successfully hosted a record-breaking live, mixed-reality in-game concert with pop DJ Marshmello, the success of which sets the stage for more XR possibilities in the future. Entertainment-based applications like these will be the pathway to mass XR adoption.

Beyond entertainment, there are many practical use cases for XR applications that we are excited about. Our investments in virtual reality startups Pixvana and Pluto help us follow customer needs and market movements, and one that we have been watching closely is the growing opportunity of XR adoption within enterprise and commercial use cases. Of note, we have seen an especially high number of applications in the medical training, retail, education, and field service categories. This is supported by the overall trends as reported by VRRoom, pictured below.

Figure 5: Industries of current and prospective XR end-users. Source:

XR has the capability to virtually “place shift”/transport the user and enable many compelling applications such as mixed-reality entertainment, medical/surgical training, field service equipment repair and maintenance, spatial design/modeling (E.g., architecture), remote education, experiential travel/events, and public safety activities, to name just a few. Imagine a world where you could shrink and zoom a virtual mockup of a new building with the flick of a finger to help design the HVAC system, you could participate in a Nascar race from the comfort of your living room, or you could literally join your far-flung friends for an “in person” hangout in a virtual living room – this is the power of XR, and it is not far off. The challenge now is to provide greater variety in content, low-cost hardware, and improved usability and comfort to consumers (we’re looking forward to the rumored lightweight ‘glasses’ under development). In addition, we are supportive of the other mediums that XR companies can invest in now (such as mobile, YouTube, PC, etc.) that can provide a bridge to a full premium XR experience in the future.

Together, these next gen user interfaces will feel more natural and make it easier for consumers to access features in a new way

New ‘interaction modes’ like voice, XR, and others will create compelling user experiences that both improve existing experiences and create new ones that previously weren’t possible. We are excited to work with entrepreneurs as they innovate in these new areas. Opportunity for new applications, enabling technologies/devices, and content creation tools/platforms in next gen user interfaces will take us to the future.

100 Demos, 50 Company Pitches & a Year With AR/VR Headsets – What We’ve Learned

We received our first market-ready VR headset at Madrona almost one year ago now, and since then, we have done VR (Vive and Rift) and AR (HoloLens) demos for over 100 people who have stopped by our office to check out the next big computing platform. We have done demos for kids, parents, grandparents, pro football players, elected officials, company executives, gaming enthusiasts, people who never game, and people all over the spectrum from skeptical to extremely excited about VR. We have also participated in over 50 unique VR/AR demos from companies pitching Madrona.

First unboxing.

After all of these demos, it’s interesting to take a look back and think about what consumers’ first reactions to the products and content have been and where we think the companies betting on the future of VR need to go from here. Here are some of the key takeaways from our first year in VR:

The Product

  • It’s here. And it’s awesome. Every person to try on the Vive has been blown away by the level of immersion and the experience of getting transported away to another place. While companies are still debating controllers, tracking, resolutions, and wires, there is no doubt that the technology is now ‘good enough’ for people to feel completely immersed in another world. Seeing someone’s fear of falling off a ledge suspended a few hundred feet above a city when they are in fact just standing on the carpet in your office is incredibly fun and proves that VR is a transformative experience.
  • But not quite awesome enough. Despite the incredible experiences that people are having in VR, consumers are not excited enough to go out and buy headsets. Having done over 100 demos, less than a handful of people were excited enough to go out and spend $600-800 for a VR set up and likely another $1,500 for a capable PC to play with VR at home. Maybe we aren’t selling hardware hard enough at Madrona, but our experience seems consistent with the overall industry, with big companies coming in significantly below their initial 2016 forecasts for hardware sales – for example, Sony cut its 2016 forecast for VR headsets from 2.6M units to 0.75M. Further, we know first-hand how cumbersome it is to update software and firmware in order to quickly and consistently enjoy most VR applications.
  • Companies are earlier adopters of VR and AR than consumers. Nearly every corporate innovation lab has taken the time to create some sort of VR experience. IKEA built a kitchen visualization tool, Ford released an app that allows you to experience what it’s like to be a race car driver, and even SleepNumber built a VR application… to simulate what it feels like to be tired (in case you haven’t felt that before!). One of our favorite applications of VR is Redfin’s house tours that allow a potential home buyer to explore a house in VR before making a purchase. We are also seeing early adoption of Hololens AR technology and demos especially in health care, financial services, and various forms of design. Companies are seeing the huge potential of VR and AR and quickly trying to determine what works and what doesn’t to advance their business objectives.

The Market

  • The first killer app will be social.The VR (and potentially “mixed reality”) apps that people will spend the most time in will be social. Humans have an innate desire to be social, and tools for communication are incredibly valuable – just look at Facebook, Instagram, Snapchat, WhatsApp, Skype, and Slack. Additionally, VR is a platform that is particularly well-suited for communication given the level of immersion you can experience when talking to other people. Early examples of companies with compelling social VR capabilities include Against Gravity’s Rec Room, BigBox’s Smashbox and Pluto VR’s general, mixed reality communications service.

    TechCrunch Oct 2016. Source:
  • Wow – Kids!if there is one thing that has been the most remarkable to watch — it’s how easily children pick up VR controllers and start flying around virtual worlds (before quickly asking if they can play Minecraft in VR). We know some kids who have spent dozens of hours playing social VR games like dodgeball and charades. The level of comfort and intuition that children have for navigating new technologies is incredible, and they will likely be able to imagine new ways to use VR that the current generation of developers haven’t even considered yet. Interestingly, the younger folks who try both AR and VR tend to be more interested in VR while older folks see more commercial promise in AR.
Onsite at Madrona.
  • Learning from Asia and 21stCentury “Arcades” – The US is way behind China for VR adoption, and we are seeing significantly more adoption in the Asian market through malls, theme parks, karaoke bars, and gaming cafes – not to mention the number of manufacturers of simple smartphone headset adapters that allow for a low-end mobile VR experience. We believe in the short to medium term that 21st Century VR Arcades will emerge around the world with the early learnings coming primarily from Asia. HTC is treating the China VR market as its first priority even though it is partnered with Valve on the Vive, and Tencent has begun producing VR movies. US-based VR companies are looking to learn from the Chinese experience, and they are also looking towards Asian investors to fund VR companies, as a large proportion of VR investments have been led by Asian investors. In fact, a recent CB Insights report showed that China-based investors participated in 21% of all AR/VR deals last year, including Magic Leap’s $794M Series C (Alibaba) and NextVR’s $80M Series B (5 Chinese investors).
    CB Insights, January 24, 2017. Source:

    Looking Forward

  • Companies and investors are waiting for a big breakthrough.Perhaps it will be Apple’s first foray into AR/VR, maybe it’s mass adoption of the Google Daydream, or maybe it’s a wild success in Snapchat spectacles, but until there is a bigger user base, AR/VR companies will not be making a lot of money. Monetization is tricky, and with the exception of some early wins in indie games, companies do not have a lot of room to experiment with business models to grow their businesses. Even what is arguably the first “hit” of the AR world, Pokemon Go, required a beloved set of content to help create a global phenomenon. That makes it important for early-stage VR and AR companies to ensure they have a plan to survive and continue developing great products until the early majority are more easily able to try VR/AR experiences.

    Kiro, July 11, 2016. Source:
  • VR/AR signal a new era of human-computer interaction.Traditional text interfaces and GUIs force people to interact with data and applications in a way that makes sense to computers. VR and AR are new, natural user interfaces that will allow people to interact with technology in the same way that people interact with the physical world. That means using voice, vision, and gestures to interact with computing and content. Think about how difficult it is to remember the positions of 100 different files on a shared drive and how comparatively easy it would be to say “show me the document from last week’s meeting with Sally” and have it appear in augmented reality. This will allow us to build new apps that take advantage of the ways that our brains work and interface with both the digital and physical worlds.
    YouTube, Microsoft Hololens. Source:

    We are incredibly excited to see what happens in the next 3-5 years in the virtual and augmented reality market. Already, we are seeing great examples of profitable businesses creating VR demos of buildings before they are built, so developers can sell real estate before prospects can walk through the space. We are also seeing partnerships with groups like Microsoft, Case Western Reserve University, and the Cleveland Clinic where a medical student can put on a HoloLens with 10 of her classmates to walk around and examine the different pieces of human heart in 3D space to gain completely new insights on how the heart really works.

    As we look towards the technologies that will affect humanity the most over the next decade, we firmly believe augmented and virtual reality will change the way we work, play, and live.

    Madrona is an investor in Redfin.

    A version of this post originally appeared on VentureBeat.

Technology Trends Changing the World As We Look Ahead

Drones, Cars, Intelligent Apps, Virtual Reality and More – What to expect in 2017
There’s an age old saying that humans tend to overestimate what can be accomplished in one day, but underestimate what can be accomplished in one year. As 2016 comes to a close, it is a good time to zoom out the lens, and get reflective on what has happened this year, and predictive about what we are excited about for the coming 3-5 years.

1. Commercial Drone (UAV) Technology will Turn to Software

The 2015 hype around drones generated over $155M of VC funding in the second half of 2015, but 2016 has seen far chillier attitudes by VCs towards drone startups. However, we believe 2017 will be a year of renewal for investments and innovations in drone technology. For one, the FAA passed the first set of rules in June governing drone fly rules, allowing commercial drones to finally take to the skies without filing for lengthy and cumbersome case-by-case permission. Secondly, over the last year, the hardware war which has spooked many VCs from entering the space has been all but won. Forbes estimates that Chinese drone manufacturer DJI is valued at $8 billion and controls over 70% of the hardware market. Other contenders for this mantle such as 3D Robotics have retooled to focus on vertical software. For 2017, we see the main opportunity for drone technology to be in best-in-class tools and software deployed across platforms such as equipping drones with advanced sensing capabilities, or software for vertical industries such as real estate and farming.

2. Intelligent Applications

Customers nowadays demand their software delivers insights that are real-time, nimble, predictive and prescriptive. We have no doubt that in the future, every application will be an
intelligent application. However, the reality has not caught up to the hype. We believe data, not algorithms are the bottle-neck. Algorithms continue to become commoditized by the way of access to open-source libraries such as Algorithmia, Tensorflow, Hadoop and Cockroach DB. If products wish to do better than commodity performance, companies with machine learning at their core must figure out how to acquire proprietary, unique, clean and workable data sets to train the machine learning models.

Companies with a leg up are also likely to be vertically integrated in such a way that their data, learning models and product are all geared towards developing the best data network effects that will feed the learning loop.

We believe there is a big opportunity for companies focused on a specific industry such as healthcare, retail, legal, construction to build higher quality domain expertise at a faster rate, which facilitates the acquisition and labeling of relevant data critical to building accurate and effective machine problem solvers.

3. Virtual Intelligent Assistants with Focus on a Problem Space Will Succeed

A great example of vertical vs horizontal machine learning applications can be found in chat bots. There are some horizontal chat bot assistants that help you with any and all requests (, Magic, and Awesome to name a few). It would seem obvious that building NLP and intelligent capabilities across all conceivable tasks and requests could be a long slow training slog of manual human validation. These companies are also at a heavy disadvantage to incumbent players tackling the horizontal assistant space. Voice enabled platforms like Alexa, Siri, Cortana, or the new Google Assistant still see limited usability despite enormous access to training data bolstered by the distribution platforms of three of the largest companies in the world. Realizing this, Amazon announced at Re:Invent that Lex, the software that powers Alexa, is now available for developers to build their own chat bots. Every developer who designs their conversation on the Lex Console is now feeding Lex’s data model. Microsoft followed suit with a similar announcement of the Cortana Skills Kit and Devices SDK.

Assistants that will be more successful in the short term are bots that are narrowly focused. There is Kasisto for finance, Digital Genius for customer service, or the many virtual assistant/meeting scheduler apps (Meekan, JulieDesk,’s Amy and later “brother” Andrew, and Clara). What excites us about these vertically oriented chat bot startups is that they are applying machine learning, artificial intelligence and natural language processing in a highly specialized and narrow way. It is far easier to train a bot to recognize and act appropriately on the finite set of lexicon and circumstances around scheduling a meeting, compared to the infinite set of scenarios that could occur otherwise. In machine learning, it is better to be a master of one, than a master of none.

4. Blockchain Will Expand as Enterprise Services Embrace it


The technological innovation of Bitcoin, blockchain, seeks to create a global distributed ledger for the transfer of assets (currency, cryptocurrency, music, real-estate deeds etc). This enables peer to peer transactions that bypass traditional intermediaries like banks, credit card companies, and governments whose centralized nature slows down processing speed, increases cost of transaction, and are vulnerable to security threats at the hub-level. Blockchain technology has been heralded by some as being as disruptive to the way people view, share, and interact with their assets as the internet was for information. However, adoption has significantly lagged this envisioned seismic shift.

We believe blockchain’s path to mainstream adoption will be more likely to arise from the enterprise and infrastructure side (creation of APIs and protocols that enable ease of adoption) as opposed to consumer adoption of cryptocurrencies (i.e. Bitcoin). An example is R3 which has gathered a consortium of 42 banks to create the technological base layer for various systems including Bitcoin, Ethereum and Ripple to talk to each other and facilitate global payment transfers.

5. Autonomous Vehicles Have More Validation Work

Aside from machine learning, autonomous vehicles were one of the most hyped technologies in 2016. This year, we saw major product announcements and technology demos from Uber, Lyft, Ford, GM, BMW, Tesla, Cruise,, and many other startups and corporations. Google went so far as to create an entirely new company, Waymo, devoted to their driverless car technology.

Nearly all of the major car manufacturers have announced they will be releasing autonomous vehicles in the next five years, and Lyft has stated that they are planning for the majority of rides to be autonomous within the next five years. Even President Obama said “The technology is essentially here” in a November WIRED interview.

However, despite the hype, there is a tremendous amount of heavy lifting that needs to happen in technology, infrastructure and policy to say the least. Companies still need to solve basic problems related to sensors (e.g., see Tesla Autopilot crash where cameras could not distinguish white truck against bright sky), and billions of edge cases due to construction, pedestrians, and weather, and a murky regulatory environment.

We are huge believers in the long-term benefits of autonomous vehicles, but 2017 may be a year when autonomous vehicle companies and startups are heads-down solving tough problems rather than continuing to push out flashy tech demos.

6. Augmented Reality and Virtual Reality

We believe there is still a three-year runway before VR and AR sees wide adoption by mainstream audiences. Consumer adoption will be mobile-first and/or low-end tech – think the successful recent launch of Snap Spectacles, and the cheaper price points of Google Daydream, and the Samsung Gear. VR uptake today is still burdened by hardware adoption and ease of use. Prices are still too high for anyone but the hardcore technologist or gamer.

On the enterprise side, we see 2017 as a continuing year of innovation and activity particularly in core applicable industries like engineering, science, medicine, real estate education and manufacturing. However, until the dominant form factor (whether it is glasses, head-mounted-display, or some other yet to be seen hardware) emerges, time spent in VR will still be miniscule compared to time spent in this reality.

Ultimately, if gazing into the future of technology was really so straightforward, there would be no need for speculation and VCs would be out of a job. We’ll be back next year to see assess how many of these predictions hit the nail.