The Startup That’s Putting the AR in Car: WayRay

An examination of a Series B augmented driving startup from Switzerland

Source: WayRay landing page as of 5/15/17

Context: WayRay is a Swiss augmented reality startup that was founded in 2012 to introduce innovative holographic navigation systems in cars. Since then, they’ve also introduced a second product called Element, that can analyze driving habits and coach people to have safer, more engaging, and more economical drives. WayRay has raised $28M in total equity funding so far, with Alibaba Group leading the startup’s most recent Series B round.

I will analyze WayRay’s team, market, competition, and product to deduce insights into the connected car landscape and where WayRay might fit in.

Team

The WayRay team is comprised of over 100 designers, scientists, and engineers distributed across Moscow, Switzerland, San Francisco, and Berlin. One look at this startup’s website and one can deduce that the company values design very highly (seriously, this website is one of the best I’ve ever seen). In addition, since the company’s chief product is an AR based projector, I would expect a strong computer vision and hardware team.

WayRay’s Founder and CEO, Vitaly Ponomarev, holds an M.S. in Economics and a Ph.D. in Innovative Project Management from the Academy of National Economy under the Government of the Russian Federation. He is based in Geneva, and has won a slew of inventor and promising entrepreneur awards in both Russia and Switzerland. He’s founded an operating a marketing and advertising business called OUCH.Business in the past, which he stepped down from in 2012.

Alexander Bobryshev, the Chief of Hardware Development, has years of experience in hardware engineering and leading teams, and was most recently the lead engineer for a company that designs plastic parts for smart home devices in Russia.

The CTO, Michail Svarichevsky, drives the company’s efforts in optics and light systems to ensure that the augmented reality holographic projections are visible on windshields. He has a background in software engineering on financial systems, namely at UBS and Deutsch Bank. He is also based in Russia.

Finally, the Director for U.S. Relations at WayRay is Elizabeth Shapiro. She has a background in working and coordinating businesses in America, is based in San Francisco, and worked as a Russian interpreter at Fluent prior to joining WayRay as a business associate. I mention Shapiro because even though she isn’t C-level, her expertise in translating Russian management techniques and communications is likely key to the success of WayRay in the American market — partly because Moscow culture and SF cultures are so different in terms of technology businesses and also because the United States is a key market full of potential early adopters if the product hits consumer markets.

In all, it seems as though numerous members of the team have operational experience as founders in the past, which is a good sign when looking for people to lead infant tech companies. However, it does not seem as though the team’s background aligns with WayRay’s technology. For example, even though the CTO has a background in software engineering for financial institutions, it’s dubious how well those skills translate into the physics of designing, building, and scaling augmented reality hardware platforms. Background mismatches like this are frequent in the WayRay team, but relevant past experience isn’t a necessary condition to building a great company — only a nice-to-have.

Market Size & Strategy

The global connected car market is slated to be worth over $180B annually by 2022, with 34% of the market dominated by safety-focused systems in 2014. Driver assistance technology, such as autonomous braking, lane-departure systems, and blind sport warning systems, will grow at a CAGR of over 31% until 2022. Significant investments by global auto brands like BMW and Audi will only accelerate the growth of the market, since mass market brands like Toyota have seen feature sets trickle down from flagship lines down to economy segments, for little to no increase in pricing.

Source: ICIS, China’s used car market set to drive future auto sales growth

The Asia Pacific region will specifically grow over 29% annually since advanced automotive communications systems are lacking in the region’s models, and countries like India and China will likely drive industry growth in the near future. The auto markets in these countries have already been growing at explosive rates, with India’s passenger car sales increasing by over 9% from 2016–2017, and China’s sales increasing 7.3% year over year. As the two biggest auto markets in the world, a greater demand for convenience features and safety systems will likely follow the demand for cars in these countries.

The interesting thing about WayRay is that it can play in both the new car OEM market and the used car market. It’s holographic augmented reality projection system, called Navion, can be integrated into cars at the manufacturer level, and can be purchased after market and easily installed in any car. Elemental, the company’s connected car dongle, is built for use with any car built after 1992.

The secret sauce to success here isn’t the new car market, then. It’s the sale of used cars. China’s used car market is set to explode, with public opinion shifting towards buying used and stigma against pre-owned vehicles decreasing.

Source: McKinsey.

In addition, McKinsey reports that 53% of over 3500 consumers surveyed are looking to upgrade their cars with their next purchase, and that China’s auto market as a whole is trending towards more practical, less status-concerned purchases. In a Car Keys survey of 1015 consumers, 85% of the people surveyed said value for money was their number 1 concern when buying a car. A McKinsey Report on Connected Cars also concluded that 56% of would-be car buyers stated that connected features are the most important features to them when buying a new car, and that most current OEMs will have to pursue strategies to improve human/automobile interfacing with more intuitive and modern telematics experiences. These two figures might be pivotal to WayRay’s success in the auto market for the following two reasons:

  1. If consumers are more practical and want to get the most bang for their buck, then it makes much more sense to simply buy an after-market WayRay system than to buy an entirely new car if the primary motivator is technology advancements.
  2. If consumers do want to buy a new car, then one of their biggest motivators is to get connected features. If WayRay can integrate with OEMs and save them money on iterating to create better telematics systems, then it would be a win-win-win for WayRay, OEMs, and new car buyers.

In effect, here’s where we are right now:

Most new cars these days come with some sort of Telematics experience, i.e. we interact with cars through screens these days, and there is always some sort of solution for Entertainment, even if it’s only a USB port for your phone. In fact, new cars also usually come with high-fidelity rescue and vehicle management services like GM’s OnStar, Lexus Enform, and other concierge services. These are subscription based services that people have the option to pay for once a free trial runs out.

Here’s where we’re going:

Source: McKinsey

The blue box in the top right, “Navigation (augmented reality navigation) is exactly where WayRay comes in. That box is WayRay’s bread and butter, and I doubt it will take them the next three years to deliver on it. If anything, we should probably see a consumer version sometime in the next two years, especially since WayRay has been partnering with numerous OEMs and Connected Car vendors to build and product prototype units.

If WayRay wants to play in the new car market, it finds itself in the center of a co-dependent triangle, relying on Big Auto to be willing to partner, Big Telecom to have the infrastructure and reliability in place for cars to get on the network, and the Software / Design talent to deliver on a seamless, user centered, safe experience that is better than the existing telematics services offered in cars.

There’s progress being made on each one of these fronts, but there’s also a significant amount of risk with this many factors.

Connected car OEMs and vendors seem to be happy with WayRay right now. The startup recently partnered with Harman, purveyor of well-integrated and established audio brands like JBL, Harman-Kardon, and Infinity in cars on the road today, to put a prototype of Navion in a concept car at CES. Harman is about to be acquired by Samsung, and the resources that Samsung brings to the table are probably immeasurable in terms of diverse expertise. But, if these partnerships falter and WayRay receives no support from OEMs, it may have to figure out a supply chain and get into the hardware business on its own, which is much harder to scale than software. It would also be reduced to playing in the after-market used car arena rather than the new car arena, since no manufacturer would trust a startup OEM with the lives of their customers absent rigorous testing (the kind that takes a long long time to prove a product).

Secondly, if Big Telecom doesn’t have the infrastructure ready for connected car features to come online, functionality is significantly reduced, and the time wasted on building those features will have been wasted. AT&T has partnered with Jaguar and Land Rover to bring connected car features online, and I doubt that massive telecoms like AT&T won’t be able to get cars online, but the timeline must agree with WayRay’s for this solution to be of value to consumers.

Lastly, the software must work much better than existing options for customers to take the risk of using them. Cars are great — they help us go places and make transportation so quick and affordable that our families a few generations ago could only have dreamed of such a reality. With some telematics experiences though, these magical tubes of possibility become weapons we sit inside of and become projectiles traveling over 65 mph. If WayRay’s augmented navigation systems become distracting at any point, it’s not only abhorrent to charge for the system in the future, its also no better than the average car navigation today.

Aside from this trifecta of dependencies, there is a silver lining in the headwinds that can help WayRay beat competitors to market and start expanding.

For one, governments are viewing the public safety gains achievable by driver-safety systems as public goods, and are even going as far as to mandate the installation of emergency calling and other advanced communications systems in all recent cars. WayRay’s Navion is likely going to benefit from this, since it can connect to city infrastructure, show calls and other connected services in a non-distracting way, and run navigation.

Fuel economy regulations and greater awareness of climate change in the US and abroad also create a market for products like WayRay’s Element, which can coach drivers to drive more efficiently by analyzing their driving style and trip data obtained from OBD ports found in all cars made past 1992.

There are also tailwinds that may impede the progress being made. For one, the executive team is in Russia, and have themselves lamented the difficulties of building a tech startup and scaling it in Moscow. It takes 9 months to get a government grant for a startup, and most people are concerned with making money by selling IP or by emulating products already built in the West.

In addition, there is little to no large scale connected-car infrastructure in the USA or developed markets in the West, let alone the BRIC markets which is where we would see the largest consumer bases and appetite for cars. We might not see connected-car infra come to these places until much much later, and until then, the developed markets will have to be enough to sustain WayRay.

From a strategy perspective, though, I think WayRay is in a good place. The Harman collaboration is synergistic and could help both Samsung and WayRay grow in the auto space, while the OEM and stand-alone product angles could both be profitable in capturing new and used-car owners. Finally, the reliance of MBRDNA, Ford, and Audi, to aggressively hiring software engineers and designers for their infotainment experiences shows that the industry is trending towards a future where software and design are as much a part of cars as they are of computers. If WayRay can get talent and keep it, it will be in a very good position to innovate.

Market Competition

Market tailwinds and trends notwithstanding, there is fierce competition in the connected car space.

In effect, the Navion augmented navigation product is basically a HUD that aims to make navigation and other cell-phone features like calls and texts more digestible, user-friendly, and accessible during driving. HUD technology has been around in a while and is offered by most major car manufacturers as an option, and it has also been produced by startups like DAQRI and Navdy.

DAQRI, a startup that builds AR systems for industrial use and a HUD for cars, reports that its HUD technology is already present in over 150,000 cars. Although this is a relatively small amount of vehicles on the road, it’s still a big challenge to acquire this many customers for a car startup, especially for a company like WayRay which has only just begun to show off prototypes at CES.

Navdy is another such startup that’s received considerable press attention for its HUD system, a $500 one time purchase that can be installed into any car, easily. It offers cell-phone integration, gesture support, and unobstructive navigation while being right in front of the steering wheel, ensuring that it’s always in the driver’s sight.

I see this as a huge threat to WayRay, because although WayRay’s innovation and strength lies in its direct, project to windshield approach, this could actually be arguably unsafer since a driver isn’t always looking at the entire windshield. The large, colorful graphics on WayRay’s website look great on my MacBook screen, but I’m skeptical of how they’d look in rush hour traffic on I-280, and they could be very distracting.

There’s no public product to play with yet, so this is purely Medium-based speculation, but Navdy’s product is incredibly well reviewed, has press attention, funding, and customers, and seems to be growing. WayRay will have to find some way to get around this if it’s going to dominate the connected car add-on market.

WayRay’s other product, Element, is a dongle that users can plug into their car’s OBD ports to effectively grant their car connected features, like drive coaching, vehicle management, and location tracking. A company that does the exact same thing has been around since 2011, and was acquired by Sirius XM for over $100M in April 2017. Sirius, a satellite radio company, will no doubt find ways to integrate the connected-car dongle with its audio and satellite infrastructure, and this could prove to be a big headache for WayRay.

Product

Navion

Source: Navion Twitter

Navion is an augmented navigation hardware product that can either be integrated into car manufacturers OEMs or be purchased separately and installed into any car later down the road. Undeniably, the system looks fantastic in the images shown on the company’s Twitter account, but we have yet to see if it will actually look this good in reality.

If Navion is brought to market though, it’d be interesting to see who partners with the company to integrate the technology and how reliable the technology is. When the Nintendo 3DS was first released, pundits touted 3D and AR gaming as the future of the industry, but these predictions were short lived when consumers found that the 3D features didn’t work well when the angle of their head changed even a little bit, and the AR features stuttered and were unintuitive.

With the constant bumps, angle shifts, and body corrections that a typical driver would make when driving, WayRay’s Navion surely has a long road ahead of it. There is little to no data available regarding the actual product, so anything is at this point, purely speculation.

Element

Source: TechDrive.co

Element, depending on the price point, could be a real winner in the connected car category. It’s likely significantly cheaper to engineer and sell, and the idea of plugging something into a port underneath my steering wheel is a lot more palatable than a layer of software between me and the windshield. The Sirius acquisition of Automatic validated this market, and shows that if done well, the product will garner interest from both consumers and corporations alike.

Automatic Pro was priced at $130, and to me, this seems like the price to beat. Amazon reviews for the product were mixed, with some people saying that the dongle wasn’t worth the price charged. So, then, it seems fair to call $130 the target price, where it’s just cheap enough for experimenters to try it out.

The most innovative things about Element are its Autoyoga and Multiple Users features, which I think would be difficult to replicate for other companies. Autoyoga helps users see and experience new areas, and creates a series of tasks that reward you when you accomplish them. This could change the driving experience for people who hate driving and view it as a necessary evil. Secondly, the multiple users feature lets the dongle and app understand when different people are driving, based on unique driving profiles, and then offer tailored advice.

In the end, neither of these products are particularly ground breaking, but Navion is a good foundational product for the introduction of AR into car telemetry systems, and Element could be a viable alternative to Automatic provided that it can offer more features and offer a better user experience.

Takeaway: The lines between software, telecom, and auto are blurring, and WayRay is at the confluence of those three big industries. This increases liability for the company, because if any one of the three aren’t ready, the entire product goes bust. WayRay needs the software experience to be natural and reliable, a telecom infrastructure that is ubiquitous and proven, and auto OEMs who are willing to partner instead of starting a race to the bottom. When push comes to shove, the tech shops of giants like Ford, Mercedes Benz, and Tesla might just get there first, integrating the entire value chain and destroying the need for a third party player. Agility is this company’s biggest motivator, and if it can’t deliver its product quickly, the product might not matter.

If you enjoyed reading this post or want to chat about cars, product, or venture capital, tweet @rak_garg or email me: raksgarg@ucla.edu.