Google is trying to steal the Ray-Ban partnership from Meta

Meta is planning to spend billions to buy roughly 5 percent of ​​EssilorLuxottica, the €88 billion European eyewear giant it has collaborated with on two generations of Ray-Ban smart glasses. The Financial Times and other outlets earlier reported news of the talks, which I’ve also confirmed. I’m told the negotiations are advanced and it’s likely Meta will make the investment.

It turns out that Meta isn’t the only big tech company trying to get closer to EssilorLuxottica, however. Google recently approached the company’s leadership about putting its Gemini AI assistant in future smart glasses, several people familiar with the matter tell me. This move to potentially box Meta out of the high-profile partnership could be helping drive the large investment Mark Zuckerberg is now preparing to make. But there’s more to the situation to consider.

EssilorLuxottica is a European fashion and retail conglomerate, not a Silicon Valley company with investors who have an appetite for risk. A combination of global inflation and higher costs has also been hurting EssilorLuxottica’s profit margin for some time. The company’s stock price is up only about 7 percent in the last year, underperforming the overall growth of its peer group of European blue chip stocks.

That dynamic presents a challenge for its Meta partnership, which Zuckerberg very much wants to continue. Even with EssilorLuxottica keeping the vast majority of the revenue from each pair of Meta Ray-Bans it sells, smart glasses are more expensive to build and nowhere near as profitable as its normal glasses.

So far, this hasn’t been an issue because the Meta Ray-Bans are not selling at a meaningful enough level to drag down EssilorLuxottica’s overall margin. But if recent trends continue to play out, that may not always be the case. Sources who are plugged into the supply chain tell me that, based on current growth rates, smart glasses shipment volume could easily reach millions of units within the next couple of years.

The newest Meta Ray-Ban model has sold more units in the last few months than the first pair did in two years, EssilorLuxottica CEO Francesco Milleri told reporters in Milan earlier this week. And Meta CTO Andrew Bosworth recently told employees that they are “a much bigger hit than we anticipated.”

For Zuckerberg, the partnership brings something critical to the table for fulfilling his long-term metaverse vision: a manufacturing partner with taste and decades of experience making glasses people want to wear. Meta probably couldn’t spend $5 billion in marketing to get the clientele of Supreme, which EssilorLuxottica just bought for $1.5 billion, to wear Meta-designed glasses. If putting a nice chunk of money on EssilorLuxottica’s balance sheet relaxes the pressure on its margins, so be it.

As I’ve covered already, the second-generation Meta Ray-Bans are a meaningful upgrade from the first version. They work well as a hands-free camera, and the in-frame audio is genuinely useful for taking calls and listening to podcasts. The multimodal AI piece needs work but is already showing more promise than the other AI wearables out there.

The AI piece is why Google’s interest in working with EssilorLuxottica makes sense. Sundar Pichai and his deputies correctly believe that the best form factor for the more advanced Gemini AI assistant the company demoed at I/O this year is best suited for glasses, rather than a phone. Meanwhile, Google abandoned its own glasses hardware efforts last year in favor of a software licensing strategy that is just now gearing up.

The decision before Milleri and his executive team is whether EssilorLuxottica ties itself to Meta going forward or becomes an arms dealer for multiple tech companies looking to take advantage of the coming smart glasses wave. (All the companies involved here are naturally declining to comment on any ongoing talks.)

My sources say it’s extremely unlikely that Meta loses its partnership to Google. For one, Zuckerberg is determined to keep it and sees it as critical to building broad-based acceptance for a future full of AR glasses that he hopes to usher in by the end of this decade.

There’s also the fact that Google partnered with Luxottica (which later merged with Essilor in France to become EssilorLuxottica) way back in the day for Sergey Brin’s Google Glass. We all know how that ended…

For the last couple of years, whenever I get asked what I think will happen to Magic Leap, I’ve said its unfortunate end state is likely being sold for parts. This week, that prediction came closer to reality.

The once-high-flying AR startup laid off its entire sales and marketing division this week, or about 75 people, several sources tell me. (Amazingly, Magic Leap had about 1,100 full-time employees before this.) The new strategy, sources say, is to become a component vendor for other companies looking to build their own headsets.

New Magic Leap CEO Ross Rosenberg didn’t respond to my request for comment on the cuts, but a company spokesperson told Bloomberg they were done “to better align with market dynamics and emerging opportunities.”

Since former CEO Peggy Johnson saw the writing on the wall and bounced last year, those opportunities haven’t been obvious to the people working inside Magic Leap. When Rosenberg came in to take over from Johnson last October, he told employees there was a 90-day deadline to come up with a new company strategy. Those 90 days came and went, and a new strategy was never presented to everyone.

The truth is that Magic Leap has been rudderless since the speculator flop of its first headset in 2018. Saudi Arabia’s Public Investment Fund took a controlling stake in 2022 by committing hundreds of millions more dollars. I’m told the money was structured to be delivered in chunks twice a year based on Magic Leap hitting performance targets it has so far mostly failed to meet.

Sales of the Magic Leap 2 headset came in far below expectations last year, meaning that the sales division only got 55 percent of their bonuses. There’s a sense internally, however, that Magic Leap’s optics technology, including what it hasn’t shown publicly yet, is far ahead of the competition. (Employees working on hardware got 150 percent of their bonuses last year by comparison.)

Now, Magic Leap is working with Google on a modified version of its current headset that will run the Android XR platform. I’m told that device is a glorified developer kit without a clear enterprise or consumer use case. Meanwhile, the cuts this week decimated the teams managing the only revenue Magic Leap had coming in, including millions a year from military and healthcare contracts.

The early hype around Magic Leap can only be matched by the hype for generative AI startups right now. But whereas the bubble already appears to be bursting in corners of the AI world, Magic Leap’s decline has been a slow and painful one. It’s an unfortunate outcome for an early pioneer in a field that will almost certainly become meaningful one day.

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