The World Leader in Eye Tracking Technology
Elon Musk is not someone you would consider to be daft, yet he thinks there is a one-in-a-million chance that we’re not in a simulation right now. It’s an idea that’s not that far-fetched. Most of us already believe that there is an Almighty Creator who made everything around us what it is. “And on the seventh day, the creator booted up the simulation,” and here we are. Our windows into this simulation are our eyes, and 80% of all our memories are determined by what we see. That’s according to the Discovery Eye Foundation, which goes on to say that 80% of what we learn is through our eyes, the second most complex organs after our brains. A single eye contains more than 2 million moving parts, and the entire apparatus is connected to our brains with over 1 million nerve connections. The ability to see where someone is looking is critical to human communication, with dogs and humans being the only two species that take cues from eye movements. Those eye movements are also how one Swedish company makes their bread and butter by selling eye-tracking technology. (All below numbers in USD.)
Eye-tracking technology makes it possible for a computer or another device to know where a person is looking. An eye tracker can detect the presence, attention and focus of the user, allowing for unique insights into human behavior – Tobii
The World Leader in Eye Tracking
Some people say that the way you can tell a Finnish guy is an extrovert is that he’ll look at your shoes instead of his own when he’s talking to you. Where someone looks when they speak or interact with the world can tell you a lot about what type of person they are, or how people will interact with various environments, and consequently “eye tracking” technology is actually used in a lot more applications than you might think. The world leader right now in eye tracking – at least based on overall market share, technology leadership, and patents – is a Swedish company called Tobii (TOBII:SS) that had an IPO in April of 2015 that raised $46 million putting their total funding today at nearly $122 million and giving them a present-day market cap of around $320 million. We first came across the firm while attending the SpaceCom 2018 Expo in Houston last month at which some blokes from Tobii were in attendance. They piqued our interest, so we dove into their latest annual report to learn more about the company.
Applications for Eye Tracking Technology
The majority of Tobii’s revenues – around 63% or $79 million – come from this business unit which focuses on “assistive technology for communication.” Tobii Dynavox has more than 40% of the total market for assistive technology for communication and about 75% in eye-controlled products. Solutions such as eye-controlled computer access allow people to navigate computers using only their eyes. Just a few months ago, Tobii acquired Smartbox, a leader in assistive technology with a strong presence in the United Kingdom. Some of the stories coming out of these technology products are truly amazing, like the case of Felicia Bowers. At just five months old, Felicia was diagnosed with cerebral palsy. She uses Tobii technology to communicate, but that’s not all she uses it for. Turns out she’s also an artist who draws with her eyes – portraits like these:
She’s making some coin too, with one of her artworks recently fetching $14,000 at a gala auction. Prior to this technology, Felicia’s early abstract paintings were done with a brush between her toes, guided by her foot. Sometimes she painted moving a brush attached to her head or neck.
The second business unit – and the one that generates 27% or $33.5 million in revenues – is Tobii Pro, largely consisting of eye-tracking solutions that “provide researchers and companies worldwide with unique insights into human behavior.” Remember how we talked earlier about Finnish extroverts? Well, it’s not just shrinks that observe where people look to gain insights. When it comes to academic use cases, areas of research that use this platform include psychology, behavioral sciences, ophthalmology, and neurology. On the commercial side, suppliers of eye-tracking services use the platform to service end customers that include brand owners, ad buyers, e-commerce companies, website owners, software providers, industrial companies, professional sports teams, and simulator operators.
The platform includes eyeglasses that track eye movements while subjects are looking at things, an ultra-fast tracking solution which captures eye movements 1,200 times per second, and software to run the whole thing on.
While this last business unit may only generate 10% of the company’s revenues – about $13.38 million – it’s where nearly 57% of the R&D spend is going. That’s because the Total Addressable Market (TAM) for what the company calls “volume products” is simply massive. Here are some examples of where Tobii’s eye tracking technology might see adoption across large market segments:
As an investor who may be a bit underwhelmed by Tobii’s fundamentals today, this is where you would look for the growth opportunities of tomorrow. Tobii’s vision is for the majority of computers, VR and AR headsets, smartphones, and vehicles to be equipped with eye tracking in the future. When it comes to virtual reality (VR) use cases, two words come to mind: foveated rendering. This is all about reducing the bandwidth required for virtual reality headsets such that they require only 25% of the resources you would otherwise need by simply rendering what the person is looking at directly as opposed to the entire scene. (We suspect this is how the creator was able to make the simulation we’re in today so realistic without having to upgrade his or her galactic bandwidth plan.)
While some of Tobii’s solutions may sound altruistic in nature, this company is out to make a profit. Based on last year’s numbers, the only business unit that wasn’t profitable was Tobii Tech, a business unit where they’re currently investing heavily in order to meet the sharply growing demand for virtual reality solutions:
Money continues to pour into R&D as Tobii stay ahead of the game by establishing a dominant position in intellectual property (IP), with a portfolio of eye tracking-related patents that eclipses companies like Microsoft, Google, Samsung, and Sony. Provided they can continue to raise cash to fund their R&D efforts, they may be able to build a large enough (IP) moat around their company such that they begin to look like an attractive acquisition candidate to a much bigger player.
Tobii isn’t alone when it comes to making a business out of eye tracking applications. We published an article titled Eye Tracking, Foveated Rendering, and SensoMotoric which talked about a privately held German company called SensoMotoric Instruments (SMI) that’s has been developing eye & gaze tracking systems for the last 20 years. (Update: Tobii dropped us a note to say that Apple acquired SMI in June of 2017.) The below graph also shows other companies that compete with Tobii:
When it comes to investing in small-cap foreign-listed stocks, many sound good on paper but then disappoint over time for reasons unknown. Just ask shareholders of Isra Vision how they’re feeling this past week as company shares plummeted for no apparent reason. Lack of information is something that will sometimes plague smaller foreign companies, as institutional investors move in and out of these stocks for reasons unknown.
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