From the September 2014 issue of Entrepreneur

Boris Sofman was a bundle of nerves. But who wouldn't be? He was about to launch his San Francisco-based startup, Anki, on the most pressure-packed stage imaginable: Apple's Worldwide Developers Conference (WWDC), the annual showcase for the computer giant's latest software innovations.

About 10 minutes in to the WWDC 2013 opening keynote, Apple CEO Tim Cook ceded the spotlight to Sofman, who walked onstage carrying what appeared to be a large, rolled-up poster. He unfurled it across the stage floor, revealing a racing track for toy cars emblazoned with the logo "Anki Drive." An Anki staff engineer placed three 3-inch vehicles on the track, and the toys automatically sprung to life, chasing one another around the oval.

"Realize that each of them is completely driving [itself], and our app is coordinating the entire experience," Sofman told the WWDC audience. "The cars can control their speed, and they steer around the track by doing the same computations your brain does when you drive. They sense where they're located, and they react to their surroundings, all in real time … We are taking all the things we love about video games and programming them onto physical characters that you can actually touch."

Boris Sofman of Anki Drive.
Boris Sofman of Anki Drive.
Photography by Gabriela Hasbun

Sofman exited the WWDC stage to rapturous applause, leaving developers, media and consumers flabbergasted by what they had just seen--and champing at the bit to get their hands on playsets of their own.

Each Anki race car integrates a 50 MHz computer, camera, wireless chip, infrared light and two electric motors, one in each rear tire. Regardless of whether a human gamer or the car's artificial intelligence (AI) module controls the virtual steering wheel, the toy gathers and analyzes binary track information at a rate of 500 times per second, adjusting motor commands and relaying precise data on its prowess and competitive conditions back to the host iPhone or iPad.

Boris Sofman of Anki Drive.
Anki Drive
Photo courtesy of Anki

Boris Sofman was a bundle of nerves. But who wouldn't be? He was about to launch his San Francisco-based startup, Anki, on the most pressure-packed stage imaginable: Apple's Worldwide Developers Conference (WWDC), the annual showcase for the computer giant's latest software innovations.

About 10 minutes in to the WWDC 2013 opening keynote, Apple CEO Tim Cook ceded the spotlight to Sofman, who walked onstage carrying what appeared to be a large, rolled-up poster. He unfurled it across the stage floor, revealing a racing track for toy cars emblazoned with the logo "Anki Drive." An Anki staff engineer placed three 3-inch vehicles on the track, and the toys automatically sprung to life, chasing one another around the oval.

"Realize that each of them is completely driving [itself], and our app is coordinating the entire experience," Sofman told the WWDC audience. "The cars can control their speed, and they steer around the track by doing the same computations your brain does when you drive. They sense where they're located, and they react to their surroundings, all in real time … We are taking all the things we love about video games and programming them onto physical characters that you can actually touch."

Sofman exited the WWDC stage to rapturous applause, leaving developers, media and consumers flabbergasted by what they had just seen--and champing at the bit to get their hands on playsets of their own.

Each Anki race car integrates a 50 MHz computer, camera, wireless chip, infrared light and two electric motors, one in each rear tire. Regardless of whether a human gamer or the car's artificial intelligence (AI) module controls the virtual steering wheel, the toy gathers and analyzes binary track information at a rate of 500 times per second, adjusting motor commands and relaying precise data on its prowess and competitive conditions back to the host iPhone or iPad.

Boris Sofman of Anki Drive.
Anki Drive
Photo courtesy of Anki

Anki Drive reached Apple retail locations across the U.S. and Canada in October 2013. While it won't divulge sales figures, the company did share this tidbit: By mid-May of this year, Anki drivers had logged close to 239,000 miles of racing action, equivalent to circling the Earth roughly nine times.

Anki represents the vanguard of a wave of startups that are bridging the real world with its digital counterpart, leveraging next-generation mobile software, robotics and artificial intelligence technologies to revolutionize old-school entertainment paradigms. In addition to Anki Drive, the so-called "mixed-reality gaming" products include Orbotix's Sphero, a Bluetooth-controlled robotic ball that operates in conjunction with nearly three dozen Apple iOS and Google Android games, and Ubooly's smartphone-controlled stuffed-animal learning toys. These and others are poised to capture shares of both a mobile gaming market that's on pace to generate worldwide revenue of $28.9 billion by 2016, according to a recent Juniper Research forecast, and a global toy market with annual sales in excess of $80 billion.

Sofman and his co-founders, Mark Palatucci and Hanns Tappeiner, started Anki (pronounced "AHN-key"; Japanese for "to learn by heart") in 2008, while students at Carnegie Mellon University's Robotics Institute. The Anki Drive concept evolved during their doctoral research into machine learning and AI, buoyed by a shared commitment to expanding robotics into consumer applications.

Smart cars: Hanns Tappeiner (left) and Boris Sofman of Anki Drive.
Smart cars: Hanns Tappeiner (left) and Boris Sofman of Anki Drive.
Photography by Gabriela Hasbun

"We set out to create a new category of entertainment at the intersection of toys, video games and mobile," Sofman says, and they identified slot cars as the perfect vehicle to realize that vision. Adds Palatucci, Anki's chief product officer: "We love cars, and we saw an opportunity to modernize one of the classic toys of all time."

The team spent five years developing and refining the Anki Drive platform, prototyping the physical cars and track, the underlying robotics and AI and the iOS-enabled mobile application that controls the gaming experience. The result of that effort is the Anki Drive starter kit, priced at $200, which includes two cars, a 3.5-foot-by-8.5-foot racing mat optimized for indoor floors or low-pile carpet, a tire cleaner, a charger and two charging cases. Anki also offers expansion cars for $69.99 apiece, with virtual features such as weapons and power boosts that spring into action as a player follows the game on the iOS device screen; for example, the Hadion Speed Demon boasts velocity upgrade options, while the Rho High-Speed Fortress touts advanced defense shields.

If that sounds confusing--splitting attention between the real cars on the track and the virtual race on a screen--it's likely because you've never experienced anything like it before. And that's the point.

Upping the challenge is the fact that the more time players spend playing, the more the AI learns and evolves. "Every single car is different," says Tappeiner, Anki's president. "They develop over time. You can upgrade them, and you can choose different levels so that the cars become harder to race against. Even when two people buy the same car, the way they upgrade them over time makes them very different, because the chances of upgrading them the same way are virtually zero."

Hanns Tappeiner of Anki Drive.
Hanns Tappeiner of Anki Drive.
Photography by Gabriela Hasbun

Anki Drive's capacity for growth and change over the long haul is what sets it apart from everything else in the toy store--or the App Store, for that matter. "There's always been a notion that when you buy a toy, that's what you get. That's what it's always going to be. A kid uses it for a few hours or a few days; then, when [they] don't like it anymore, you put it in a closet and go buy something else," Tappeiner says. "We believed you could use robotics and AI and software to change that, and develop something that evolves over time."

A toy that never bores has attracted investors--Andreessen Horowitz and Index Ventures among them--that have pumped a reported $50 million into the company, with the idea to spread Anki's technology beyond games. "From the very beginning, it was not just about race cars. Anki's about a platform for programming physical characters with emotion and personality," Sofman says. "Robotics has the ability to come into almost any product category and reinvent it, because it adds intelligence to something that was not intelligent before."

To get an idea of how mixed-reality gaming can move beyond simple competitions, head to the New York City offices of Tiggly, which creates learning games and products for toddlers.

Tiggly learning games and products for toddlers

 

Tiggly learning games and products for toddlers
Photo courtesy of Tiggly

The thermoplastic rubber Tiggly Shapes are durable, safety-tested toys complete with silicon touch points that interact with a tablet screen via patent-pending technology. Targeted at kids ages 18 months to 4 years, Tiggly Shapes can be combined with free iOS games like Tiggly Safari, Tiggly Stamp and Tiggly Draw to hone spatial reasoning, motor skills, language and creative thinking.

The toy is the brainchild of CEO Phyl Georgiou, who partnered with chief learning officer Azadeh Jamalian, who has her Ph.D. in cognitive studies in education at Columbia University, and COO Bart Clareman. In 2013, the team set out to connect the toddler set to mobile tech and supercharge learning.

Expect more: Phyl Georgiou touts Tiggly toys as interactive learning tools.
Expect more: Phyl Georgiou touts Tiggly toys as interactive learning tools.

If it seems strange to give a 1-year-old an iPad to play with a plastic triangle, consider that 38 percent of Americans younger than 2 have used a mobile device, according to a study issued in late 2013 by Common Sense Media.

"The iPad is changing the way young kids are playing and experiencing the world," Georgiou says. "But there's a gap in the quality of apps for these kids. We saw Disney, Mattel and Hasbro making physical pieces to interact with iPads, but no one was doing it in an educational way."

Tiggly Shapes hit retail in October 2013, priced at $29.95 for a set of four shapes and three games. In addition to the Tiggly site, the Shapes kit is available in more than 350 Apple stores on four continents, as well as through Amazon and smaller retailers that specialize in educational toys. Georgiou declined to divulge sales figures but says kids have played Tiggly apps more than 700,000 times.

Tiggly learning games and products for toddlers
Tiggly learning games and products for toddlers
Photo courtesy of Tiggly

According to Georgiou, the biggest hurdle to selling more units is overcoming mom and dad's vision of Tiggly becoming yet another pricey toy that gathers dust beneath their children's beds. "Parents have a really low standard of expectation for toys, and they're surprised when the kid uses the toy for a prolonged period, rather than expecting they'll use it for a prolonged period," Georgiou says. "We as a company have to fight that and say, 'You should be expecting more from toys. Toys should be able to last more than a month.'"

At Physical Apps in Hollis, N.H., the company name says it all. Its signature product, TheO SmartBall ($40), a foam toy ball with a cushioned viewing port and safety strap that securely fastens Apple and Android smartphones inside, enables a series of movement-based game apps such as Hot Potato and Sing & Dance. Players roll, throw and bounce TheO, and Physical Apps' games leverage the device's accelerometer, gyro and compass to trigger motion, sound effects and music.

Tech veteran Bob Houvener and sister-in-law Michele Hermsen, a full-time schoolteacher, founded Physical Apps in late 2011. Rick Malagodi, a longtime consumer-goods executive and consultant, joined as CEO in spring 2012. The team worked with developers for about two years to refine the SmartBall, going through seven iterations before coming up with the finished product, which weighs in at just over a pound and has a circumference of 8 inches.

"We took a very generic approach: The ball doesn't skew boy or girl, and it doesn't skew demographically or age-wise," Malagodi says. "That's why it's a ball, the most fundamentally interactive plaything out there."

Malagodi wouldn't share sales figures, but he claims that after a TV station in Columbus, Ohio, featured TheO SmartBall as part of a holiday shopping showcase last winter, consumers ordered 2,000 balls in two hours.

Aiming high: Rick Malagodi and his team at Physical Apps believe TheO SmartBall has potential beyond the toy market.
Aiming high: Rick Malagodi and his team at Physical Apps believe TheO SmartBall has potential beyond the toy market.
Photo left courtesy of Physical Apps. Photo of Rick Malagodi © Whit Wales

That's impressive, but it's Physical Apps' possibilities outside the toy market that showcase the future of mixed-reality gaming. Malagodi says the firm is collaborating with Canadian researchers on apps designed to aid physical rehabilitation in adults, with programs that could help stroke victims refresh their motor skills or software that could alert physical trainers if patients fail to adhere to their regimens. The company is also working on games for developmentally and physically challenged children.

"We want to transform digital engagement into something physical and social."
--Rick Malagodi, Physical Apps

"With real-world activities, we have the benefits of socialization and physical engagements, but we've gotten away from that because the digital world is so compelling and addictive," Malagodi says. "What we want to do is combine those collaborative and competitive activities with the digital tools that people love and transform digital engagement into something physical and social."

It remains to be seen whether Anki, Tiggly, Physical Apps or some other startup becomes the breakout hit that drives the mixed-reality revolution, but everyone involved sees it only as a question of when, not if, the category produces its first multibillion-dollar hit. "This is still a niche industry right now, mainly because it's so hard to communicate to the customer what it is the product does," Tiggly's Georgiou says. "But the retailers we talk to are really excited to see what it looks like on their shelves. As consumers get used to this connected-play concept, it will become a mainstay. It's only a matter of time."


Getting In on the Action

Unlike the walled-off technology of old-school video games, the SDKs of mixed-reality startups are opening doors for third-party developers

You don't need a robotics degree to develop products like Anki Drive, but it helps. Boris Sofman, Mark Palatucci and Hanns Tappeiner all graduated from Carnegie Mellon University's Robotics Institute, and the system's cutting-edge, mixed-reality racing gameplay draws on their years spent studying artificial intelligence, machine learning and software development.

But while Anki's founders had the chops to develop the platform, they're smart enough to realize they may not be the best game creators. "We've always seen the technology we're building as a platform," says Palatucci, Anki's chief product officer. "There is an incredible amount of software in the physical vehicles themselves, and we want to give other people the ability to write their own apps and games that take advantage of all the work we've done."

The Anki Drive software development kit (SDK), issued in beta in early 2014, supplies prospective partners fluent in the C and Linux programming languages with resources to connect to vehicles and command them to drive at designated speeds, alternate lanes and change LEDs. Subsequent releases will expose additional interfaces.

Meanwhile, Physical Apps, the startup behind the iPhone/Android-controlled TheO SmartBall, plans to issue its SDK this fall. "It's entirely possible the killer app for us may be developed by a third-party game developer," says CEO Rick Malagodi.

Malagodi notes that piggybacking on an existing product like TheO is a way for aspiring developers to gain attention in the densely crowded mobile game marketplace. "When you start marrying apps to our product, you're competing with maybe 50 or 100 apps, not hundreds of thousands," Malagodi says. "The independent developers we're talking to love the idea, because if they create something compelling, it won't get lost in the mix."

Physical Apps has revenue-sharing models and other procedures for building a developer ecosystem. If TheO SmartBall hits big, the company's partners could be poised for a windfall, Malagodi believes. "When people invest $40 in a ball, it's likely they'll be willing to spend money to download a third-party app that extends the life of that ball."