When you’ve been a journalist on the XR technology beat for 20 years, like VentureBeat’s lead writer Dean Takahashi has, you develop a hunch or two about the direction the industry might go. Alan picks Dean’s brain for a few such scoops.

Alan: Thank you for joining the XR for Business Podcast with your host, Alan Smithson, today’s guest is the one and only Dean Takahashi, the lead writer for VentureBeat. He’s been a tech journalist for more than 28 years, and he’s covered games for a twenty one of those years. He’s authored two books: Opening the XBox, and The XBox 360 Uncloaked. He organizes the annual GamesBeat and GamesBeat Summit conferences. To learn more, you can visit games beat dot com or venture beat dot com.

Dean, welcome to the show, my friend.

Dean: Thank you. And thank you for having me.

Alan: It’s my absolute pleasure. We had the distinct opportunity to meet at AWE this year for a very short amount of time. I think we rode the escalator down? But I’ve been a big fan of yours for a long time. I read the articles that you write, and they’re very insightful. They’re very factual. I’m just very honored to have you on the show. So, thank you very much.

Dean: Thank you. Nice, and happy to hear.

Alan: How did you start… first of all, I guess you’ve been in the games world for a long time. How did you kind of pivot over to VentureBeat, and what is VentureBeat? Let’s let’s unpack what VentureBeat is, for people that may or may not know?

Dean: Yeah, I was sort of a traditional newspaper and magazine journalist for a long time, and then, when the web came along and people started podcasting and blogging, I looked around and felt like it was less of a risk to go try something new than it was to stay at a newspaper. I was at the San Jose newspaper at the time. So about 11 years ago, I joined VentureBeat, and it had been started two years earlier by Matt Marshall, who was a venture capital writer for the Mercury News and an early blogger as well. And so, we were a tech news blog and competed at the time with likes of GIGO, and TechCrunch. They have been either… gone away, or they they’ve been acquired by larger companies. So we’re still one of the last, larger independent tech blogs.

And then within that, when I joined about eleven years ago, we started GamesBeat as well, as sort of a subsection that focused on games. At the very beginning, we were sort of a startup and venture capital site. But now we pretty much cover the gamut of tech news and game news. And then, our particular vertical focuses are artificial intelligence on the tech side, and then the whole game sector. And then, I guess as far as getting into VR and AR, I’ve really followed the news. I remember seeing the Oculus guys — Palmer Luckey and Nate Mitchell and Brendan (Iribe) over at one of their CES tables in the early years, well before they were acquired. I think I even tried to get an interview with John Carmack, like, the day after he did a demo at E3. The next day, he was gone. So I was on the hunt kind of early. Never quite the absolute first person to dive into VR.

Alan: But very close. You’ve seen it from pre-DK1 days — where [it was] probably a cobbled-together a collection of flat screens, wires, and duct tape — and what it is today, where you have real consumer-grade virtual reality that’s not even connected to computers. You’ve seen a lot over the years. You’ve written countless articles on virtual and augmented reality. Is there anything that you may have written about before that you couldn’t have predicted, that has happened already?

Dean: I didn’t really anticipate that Enterprise was actually going to take off as well as it has. It was always sort of there as something that might be a market someday. I expected, like everybody else, that consumer VR was going to catch on. Wasn’t sure how big it would be, but it would catch on first, and then all of the other markets that people were talking about would fall. It sort of seems like t slower-than-expected acceptance of consumer VR in reality has sort of paved the way for bigger opportunities on the enterprise side. I think there were people early on, like the folks at Sixth Sense who have the hand controllers. They were talking about there are a wide variety of things you can do with these hand controllers for VR. It didn’t seem like their main efforts. They really wanted to have success in games, in VR or in other kinds of consumer VR apps. It so happened that that was slow to take off and they started pivoting and looking around for other things they could do. They found medical companies that were more interested in how precise those hand controllers could be, so they started doing demos, like a virtual catheter insertion and other kinds of medical training demos.

Alan: And it’s interesting that you say that, because I actually did the Sixth Sense demo a couple years ago, of the catheter thing. And that was with controllers. Then this past weekend, I tried the HaptX gloves. Have you had a chance to try those?

Dean: I’ve tried some haptics gloves. Which ones in particular?

Alan: “HaptX.”H-A-P-T-X, the ones that have air–

Dean: I’ve trained theirs, but I haven’t tried that particular demo.

Alan: deprecatingOh, the one I tried was just incredible. This was a surgical demo where I reached out and I could touch the patient, and I could pick things up. And, wow. Being able to physically pick things up in VR, it adds a whole new element. It was really incredible.

Dean: Yeah. Certainly.

Alan: I did a presentation last week and there one of the slides I put up shows the growth of the whole XR industry, and consumer was leading the way. And then, as of 2019 — by the end of this year — they’ll kind of cross. And consumer will keep growing, but enterprise is growing much, much faster; 30 percent faster than consumer. Is that what you’re seeing across the board?

Dean: Yeah, I think. I mean, it sort of makes more sense to me that, as long as the prices for the headsets are lingering up pretty high — like the Cosmos from HTC, the brand new one, it’ll be an $800 purchase. And even the Oculus Quest is at $400, and they seem to be the $200 Oculus Go. They’re not getting good enough for the consumer price points to get traction. And so the enthusiasts are buying a lot of these headsets now, but there’s a limited market and limited appetite. Once you get down towards where the consoles used to be — like a $100 or $200 prices — and the opportunity becomes much better. And so, yeah, if we have these $400-$1,000 prices on these headsets, who’s going to buy them, right? Well, I guess if you look at who’s going to save money with these headsets, then that’s a more interesting equation for all the enterprises. If they’re going to spend… I think there’s a hospital in Los Angeles that was spending $400,000 a year training doctors on how to how to spot particular problems with young babies who were having seizures, and one of the VR companies created the simulation to do this in VR, and to train the doctors and to have things in it, like parents who were panicking and screaming at the doctor while they’re trying to figure out what’s going on with the kid. And it turns out these these are very effective, and they can save that particular — just one — hospital, hundreds of thousands of dollars a year in training expenses, because you’re not now dedicating veteran surgeons and doctors to do this kind of training work. Instead, you can do so much of it in VR. And I think that was sort of reinforced at Oculus Connect 6, when Johnson and Johnson announced that they were going to try to roll this kind of training out to doctors around the world.

Alan: Covering the so-called “venture beat,” you’re also seeing investments going into this; we’re already starting to see some early investments in AR and VR that are… well, failing. We just saw medha and Blippar and the most recent one, which was… well, even ODG. There’s been a number of kind of false starts with this technology. And it seems to me that timing is a big issue. What are your thoughts around timing of this industry? You’ve been covering it since the very, very beginning. If you were to put your investor hat on and put money into something, where would you invest your money now?

Dean: I defer that question to a bit later. But I think first that is sort of talking about what’s happened. We had predictions that we were going to see a gap of disappointment for a few years. John Riccitiello — the CEO of Unity — was one of the first to point out that there was going to be this great sort of gold rush of people who were going to overhype VR and its potential, and then we’re going to see this gap of a disappointment where the early reality didn’t match up with the hype and a lot of people were going to bail on it. And that tends to happen in almost every industry; every tech industry in particular. But I guess the question is always whether the platform in question gets enough traction in order to survive that gap of disappointment, and to go on. And just as platforms had to plan for this, I think also a lot of the developers have to as well — the game developers — and the venture capital funds. There were a number of venture capital funds that came out with a specific focus on VR, and VR games in particular, and they’re pivoting elsewhere as well, because they are not seeing the returns that they had hoped for. Boost VC would be one of those, I think.

And I think that some of the companies that I’ve seen doing pivoting include Playful, founded by Paul Bettner — they made Lucky’s Tale game for the Oculus Rift. It was the flagship title that the Oculus Rift launched with, and it did well enough there, but Playful saw enough writing on the wall, where they raised a lot of money during the good times and they didn’t spend it all. They got sort of ready for–

Alan: The other writing on the wall.

Dean: Right. Yeah. And they also then adapted Lucky’s Tale into a game called Super Lucky’s Tale that ran as a regular, traditional 2D screen, 3D graphics title on the XBox One. And then they spread to other platforms, like the Nintendo Switch is coming shortly. So so they invested all this money in creating a new intellectual property for virtual reality, and it made as big a splash as it could with just a few million units in the market at the time, and if not even that. Then they repurposed that IP and put it into things that had 50-million-installed base. That’s generating more money for them. And it’s a smart way to invest in VR, is when you’re not completely reliant on the VR revenues. The shadows were adaptable to other 2D screens. That was great. And those guys are still alive today. And they were they raised another $23-million round.

Talk about pivoting, though; they’re not talking anymore about doing a lot of flagship VR titles. They’re saying those are still happening, but they are moving towards the backburner, and they are creating more traditional titles in the meantime, again, getting ready for a slower burn.

Alan: I think that’s a really wise approach. But you’ve got companies like Blippar, who raised $110-million, and their last round was something like $30-million. And they burned through that in four months. How do you burn through $30-million in four months? I just… I can’t even!

Dean: That’s crazy.

Alan: I think pragmatism — being able to take the money that you raise and make it last — I think a lot of companies, a lot of startups anyway, raise money… I went to this talk the other day, and this guy was telling me, “oh, we raised $10-million,” or whatever, and he goes, “we spent half a million dollars in the first day, on furniture and stuff for the office. Looking back at the money we burned on dumb stuff, we could have been so much more successful if we had not.” Because once a VC hands over the money, they’re not leaning over your shoulder saying, “what’d you spend it on?” They’re saying, “run your company as effectively as possible.” And I don’t know that buying half a million dollars in furniture is the best use of funds. But I think people need to be pragmatic with their funding, and respect that every dollar counts, especially in emerging technologies.

Dean: And I think more critical are these more foundational companies, like Facebook and Valve and HTC. Now, what are they doing? Do they still believe in it? Are they putting their money where their mouth is still?

Alan: It seems like it.

Dean: That’s an interesting question.

Alan: It seems like it; it seems like they’re still investing. Facebook is still investing in Oculus, obviously. And there’s still lots going on in that. But we’re starting to see enterprise use cases pop up all over the place. I know you wrote an article on PTC and GlobalFoundries using AR to transform chip manufacturing. These enterprise use cases which are driving real ROI — I mean, if you listen to any of the episodes on this podcast — it really drives home the fact that things like training are driving real ROI. Things like remote capture assistance, and being able to use AR to overlay instructional manuals on top of things, decreasing the time to train for people. These are real measurable ROI components, and they’re really driving this industry forward. If companies raise money now — the end of 2019/2020 — I think it’s the perfect time, because we’re only just starting to see these real ROI-driven things come out. And once that starts to catch steam, every company in the world is going to have to have an exit strategy. If they don’t, then they’ll just get left behind like they did in the days of the web.

Dean: Getting back to the platform owners, I think if you look at HTC and some of the things that they’ve done… you know, they did an eye-tracking version of the HTC Vive here.

Alan: The VIVE Pro Eye.

Dean: Yeah. And the question is, why would they do that? Right? If the consumer market isn’t exactly demanding that? That would be useful for things like advertising, to see if the user actually looks at an advertisment that is in a VR app. That’s very consumer-oriented. But they really did that more for the enterprise market and training. Right? If you can confirm to the companies that’s doing the training that the user looked at something, saw it, and grasped it or understood it — or completely skipped it — then you have a much better idea of whether your your training is working. So it’s actual feedback that’s necessary for this training. It’s an expensive technology. It makes the Pro Eye more expensive than the other HTC offerings for sure. But they’re doing it because they realize where the money is right now.

Alan: I think Oculus is rolling out Oculus for Business. Or is it Oculus Enterprise? Or… it’s Oculus for Business.

Dean: Oculus for Business, yes.

Alan: HTC’s got their enterprise division. Hololens is all in on enterprise. And then even Magic Leap, I’ve heard rumors that they’re going to be introducing an enterprise division, or an enterprise something. So a lot of people got in and said, “hey, we’re gonna make games,” and then, “maybe we should make training simulators or something like that.” I think there’s been this shift… you’ve seen waves of these new technologies come and go, and become established. What, in your opinion, is a timeline looking to have ubiquitous AR or VR, pervasive in the world?

Dean: I think if we look back at something like the iPhone/smartphone in general, and look at those app stores and how they developed, we would see that games led the way. And very fairly — six, seven years in or so — I was looking at a lot of analytics reports and they were saying that 80 percent of the revenue of the app store was game, and half of the usage was games. And I think the thing that really got traction and really took off with users with games. And that allowed the platforms to just continually expand with new things for consumers to embrace. You always need some kind of lead horse, you know, a lead application — or a killer application — that’s going to take off in it. And this case with VR, starting in 2016, everybody thought it would be games again. And we have something like Beat Saber, which had more than a million downloads. But it’s not quite the same way; it’s happening in such a large sort of growth curve now that you can make that same comparison. It’s good for VR to look for all these other different applications. I think training will be big. I think the hazards of enterprise include… there are some companies out there that are really big fish, and you can spend a lot of time going for them, but sometimes they don’t bite. And if they don’t bite, then you’ve spent all of this time and effort customizing some kind of application for them, and they’re not enthusiastic. You don’t hear that happening too much. I think I hear that, when there are big efforts to come up with a good enterprise app for training purposes, then that works well. I think it just is a longer sales cycle.

Alan: One of the other business use cases that I’ve seen that starting to catch traction is interactive ad formats, where you can try on a pair of glasses, using face filters and stuff like that to try and glasses or makeup. I know L’Oreal purchased a company that was doing face filters for makeup so you could try and lipsticks and eyeshadows, that sort of thing. The ability to use the device that’s in everybody’s hand — if we take a step back, that’s still considered AR. I think that’s one of the killer use cases. I know if you go to Walmart.com/Lego and then click “see it in action,” you can actually, just directly from the website, you can project a Lego set on your table. It sounds really awesome, and it is — it’s really fun and exciting — but what it really gets down to it is they’ve shown the increased sales by 25-150 percent using just web-based interactive tools. They’ve doubled and tripled sales conversions. So, mobile phone-based AR is not to be forgotten about either. Even though we’re talking about glasses and headsets, sometimes the lowest-hanging fruit is… there.

Dean: I think there’s also some lessons in this. Some of the companies trying to go out too early — castAR is a good example of that. Jeri Ellsworth and Rick Johnson started that over at Bell. Bell decided to go with Steam VR and VR, instead of AR. And so they spun it out as a company called Technical Illusions, which then became castAR. They had a pretty good Kickstarter campaign that raised some — a lot — of money to do a consumer AR game platform, consumer application platform. They did that. Then the VCs came in for the next round and said, “hey, why don’t we just totally repurpose some of this plan for the enterprise?” And it was a pivot that represented a lot of the good thinking that we’ve been thinking about and talking about here. But, you know, their particular solution did not resonate as well with others in the enterprise space. They raised $15-million. They tried to raise more. They expanded greatly. They hired a lot of people. They ran out of money. So then, they went bankrupt. Jeri Ellsworth went back and, with some other employees, bought it out of bankruptcy. And just last week, they started a new Kickstarter to return to the technology — the AR platform — to tabletop games; digital games and AR. And so that’s a case study, I guess, in how things can go the opposite direction at some sort of conventional wisdom.

Alan: When venture capital gets involved, they can skew or sway the entrepreneur’s direction. It sounds like Ellsworth and their team were really focused on games. And to take a team that is really passionate about games and pivot them to enterprise? That doesn’t seem like a recipe for success to me.

Dean: Yeah. And you know, she was fairly open about saying that she’s being very careful about any particular deals that investors approach her with now, and that she thinks it’s a good thing that she remains CEO for this venture, and the previous venture,.

Alan: I agree. It’s interesting. Until a company as real scale… re:Work is kind of replacing their CEO right before the IPO and stuff. But until a company has reached a level of maturity where they’re making recurring revenues and they’re growing and they have a solid ecosystem and everything, I think it’s a real disservice to the company for the venture capitalists to either replace the CEO or try to direct the CEO in a different way. And we see it time and time again. You see these companies… like Jaunt, for example. Here’s a prime example. Jaunt was a content studio and a camera maker. Then they got rid of the camera and they said, “we’re gonna make a content platform.” Then they got rid of the content platform. “We’re going to make volumetric capture of people.” And recently they just got bought by Verizon. But I mean, they raised $100-million; Verizon probably bought them for pennies on the dollar. There’s a company that pivoted six or seven times with investors’ money.

Dean: Exactly.

Alan: I actually wrote an essay on why Blippar failed. And Blippar raised an enormous amount of money on a huge valuation. But they — in my opinion, from what I read — they were trying to boil the ocean. They were trying to be a computer vision company, and an AR company, and a marketing agency, and a dozen different things to a dozen different people. That’s just very difficult when you’re dealing with huge problems like computer vision and 3D object recognition. That one problem is very hard to solve. They’re trying to solve that on top of another dozen things, and none of them were making any money.

Dean: And I think the VR companies out there are probably quite familiar with the problem that the VCs in Silicon Valley often behave like the people on the HBO show “Silicon Valley.” Just ridiculous outcomes.

Alan: “I need billionaire doors. They don’t open up like billionaire doors!” [laughs] But that show is so close to reality. It’s crazy.

Dean: Yeah.

Alan: I’ve spent a lot of time in the valley, as you have. And you’re looking at it like, “wow, you can actually nail the personas of the people in this show.” It’s wild. There’s starting to be this shift away from venture capital; for one, venture capital companies in general are not returning anywhere near the returns that they once were 20 years ago. And so there’s there’s that, but also, family wealth offices — family offices who provide the capital, so endowments and family offices that provide the capital to venture capital companies — they’re starting to say, “you know what? Rather than pay the 5 percent management fee, why don’t we just invest ourselves?” And so you’re starting to see family offices acting like like venture capital funds. And then, of course, a year or two years ago, you had this kind of crazy blockchain crypto space where everybody and their brother was doing an ICO, and you billions of dollars being raised from nothing. And obviously that crashed and burned. I think VC is not the only funding source in town anymore. And that’s really changing the landscape a bit.

Dean: I think, in the case of VR — to go back to the funding — that comes from the platform owners, and Facebook in particular. And, you know, Mark Zuckerberg was on stage, saying that he still believes in VR as the next computing platform and that they’re investing in it because they feel like they’re in the early days of the P.C., and just see how how big that became. They think that this is going to be this big. And I think Zuckerberg at one point said they invested $250-million in a lot of the early applications, and they’re going to invest another $2-million. And he announced that they recently crossed over $100-million in sales in the Oculus store. Well, if you put $500-million in, and you get $100-million in revenues out… that’s not a win, right? That is an indication of just how much work there is to do here. And while it is encouraging to see that $100-million, a company like Facebook has to just really stay in this for the long haul, beyond the point where it seems like the market has jumped the shark and VCs have all left, other investors cited, “we’re going to stay away from this.” A lot of developers, early developers, have dropped out and have gone elsewhere. But Facebook has to stay the course. And so far, it seems like they are spinning up these things like Oculus for Business. And so my hat’s off to them for that kind of investment. And if I were to compare to something like a similar opportunity, it was back in the beginning of the XBox when Bill Gates was looking at this. He had the gigantic operating system business. He had a monopoly with Office. And here he was trying to enter the video game business with the XBox back in 2000. And they lost something like a billion dollars per year in that first four years. They lost about $4-billion on the original XBox.

Alan: Wow.

Dean: You flash forward from that to 19 years later, and every quarter now, they’re generating something like a couple of billion dollars in revenue from the XBox. Vision, right? It took someone like Bill Gates to say, “hey, you know what? I got the billions of dollars, I’ve got a lot of cash. And, you know, this might not turn out in the long term. I think I’m right that I should stay the course in this investment.” And it turns out that he had the most foresight out of anybody from those days, that this was going to be a great thing. And now, to this day, I think it remains Microsoft’s best pivot ever.

Alan: Have you been to the Microsoft campus? It’s funny because you go there and there’s 50 buildings, they all at the exact same. There are three storey gray buildings. There’s no and then you get the XBox building, and it stands out like this totally different building. And you walk in. It’s totally different. It’s not your drab, beige Windows building, or Microsoft Word. And then you go into this building and it’s like it’s just alive. And there’s games and people. It’s just neat how they built a subculture within the Microsoft culture. And it’s almost like they had to kind of keep them separated. And if you look at the buildings the way they’re designed, that is a separate building. It’s a separate entity. It’s a separate everything. And I think they really made a long bet, but it’s obviously paid off. And I think Facebook betting on VR is going to pay off. I don’t know about Magic Leap yet. As long as they can keep their $4-billion raised — or whatever they are up to now — as long as they can keep developing as fast as possible, but keep their powder dry for the long term, they’ll do fine.

Dean: Yeah

Alan: But companies that are raising… like, Blippar raised $130-million or whatever it was. I mean, it’s crazy to see how much money is being tossed into some of these things. It blows my mind.

Dean: I think that it really comes down to how you define your investment horizon.

Alan: Yes, exactly!

If you’re a Blippar investor — or you’re the Blippar CEO — and you say five years: in five years, you can get all your money back and more, right? Uh–.

Alan: Dean, I think you nailed it here, because setting proper expectations for your investors, I think, is essential. Now, more than ever, because there are things that will deliver 10x, 100x value in a very short amount of time — two, three, four years. AI is already delivering value beyond anybody’s wildest imaginations. But certain things take time. You’ve got to build the ecosystem. You’ve got to build the product. It’s no longer a technology problem. We have technologies that create real value in enterprise. It’s an adoption problem. You have to factor in the fact that selling this stuff is hard. You go to a company and say, “hey, you’re going to increase your training time by 50 percent.” They’re like, “yeah, we’ll try next year.” Somebody who’s getting into this and just raising capital and going and making promises to investors that can’t be kept. I think that’s the key is just… and trust me, I’m guilty of it. I think everybody who’s ever raised money is guilty of it, because every investor wants to see that beautiful hockey stick growth. But at the end of the day, that hockey stick comes over a 10 year period. It doesn’t come in a year or two.

We’ve had a great conversation around investment and we’ve had a conversation on games and the enterprise and VR. What do you think is the next big thing around the corner? Let’s look out five years. Do you think Apple is going to come out with their glasses in the next five years?

Dean: Yes, I definitely think that’s going to happen. There were some hints that they had something ready to go with the last the press event. But for some reason, they didn’t flip the on switch and didn’t announce it. And I think they’re also running into the same problem that everybody else is; that you can do a lot of good engineering here, but you can’t rush some of these technologies that are very fundamental. Can’t rush Moore’s Law.It proceeds on its own pace and it has to wait for actual inventions to happen. And so while they would, I’m sure, have liked to do it a lot sooner, I think the notion of doing lightweight glasses that fit on your head and wirelessly connect to your phone or cloud? I think that technology is on the cusp. It is not not quite here yet. You know, throwing in a lot of processing power that’s necessary on those glasses that it’s going to be a lot of work still. And when you look at people who are sort of loading up a lot of technology into these headsets they’re down a couple of headsets, and they’re done. So, you think Apple Apple would do this? I think they also see that what they have to do has to reach the mass market, and they don’t necessarily want to start with something that’s going to be a niche product.

Alan: I couldn’t agree more. And I think, if watching Apple’s previous releases is an indication, they’re going to build the ecosystem with ARKit and let people develop on the phones. They’re going to make sure that the device that they ship is rock-solid and ready to go. And of course, I think it’s going to run wireless to your phones. Your phone will be the compute power, but the glasses are there. But I also thought it was going to be maybe 2024-25. I think the date might be 2022-23 release. So, we’ll see.

So, what problem in the world do you want to see solved using XR technologies.

Dean: Well I suppose everybody answers that they want to see the Star Trek Holodeck. Right? I want to see that happen too.

Alan: we’re getting close!

Dean: We sort of got these hints of the technology that is going to be really good with the hand tracking that Facebook showed at Oculus Connect 6. I tried that demo out, but my hand kept going through all of the objects in space that I was touching or trying to grab. And I really do want to have that actual force feedback tell me that that’s the object; I don’t have to move my fingers any more, or any further. I think that’s another big hurdle for VR solve. And if they solve it, then we can move forward. Hand tracking is a kind of universal input system. And then get rid of the controllers and like Zuckerberg said, then we’re left with basically just a headset. It’s no wires or straps. No things in your hands. And that will make the technology so much more accessible to everybody. And we can start bringing in all kinds of applications.

Alan: It’s so true. And I think even if you look at the Hololens, they’re pioneering work in handwriting as well. And then Ultrahaptics and Leap Motion coming together, creating that virtual hand tracking meets virtual manipulation of the air: ultrasonics. I think we’ve only scratched the surface on the UX of how we communicate with the computers in the era of spatial computing. So it’s going to be exciting.

Looking for more insights on XR and the future of business? Subscribe to our podcast on iTunes, Google Play, or Spotify. You can also follow us on Twitter @XRforBusiness and connect with Alan on LinkedIn.

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