By now, most Apple (AAPL) investors are well aware of the companys interest in Augmented Reality. In an earlier article, I discussed in detail the iPhones new AR technology, and what it means for the company going forward. Essentially, the offering, called ARKit, is a set of tools for developers that allows them to create new AR apps with most of the difficult work done by Apple.
In a post on Barron’s, Tiernan Ray discusses a research note by Bernstein analyst Toni Sacconaghi [August 25]. He headlines:
Apple has the best shot of anyone at this point of making so-called augmented reality actually work, and work well
The issue with Apples current offering is that it only runs on current iOS devices (iPhone & iPads) which are unwieldy and burdensome for any long term use. Everyone knows that the ultimate end of AR display technology is glasses. It is clear that Apple is working on its own version, and this is the topic of the note.
An apple pair of smart glasses could be bigger than the Apple Watch, and as big as iPad, writes Sacconaghi:
Smartglasses could potentially generate tens of billions of dollars in annual hardware sales for Apple [bold added]
we estimate that Apple smartglasses could generate over ~$25B in annual hardware sales within 3 years of release, with minimal cannibalization of other Apple products. Apple would subsequently take a majority of profits within the resulting market for smartglasses, just as the iPhone, iPad, and Apple Watch have done so in their own respective markets. [bold added]
One might wonder:
If the opportunity is so great, then where are the iGlasses?
The answer is the technology. I have often noted that Apple has a modus operandi when it comes to new technology. It learned from its Newton PDA experience that to release a product before the technology was ripe would not lead to a satisfactory user experience. Thus the company waited to release Touch ID and Apple Pay (see the link) until the technologies were ready. The same is true for several others, including ARKit itself.
So, if we want to understand Apples potential or perhaps inevitable smartglasses product, then we need to understand a bit about the technology.
There is a reason why, while there are many glasses currently available or on the edge of availability, no product has hit a home run. A recent article on Wareable.com lists 11, and they dont even include Alphabets (GOOGL) (GOOG) Google Glass, or Microsofts (MSFT) $3,000 mixed reality HoloLens. Yet, none of these has become the new fad or standard because so far no one has put together the complete package.
[Solos smart cycling glasses]
The most important thing to understand is that this is a hard problem!
This is the point least understood by those outside of tech!
First, it is not easy to provide a transparent display, although this might be one of the easier problems. Still, it is not just the display itself, but there are important, related issues.
The user needs to focus on both the real world and the display. How do you allow for that? How do you automatically adjust brightness/contrast for the real world lighting? How do you deal with the enormous data processing that must be done?
These are physical issues. Other system issues are:
How do you interpret the external world? How do you identify Points of Interest (POI)? How do you mark POI? How do you take input/directions from the user?
Each one of these is an extraordinary problem with hundreds of researchers across the globe devoted to finding a solution. In some cases there are multiple solutions, some better than others, and others potentially equal.
In many cases, the benefits of a particular solution will depend on the particular implementation. For example, lets take the hand gesture solution for a user interface for directing the system. For such a solution to be viable, it needs to do more than simple work. The system needs to be able to interpret with enough speed so as to be properly responsive. It has to be reasonably free of errors, and seem natural enough to be easy to learn. Each of these is a significant problem.
Users take an interface such as Apples iOS, and they think it is so natural, so intuitive, that it was easy to develop. However, nothing is further from the truth. Not only are the algorithms (the logical steps for getting the computer to act or respond correctly) very difficult, but just the process of conceptualizing the motions to be interpreted and the system reactions took incredible amounts of brainstorming and study, and testing.
The other half to this question is the availability of technology. Processing power and other technologies do not all exist at any given moment in time. This was a major downfall of the Newton. There just were no sufficiently powerful, low energy processors available at the time, and no wishing for them would make them available. They came along later as processor technology advanced.
The same was true for Touch ID right up until its launch. It was not only the sensing technology of AuthenTec that w as purchased by Apple, but the iPhones processor as well. Clearly, it was no accident that the A7 processor in the iPhone 5s was the first 64-bit smartphone processor. Apple had been planning this for years. It is the greatly enhanced power particularly encryption power that enabled TouchID. Also, the built-in Secure Enclave is necessary for the airtight security.
The Apple Glass
I have no idea when Apple will release a set of AR glasses, nor any inside information on what they will look like. Nor do I care to engage in frivolous speculation on the ultimate form factor. However, I think we can say some things about what to expect.
They will be comfortable and attractive. They will need to connect to an iPhone. They will detect eye movements.
The last point is likely because Apple recently acquired a German company, SensoMotoric Instruments, which was a leader in this technology. The idea is to detect eye motion, so a program can know where the user is looking. This might allow it to present extra data about some point of interest in the outside world. It could also allow the user to select some virtual option presented. Another interesting use is foveated rendering. The fovea is the small portion of your retina with densely packed visual cells that forms the center of your vision, the part with the most acuity. A display that knows precisely where you are looking can render that portion in high resolution while the rest of the display is rendered more basically. This greatly reduces the compute power required for display overall, and could dramatically reduce battery consumption with no effective loss of clarity for the user.
As for point two, the glasses will need to connect to an iPhone in order to process all the data. There is no way that the required processing power, plus the batteries required to drive it, can be fit into a sleek, lightweight form. So, for several years at very least, glasses will be tied to a portable computing device.
Today there are a plethora of technologies, both hardware and software, that need to be realized in order to produce a truly satisfying user experience in Augmented Reality smart glasses. Apples entry into the AR field with the new developers kit means that the iPhone will immediately become the largest AR platform. Connections to glasses will soon follow and Apple will assuredly provide a very compelling entry into the field.
For the investor, the prospect of adding a profitable new product is welcome. As Toni Sacconaghi has noted, it could be $25 billion in added, annual revenue.
Disclosure: I am/we are long AAPL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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