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Apple, Inc. Is More Interested in Augmented Reality Than Virtual Reality

By Evan Niu, CFA – Oct 14, 2016 at 8:45AM

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CEO Tim Cook is taking a stand in the AR vs. VR debate.

Tim Cook at WWDC 2015. Image source: Apple.

There are a few major tech battlegrounds looming on the horizon, including smart homes and artificial intelligence, among others, but one particularly important field will be augmented reality (AR) and virtual reality (VR). Facebook (META 1.12%) effectively kicked off the AR/VR arms race with its 2014 acquisition of Oculus VR. Being acquired by such a large company gave Oculus and its work in VR a sense of legitimacy. Facebook CEO Mark Zuckerberg envisions a future where people can interact socially in VR without ever having to set a foot outside their homes.

As far as Apple (AAPL 1.55%) is concerned, the company has been characteristically secretive, although CEO Tim Cook continues to drop hints about Apple's pipeline. Cook sat down with BuzzFeed News Japan recently for an exclusive interview, and tipped his iHand quite a bit.

Augmented reality has broader use cases

For now, the use cases for VR are predominantly focused on entertainment and gaming. The high cost of entry (Oculus costs about $1,500 if you include a high-end gaming PC) limits the market for the most part, and VR is currently a niche within the gaming community. Sony is taking a shot at more affordable VR experiences, recently launching PlayStation VR, a $400 VR headset for the PlayStation 4.

Cook suggests that VR can potentially be socially isolating: "There's no substitute for human contact. And so you want the technology to encourage that." If you imagine Zuckerberg's vision of people sitting at home with VR headsets interacting solely in cyberspace, it does invoke dystopian connotations from science fiction. Ironically, Zuckerberg's belief in creating social VR experiences has the potential to make humans decidedly less social in real life.

In the interview, Cook continued:

VR has some interesting applications, but I don't think it's a broad-based technology like AR. Augmented reality will take some time to get right, but I do think that it's profound. We might ... have a more productive conversation, if both of us have an AR experience standing here, right? And so I think that things like these are better when they're incorporated without becoming a barrier to our talking. ... You want the technology to amplify it, not to be a barrier.

If you think about Apple's go-to market strategy, the company always targets the mainstream consumer, since that's where the volume lies. In that context, the hurdle for AR adoption is also a lot more manageable. AR can add value to consumers' lives by providing a wide range of contextual information in countless scenarios. You could even consider AR an extension of wearables, as it would likely be delivered with some type of headset that could provide an informational overlay or heads-up display (HUD).

With VR, you have to completely immerse yourself into a VR world. That also takes a lot more effort to build, and the average consumer may not have much reason to enter a VR world. In contrast, an AR experience should be relatively simpler to develop, since you're not creating an entirely new world from scratch. Besides, companies have already begun using machine learning to determine contextual relevance using a wide range of user data, which currently manifests in the form of virtual assistants. You can think of AR as sitting at the convergence between wearable computing and virtual assistants. You could also consider AR a stepping stone to VR later on, once the market is ready for it.

Apple has been quietly scooping up companies and talent that will contribute to its AR ambitions. Naturally, the Apple rumor mill will provide a steady stream of leaks as we approach the inevitable product launch. Until then, investors can safely say that Apple isn't all that interested in VR.

Evan Niu, CFA owns shares of Apple and Facebook. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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