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Complementing Virtual Reality, Facebook Is Making a Major Push Into Augmented Reality

By Evan Niu, CFA - Updated Apr 19, 2017 at 2:31PM

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Mark Zuckerberg also thinks augmented reality could be bigger than virtual reality.

Facebook (META -0.39%) kicked off its annual F8 developer conference yesterday, and CEO Mark Zuckerberg started the festivities with an opening keynote to announce a handful of new offerings. Perhaps the most meaningful was a major push into augmented reality (AR), which will complement Facebook's leading position in virtual reality (VR) thanks to its Oculus subsidiary.

The social network has introduced what it calls the Camera Effects Platform, which will allow third-party developers to create an array of effects for the new Facebook camera that the company just recently added to its flagship mobile app. The Camera Effects Platform will include a Frames Studio and an AR Studio. The Frames Studio is an editing tool that allows users to design photo frames, but the real story is the AR Studio, which will apply video filters and can add other types of animated effects. AR Studio is starting off as a closed beta.

In no uncertain terms, Zuckerberg proclaimed that Facebook is "making the camera the first augmented reality platform."

Zuckerberg on stage presenting Facebook's new augmented reality platform

Zuckerberg at F8 2017. Image source: Facebook.

Sounds familiar

If this all sounds an awful lot like Snap's (SNAP -0.95%) Snapchat, it's not a coincidence. Snap has now branded itself a camera company, and also announced new World Lenses yesterday, which are live filters that use a smartphone rear-facing camera to add AR objects into the viewfinder. Snap didn't technically refer to World Lenses as an AR product, but that's effectively what they are.

Video source: Snapchat.

Here's the thing: AR Studio will be a free service, which directly undermines Snapchat's nascent ad platform. Snapchat allows companies to design video filters that promote their brands, but charges them to do so. This is one of the smaller company's core ad products, and it's only recently gotten off the ground in terms of sales. eMarketer estimated in September of last year that Snapchat would generate $1 billion in ad revenue in 2017, including brand filters.

Right now, Facebook is focusing on self-expression instead of commercial experiences, and left open the possibility of companies paying to promote brand filters in the future, but for now the company is coaxing brands to come test out AR Studio.

This is just the beginning

Zuck Dawg has already laid out his vision of VR being the next major computing platform, but the big push into AR shows that he's hedging his bets. In an interview with Recode, he laid out a vision of AR delivering experiences but without the physical products that typically deliver those experiences. All you'd need is an AR headset or AR glasses (Zuckerberg said Facebook is working on some type of AR hardware), and the device would be able to conjure up a digital television or board game, for example.

This also has competitive implications for Apple (AAPL 0.00%), which thinks AR has much more potential than VR. CEO Tim Cook has been talking up AR's potential repeatedly over the past year. Zuckerberg's bullishness echoes Cook's, and this is one of the first times that Zuckerberg has said AR could be bigger. "I would bet the AR one will be bigger if it can get developed in a good way," he told Recode.

Apple is surely working on something that it won't talk about, but Facebook just beat the Mac maker to the punch while simultaneously intensifying its competitive pressure on Snap.

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