Apple Inc. (NASDAQ:AAPL) CEO Tim Cook has made no secret about his excitement regarding the potential for augmented reality (AR). The technology, which layers computer-generated images into real-world environments, had Cook positively gushing, saying in an interview with Bloomberg:

I think it is profound. I am so excited about it, I just want to yell out and scream. ... We're building it into iOS 11, opening it to developers -- and unleashing the creativity of millions of people. 

He has previously stated that the impact from AR could be as big for the company as the iPhone. 

With its upcoming release of the iPhone 8 and premium iPhone X, and the previous release of its ARKit for developers, Apple is setting the stage for the future of AR apps. The iPhone screen, 3D sensors, and dual cameras together form the foundation for a wide array of AR capability to come. One analyst thinks the combination of patents and exclusive supply-chain deals may offer Apple a competitive edge over any would-be competitors.

The TrueDepth Camera system on an iPhone Ten.

The iPhone screen, 3D sensors, and dual cameras set the stage for a flood of AR apps to come. Image source: Apple, Inc.

Not the first...

Nearly two years ago, Alphabet Inc.'s (NASDAQ:GOOGL) (NASDAQ:GOOG) Google released the Tango AR platform for its Android operating system. The system featured motion tracking, depth perception, and area learning, but it never really caught on. Tango is currently only available on two devices in the Android universe, probably because of the fragmented nature of Android's hardware and the lack of any sense of urgency among users to update the operating system. 

AR saw its first blockbuster with the release of Pokemon Go in July 2016. More than 650 million people downloaded the app, though a year after launch, the number of players has plunged dramatically. While the game had all the markings of a fad, it did illustrate the potential for future AR applications. 

But difficult for the competition to replicate...

Rosenblatt Securities analyst Jun Zhang issued a report suggesting that exclusive deals with suppliers and patents for Apple's recently revealed technology may prevent competitors from copying its AR capabilities. Apple's A11 Bionic Chip, the TrueDepth camera, and three-dimensional sensors collectively generate its 3D sensing capability.

Zhang posits that Apple probably has exclusive agreements with the suppliers that produce components for these systems. Lumentum Holdings Inc., Finisar Corporation, and II-VI Incorporated supply the flood illuminator and dot projector chips for iPhone. This, combined with Apple patents, "makes it difficult for Android smartphones to replicate Apple's 3D sensing model."  

...and worth a bundle

Morgan Stanley analyst Katy Huberty released a 49-page research note to clients, indicating that the combination of 3D sensing capability of the iPhones and the ARKit released to developers in June, will spark a widespread adoption of AR on Apple's iOS operating system. The analyst suggested the revolutionary technology could be a significant driver for the iPhone's next upgrade cycle. She also opined that AR could boost Apple's services revenue by $8.6 billion over the next three years while driving improved margins. 

The market for AR could be huge, though estimates on its potential size vary greatly. Digi-Capital, a firm that advises companies regarding augmented and virtual realities, predicts that the AR market will grow from $1.2 billion in 2016 to $83 billion by 2021. 

The inclusion of AR in its most recent iPhone is a testament to Apple's expectations for the technology, and if these analysts are anywhere near right, this could be the company's next big thing.