The recent release of Apple's (AAPL -0.57%) iPhone 12 lineup brings with it some amazing new technology for augmented reality (AR). As I recently wrote, this may not get as much attention as 5G technology, but Apple including Lidar technology in the phone gives developers higher quality hardware to build for. The question isn't whether Lidar will drive a new phase of innovation. Instead, investors should be thinking about what a company can make with AR content that will be compelling and profitable in the long term.
It may not be a name that comes to mind first in AR, but Snap (SNAP 6.70%), which makes the popular social media app Snapchat, is the tech stock to watch closely as AR becomes more popular. And it's already building an impressive AR ecosystem.
Image source: Snap.
Snap is already an augmented reality giant
At its core, augmented reality is simply placing a digital image on a real-world object. This can come in many forms, like visualizing furniture in a room, clothing on a shopper, or paint on a person's face. It's this face filter technology that Snapchat has focused on so far and 170 million users engage with AR on Snapchat every day, but that may be just the beginning.
Snap recently announced the deployment of Local Lenses, a shared AR world built in any location. A user can see and interact with a common AR world alongside other users. The example Snap used was painting a building together with paint shooting from each user's phone (see the visual below).
Bringing innovative use cases to 170 million daily users is a massive opportunity and already gives Snap a head start in AR content. And with augmented reality, Snap is building the platform, so it's allowing other developers to build and distribute content through Snapchat, which will likely change and grow as AR technology matures.
What's next for Snap
The latest version of Snap Spectacles can perceive depth thanks to a second camera. But that's likely just the start. Apple and Facebook are building their own AR glasses and it would be surprising if Snap isn't doing the same given its position in the industry.
If AR glasses are developed in the future, Snap will be able to take its AR technology to the next level. The smartphone face filters we know today can turn into face filters and environment filters within glasses. That'll make the experience more seamless and give creators and advertisers an opportunity to innovate with the AR technology that Snap could incorporate.
Is the money in AR for Snap?
What we don't know is how Snap will monetize augmented reality. So far, it's been used as a marketing tool and that may be a simple way to begin monetizing AR features for commercial users.
For now, the monetization strategy might not matter. Snapchat simply developing AR technology and building a large network of users will be valuable -- the money will come later. Remember, it took Facebook a decade to figure out how it was going to monetize its user base and Snapchat may take years to monetize AR.
At the very least, the innovations Snap is making in augmented reality make it a much more compelling tech stock in the long term. It may take a while for the tech to lead to financial improvements for the company, but I think companies will be willing to pay for AR on Snapchat and eventually the money will come for this AR industry leader.
