Apple (NASDAQ:AAPL) recently acquired Metaio, a German software company specializing in augmented reality technology, for an undisclosed sum. Metaio's technology powers a wide range of popular AR applications, including Audi's digital owner's manual, which identifies parts of the car with a smartphone camera, and IKEA's virtual catalog, which projects furniture into a user's living room.
On its own, the Metaio acquisition doesn't seem essential to Apple, which generates most of its revenue from hardware sales of iPhones, iPads, and Macs. But when we combine Metaio's tech with Apple's other recent acquisitions, its plan for expanding into the AR market starts to make sense.
A $30 billion market opportunity
Research firm Digi-Capital recently forecast that the augmented reality market could generate $120 billion in cumulative revenues by 2020, up from nearly nothing today. That growth is expected to be driven by sales of AR hardware, like Microsoft's (NASDAQ:MSFT) HoloLens, VoIP applications like Skype, next-gen video games, immersive films, e-commerce applications, and ads.
Apple already holds a wide range of AR-related patents, including transparent displays, iPhone-powered virtual displays, and mapping solutions. Back in 2013, Apple acquired PrimeSense, the maker of Microsoft's first-generation Kinect motion sensor. Earlier this year, Apple acquired high-accuracy GPS firm Coherent Navigation, presumably to improve the accuracy of Apple Maps. In March, Piper Jaffray reported that Apple had assembled a special team to research and develop AR hardware.
Combining depth sensing technology, accurate GPS technology, and transparent displays indicates that Apple could be following Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Glass and HoloLens into the AR headset space. If "Apple Glass" can succeed where Google Glass failed, developers who are already making AR apps on iOS might flock to the platform.
It's also about Apple Maps
A pair of Apple AR glasses would be an interesting way to complement the iPhone, iPad, and Apple Watch, but Apple's expansion into the AR market is also about keeping Google out of its backyard.
Google is expanding its reach into iOS with ecosystem apps like YouTube, Gmail, Google Maps, and Google Now. Tying iOS users to those apps makes them more dependent on Google services, which could cause them to eventually switch over to Android smartphones and tablets. In response, Apple replaced Google Maps with Apple Maps, dumped Google for Microsoft Bing in default Siri and Spotlight searches, and could possibly do the same with Safari later this year.
Comscore estimates that 25% of all U.S. smartphone users use Apple Maps, compared to 47% who use Google Maps. Based on Apple's U.S. market share of 43% in March, we can estimate that about 58% of U.S. iPhone users use Apple Maps. To boost that percentage, Apple is trying hard to match Google Map's features. That's the reason it acquired smaller mapping firms like Placebase, Locationary, and Hopstop, and why its vans are currently collecting data for 3D maps.
Why AR matters for maps
In the past, Google Glass, Nokia's (NYSE:NOK) HERE City Lens, Layar Reality Browser, and other apps demonstrated how useful AR can be by putting digital overlays over real world objects. These apps, however, can be slow and unreliable if a GPS signal isn't strong enough.
That's where Apple's recent acquisitions come into play. Coherent's GPS technology, which tracks users more accurately than consumer-grade GPS, can reportedly find a user within a few seconds, compared to up to 40 seconds for a traditional GPS. Combining that tech with Metaio's AR overlays could reduce lag when looking up directions, and promptly deliver AR information on surrounding buildings and transportation systems.
When we combine Coherent and Metaio's technologies with PrimeSense's depth and motion-sensing sensors, we see major potential applications for cars. With a heads-up AR display on the windshield, a driver could instantly see a digital overlay of information on roads and buildings. Motion sensors synchronized to a crash avoidance system could reduce accidents. All those features could enhance Apple CarPlay, its iOS mirroring solution for dashboards, and establish the software foundations for its long-rumored autonomous vehicle.
Taking the long view
Apple's investments in AR aren't aimed at generating revenue in the near term. Instead, they could give birth to new hardware products, enhance the iOS ecosystem, and defend its turf against Google. Therefore, investors should keep an eye on these recent acquisitions and the evolution of Apple Maps to understand how Apple's plans for the AR market will eventually come together.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. 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.