- Virtual Reality/Augmented Reality is a hot market with all Tech giants jumping into this space.
- Google seems a little bit behind, as it discontinued the Glass project and only offered a low-cost cardboard headset that is not on par with the competition.
- However, Google’s strategy in the VR/AR market is similar to its strategy in other consumer electronic markets.
- Google’s Android OS and low-priced, Glass-based solution should complete Google’s offering in this market.
Smartwatches and wearable devices have received much attention lately, following the Apple Watch release and increased competition led by tech giants such as LG, Samsung, Huawei, Sony, and Motorola. However, the background virtual reality and augmented reality market (it will be addressed as VR/AR from now on) is steaming hot and considered to be bigger than the smartwatch market. In an earlier article about the VR/AR market, I mentioned that Facebook (NASDAQ:FB), Sony (NYSE:SNE), Samsung, and Microsoft (NASDAQ:MSFT) have left Google (NASDAQ:GOOG) behind as the competition intensifies. On the surface, it seems that Google is still behind in competition as Google Glass, Google’s leading augmented reality product, was discontinued, and its low-cost cardboard product is far from being a serious threat to Facebook’s Oculus or Sony’s Morpheus. However, below the surface, Google is fighting back with its own unique and specialized tools.
Google is active in most consumer electronic markets and has consistently focussed on its strengths while avoiding its weaknesses when penetrating a new market or introducing a new product. This strategy is best highlighted in the mobile market where Google’s operating system, Android, accounts for more than 75% of the market. Google does not generate revenues from distributing its mobile operating system but instead collects revenues from purchases made through the Google Play store. In order to draw attention to the Android OS, Google sells Nexus phones in the Play store that are designed by Google and optimized for Android, but are manufactured and executed by other vendors (Nexus 5 by LG, Nexus 6 by Lenovo/Motorola Mobility). Google agreed to earn wafer thin margins on the Nexus phone in exchange for expanding the Android eco-system further. Google has also applied the same strategy in PCs through Chromebook, in smart TVs through LG Google TV, and in smartwatches through Android Wear.
Google has eyed the VR/AR market and is reportedly developing Android OS for VR/AR headsets. This move makes sense from Google's perspective and demonstrates that Google is not left behind the competition in this market but has just changed the game. While Facebook (through the Oculus acquisition), Samsung, Sony, Microsoft, and others are focused on hardware development and user experience for VR/AR machines, Google has started to adapt the Android OS to support this evolving market. As Google has already expanded the Android eco-system into most evolving markets, it is only reasonable to assume that it will penetrate the VR/AR market before others do.
Each of the main competitors in the VR/AR market is developing a solution for slightly different reasons. Facebook is working on a solution that will allow it to offer advanced chatting capabilities to its users, who will be able to consume content from the Facebook feed and play games that are exclusive to Facebook. Sony and Microsoft are interested in expanding their successful game consoles business into the next stage of the gaming industry, whereas Nvidia (NVDA) and AMD (AMD) are interested in becoming the leading chip makers of the industry. Google is interested in the OS aspect.
The last piece of the puzzle in Google’s stake in the VR/AR market is its hardware solution to promote the Android OS. As it did with Nexus, Chromebook, Chromecast, LG Google TV, and so on, Google will probably launch a hardware solution at an attractive price to lure consumers to the Android eco-system. Google Glass was Google’s way to test its design and development capabilities in VR/AR headsets. Now that Google has received enough feedback on its product and has a good understanding of consumers’ needs and wishes, it already began to work on the next version of Google Glass that will be the VR/AR market’s Nexus.
As sales and income estimations are vague for the entire virtual reality market, it is more than reasonable to assume that Sony, Facebook, and Microsoft will be able to use their leading positions and deliver prominent products that will meet the expectations of their audiences. As for Google, judging by its success in implementing the Android ecosystem into new sectors, it will probably succeed in replicating it in the VR/AR market. Google Glass will likely be more successful as the Nexus in the mobile market or Chromebook in the PC market, as the company ran an extended beta version and is now at the improvement and final touches stage.
Number of leading tech companies are competing to deliver the first virtual or augmented reality headset for the masses. As Facebook, Sony and Microsoft are focused on enabling the technology to improve their existing offering, Google sees this evolving market as an excellent opportunity to expand its Android eco-system further and replicate the business model it used in other consumer electronics segments. After the Android launch for this segment, it is expected that Google will launch the next version of Google Glass in the same manner as it operates the Nexus product line. Google's presence in the virtual and augmented reality market may not be a buy trigger for Google’s stock on the short term, but it may drive significant revenues in the future and positively impact the stock price in the long term.
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