Is Apple Right to Reject Virtual Reality?

In a number of interviews, most recently with The Independent, Tim Cook commented on Apple’s interest in Augmented Reality (AR). A few key takeaways:

• Virtual Reality (VR) closes the world out and makes people sick
• AR enhances what’s happening presently, which carries more value than simulated/virtual environments
• AR is a big idea, like the smartphone
• AR is not limited to a specific demographic, country, or vertical
• Apple’s implementation will be a “software component that would enhance hardware, rather than a device or product like the Apple Watch

Other sources have also hinted that the iPhone 8 will include laser 3D sensors that could give improved capabilities, especially  around spatial mapping, but also improved gesture recognition and object tracking. 

ABI Research offers additional historical context in a recent Insight, An Apple-Shaped Gap in Augmented Reality.

It appears Apple will use phone-based AR for the short- to medium-term until optics and processing fits comfortably and ergonomically within glasses.  Another possibility would be an “accessory-like” pair of glasses with cameras, sensors, and displays that relies on the phone processing–this could reduce the payload for battery and ergonomics over a standalone device.

Assuming Apple’s AR strategy and products are received well by press and users alike, Apple will likely get credited for initializing a new trend within the industry; whether or not this is true is debatable. Apple might be the first to push a new technology (form factor, etc.) into the mainstream, but Google’s Tango arrived over a year ago and is already used in several launched handsets, albeit not from headliners like Samsung or LG (e.g. recently-released ASUS ZenFone AR). Intel’s RealSense could also become a player within the vision space for mobile devices, but with Qualcomm’s support behind Tango, the Android side is well-positioned to answer Apple’s foray into AR.

But the bigger question here is whether Apple is right to reject VR.

VR is going to be a significant market: $21 billion dollars in head-mounted display sales and a total of a $64 billion dollar market in 2021.  Of that, classically “consumer” revenue streams (gaming, video, and high-end entertainment) represent about $36 billion dollars of potential market.

It’s not too hard to see why Apple would make a strategic decision to forego this component of the market.  Apple’s core consumer is generally interested in primarily ease of use and reliability.  One should not claim Apple is disinterested in gaming, considering Apple’s App Store is expected to net $22 billion in 2017, owning over 50% of app store revenues.  However, it’s fair to say that Apple’s stance on gaming includes primarily casual games, together with some more immersive games that don’t push the limits from a gaming performance or immersion standpoint (artistic, perhaps!). Thus, one can rightly suggest that the VR gaming market–especially the near-term tethered-console based gaming–is of limited interest to Apple. From a mobile game developer’s perspective, however, Apple’s seeming disinterest in VR is unfortunate since iOS users spend more money (per user) than the Android base.

Next up to discuss, is the 360-degree video and immersive video genres.  YouTube and Facebook have both enabled 360 degree video. Consumption is occurring on PCs (with mouse control over the viewing angle), smartphones (rotating the smartphone around the viewer in a swivel chair, if you are lucky, or standing up if not), and in some cases in VR headsets.  Apple won’t totally miss out on 360 video–an iPhone can play these videos today–and some Apple-compatible VR exist (like Mattel’s View-Master).  However, it could remain at the periphery of this market.  Apple is making this decision at this stage as it watches the consumer interest and market develop and could release a player at any time it decides the market (read: content and consumer adoption) is far enough along.  Again, Apple’s stance here is likely acceptable.

Finally, however, the remainder of the VR-driven markets ($28 billion in 2021, for those of you keeping track), comes in very interesting areas across a variety of vertical market segments, notably, enterprise applications (visualization, training, design, etc.), education, retail, commerce, and marketing.  Some of these applications will use more immersive sessions of 30 minutes and longer, while others will tap into longer traditional computing sessions with shorter visualization sessions. 

In short, one can argue Apple is making a reasonable business decision to wait out the content challenges in gaming and 360 degree/immersive video based on its understanding of its unique demographic positioning and core customer base.  However, it seems like Apple is in a position to lose out to Samsung, Facebook/Oculus, and HTC (Vive) in this generation of VR opportunity.  For markets like enterprise and education, that seems like a poor business decision.