Apple’s Patience = Payoff

I want to start by broadening the topic a bit to include virtual reality’s younger brother augmented reality. The adoption of these technologies and the strategies taken by the players in these ecosystems are extremely dependent. The major players in these industries have made a choice to lead with VR and that choice is driving adoption. However, Apple is noticeably absent. Below I will outline why Apple isn’t currently creating any value at all in VR / AR and why that may ultimately make them one of the winners.

If VR isn’t a money maker… why start now?

Many have given Apple a hard time for not stepping out with a VR device. As if time is quickly passing them by and adoption is rampant. Samsung, the earliest major player to the VR headset has only sold 5 Million Gear VRs since launch in 2015 (1). Many of those Gear VRs were heavily discounted as packages to be given away with smartphone purchases. In contrast, Apple sold 6 million of the so-called “failed” Apple watch units in the 4th quarter of 2016 alone (2). The opportunity cost of developing a VR device in a nascent market may be higher than the reward from a head start.

The mobile phone will power intermediate adoption

One of the earliest VR successes was Oculus, who provides an amazing VR experience through a headset and standalone computer known as the oculus rift. Since Oculus, we have quickly seen the emergence of smaller headsets powered by the smartphone. This experience is not as good as the rift experience but is good enough for many first time consumers of VR. As the computing power of mobile phones improves, it is not unreasonable to assume that in the future the best VR experiences will be powered by your phone. Apple obviously knows a thing or two about phones. Samsung is already employing this strategy but they lack some of the key parts of the ecosystem that Apple has mastered.

Apple already has the ecosystem for a successful platform

Apple knows mobile phones, but they also know content distribution. Unlike Samsung, Apple has an existing relationship with developers who can produce the killer VR content necessary to win. Unlike Google, Apple has mastered the design, manufacturing, and distribution of the hardware. This ready-made ecosystem is ready to be turned on at any point. Apple’s current install base is not only loyal, but they are premium customers making them more likely to be early adopters of a high-end nascent technology. But, even with this advantage, Apple waits for good reason.

AR is a much bigger opportunity and it’s just getting started

VR may not be the technology that is massively adopted. We have already seen glimpses of the success of a light AR application like Pokemon Go. AR is far more accessible and has a wider set of use cases because it doesn’t close you off to the real world. Instead, it enriches the real world. In the past few days, we have seen Facebook and Snapchat introduce light AR applications of their current technology. They are leading with the mobile phone first. There is currently no AR headset at the mass consumer price point.

The best value capture strategy for Apple would be as follows:

  1. Focus on AR
  2. Build a mobile powered AR headset
  3. Make SDK available for developers to build apps through the traditional app store
  4. Capture Value through the monetization of apps vs. the monetization of the hardware.






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