Apple Will Lead the Augmented Reality Revolution

Apple’s iPhone X is cool. Its new gesture-based operating system is super-slick. Yet, it is nothing compared to what Cupertino has up its sleeve.

This week, Bloomberg reported Apple is developing a new augmented reality (AR) headset that could hit the market as early as 2020. Tim Cook, Apple’s CEO, says AR is going to change the way we work, play, learn and connect.

While that sounds suspiciously like marketing, investors should take note, just the same.

Apple’s influence is profound. Despite rarely getting to market first, the company has proven it can change the trajectory of innovative technologies. Larger OLED screens, facial recognition and wireless charging have been kicking around other smart phones for years. Like it or not, it took Apple to make these mainstream.

Now it plans to do the same with AR.

According to reports, Apple will start incrementally. The 2019 iPhones will get AR first. A batch of new rear-facing sensors will calculate the time it takes for lasers to bounce off real world objects, then the phone’s processor will use this time-of-flight data to build complex 3D images. Apple plans to make this information available to third-party software developers.

The foundation for this is already available with ARKit, a software development tool the company introduced with its latest iOS iteration. Adding time-of-flight data will take it to the next level. It will prompt developers’ interest. It will bring AR to the mainstream.

That will have profound implications for business.

What’s cool about AR is the way it reduces friction. Laying information over real world objects frees focus. It also reduces the mental effort us lazy humans have to expend, and that reduces errors.

A Harvard Business Review white paper — A Manager’s Guide to Augmented Reality — points out many companies are already heavily invested in AR, with terrific results. AccuVein, a medical device company, built a solution that uses heat signatures to help clinicians locate a patient’s veins. Boeing uses AR to help technicians assemble complex aircraft sections. And the Department of Homeland Security is combining AR with virtual reality simulations to train staff for emergency responses.

This is only the tip of the iceberg. HBR concludes every part of the enterprise can benefit because AR dramatically reduces error rates. This means lower costs, and higher returns on investment. For corporate executives, you might as well shout “year-end bonus.”

As an avid tennis player and golfer, I am expecting some profoundly valuable applications in the future to help amateurs visualize and execute their swing better.

For investors, there are a bunch of ways to play the coming AR story.

For my newsletter members, I always weigh both the near- and longer-term implications.

Near term, the obvious investment winners will be those companies supplying the sensors and the required intellectual property. Apple is certainly a driving force. While the common belief is Cupertino is extremely secretive about its suppliers, the reality is there are very few firms with the scale to meet iPhone component demands. The likely winners of its AR plans are hiding in plain sight. The time to invest is now, ahead of the contract announcement.

Longer-term, Tim Cook is right. This AR thing is going to change the way we work, learn, play and connect. And that means looking at technology stock winners is simply too narrow.

With the correct implementation, many manufacturing and service-oriented companies will derive orders of magnitude improvement in training costs. Imagine what these cost savings could do for businesses with high employee turnover rates. It could change their business model.

And there will certainly be new investment opportunities for learning, and playing, too.

Education is one of the very few sectors that has not yet been disrupted by technology. Meanwhile, the video game sector continues to be wildly underestimated by investors. Augmented reality is coming to both industries, as well as sports. And it will dramatically change the landscape for the better.

I will be the first to admit that Apple executives are very good at hype. It’s easy to dismiss much of what Tim Cook says as hyperbole. Plans to push AR is not that. Take note. This is going to be big.

Best wishes,

Jon Markman