Apple Inc. (NASDAQ:AAPL) reportedly is considering making its own digital glasses that may use augmented reality. Bloomberg has it that the device, which is still very much in exploration stage, would connect wirelessly to iDevices and display images in the field of vision of the wearer.
It also was reported that Apple has ordered near-eye displays from a supplier in small quantities for testing. In addition, AAPL has spoken to other potential suppliers about its digital glasses plans. A source who’s familiar with the matter told Bloomberg that the earliest we can expect the glasses to be introduced is 2018.
Of course, that’s if Apple decides to push the idea through.
And if Apple ends up making digital glasses that uses augmented reality as reported, the device will be competing against the Microsoft HoloLens. In essence, another Apple vs. Microsoft Corporation (NASDAQ:MSFT) battle is in the works.
Investors might be wondering who’s better positioned to take the lead in the augmented reality space. The answer isn’t simple.
The truth is that right now, it’s difficult to make any sort of fair comparison. Apple doesn’t even have a leaked prototype of its wearable yet. So horseracing a real product against a hypothetical one makes no sense.
And second, MSFT only has the development edition of the Microsoft HoloLens out. Words concerning the HoloLens are great so far. Still, until we have a consumer edition out, we couldn’t make a fair comparison there, either.
What we can do is draw up an educated blueprint of who would win the augmented reality game, and how.
HoloLens Is Part of a Bigger Picture. “Apple Glasses,” However …
Microsoft CEO Satya Nadella revealed Microsoft’s new official mission statement in an internal email last year. In short, Microsoft’s purpose is to “empower every person and every organization on the planet to achieve more.” Or more simply, Microsoft wants to make everyone more productive.
Based on that, it’s fair to imply that the Microsoft HoloLens is being built in least in part with the aim of making people and organizations more productive.
Expect the HoloLens to appeal to developers, allowing them to picture what they’re putting together how it would appear in real life. This product will spark those little “Eureka!” moments. Consider that Volvo already is embracing the HoloLens for use in its autonomous vehicle projects.
Moreover, MSFT is betting that the HoloLens will influence consumers’ buying behavior, in the process growing its ad business. Microsoft is working with Houzz to help users see how a set of furniture would look in their houses, using HoloLens. More collaborations of similar nature are bound to develop. Interestingly, Bing certainly will power the inevitable voluntary or involuntary searches that come with HoloLens.
And there are chances Bing could also power search in Apple’s AR device, since Bing already powers Siri.
In essence, if HoloLens is successful, Microsoft will grow its ad business.
Apple, on the other hand, rarely ever makes anything with productivity ingrained into the development process. The iPod was revolutionary, and it was really cool. But it wasn’t developed to make the workday go more smoothly. You could describe the iPhone and iPad in the same manner.
We’ll have to wait to see what AAPL develops to know how much value it holds. However, if the past is any indication of what’s to be, “Apple Glasses” would end up being a cool, fun device for tech enthusiasts … but not necessarily something meant to be put to work.
Bottom Line
Right now, Apple stock seems to be the better value. AAPL generates a healthy free cash flow that the market hasn’t fully factored into shares. Apple trades at 11.75 times free cash flow versus nearly 18 times for MSFT. So there’s that.
But the better AR company?
The history of the development process for each company seems to tip the scale in favor of Microsoft, at least until both companies have comparable products out on the market.
Combine that with Microsoft’s plans to make the company more vertically integrated, and MSFT stock also deserves a “buy” rating.
As of this writing, Craig Adeyanju did not hold a position in any of the aforementioned securities.
