Apple Inc. (NASDAQ:AAPL) CEO Tim Cook is making no bones about it. He views augmented reality (AR) as the next critical step for the company’s continued success. In an interview for a magazine article last year, Cook stated, “I don’t think there is any sector or industry that will be untouched by AR.”

It was no surprise, then, that Apple’s World Wide Developer conference focused substantially on augmented reality. The consumer-technology giant has yet to announce an AR headset or glassware. Nevertheless, one of the most prominent displays at the WWD conference was an ARKit-enabled iPad, which featured a simple but powerful AR video game.

Using the familiar wooden tables installed at Apple Stores worldwide, ARKit superimposed virtual images on top of them. This was the initial setup for a gaming demonstration called SwiftShot. With a virtual slingshot that the user controls through the iPad, the goal is to knock down as many pillars on your opponent’s side before he or she does the same to you.

Again, while the demo was rudimentary, it effectively got the message across. Unlike curent video-gaming consoles from Sony Corp (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT), Apple’s augmented reality mixes fantasy with reality. That is, even with advanced virtual reality games, the ecosystem is exclusively contained in the digital (i.e., fantasy) realm.

But with augmented reality, we’re blurring the distinction between what’s real and what’s unreal.

Given the fact that Apple is eager to reduce its dependence on the iPhone, you can understand Cook’s exuberance. With augmented reality, the applications go well beyond video gaming. The technology has obvious benefits toward education, scientific research, medical procedures and even military uses.

In other words, it’s a game changer, but can Apple take advantage of it?

Apple Aggressively Building a Moat for Its Augmented Reality

As the WWD conference demonstrated, Apple has all the innovations necessary to produce a product ecosystem revolving around augmented reality. Furthermore, several rumors indicate that the company is setting the infrastructural framework for their AR future.

Tech journal Next Reality reports that Apple’s upcoming AR headset will feature dual 8K ultra-high resolution displays. The headset, which has the code name T288, is forecast to hit store shelves in 2020. It’s also rumored that it will feature VR capabilities, enabling AAPL to compete beyond augmented reality.

Of course, the biggest piece of the AR infrastructure is Finisar Corporation (NASDAQ:FNSR). Late-last year, Apple and chipmaker Finisar inked a deal where the latter will provide highly specialized laser optics to the former.

Just the technology itself is extremely significant for Apple’s AR ventures. However, because the supplies needed to produce the laser optics are exceedingly rare, AAPL is essentially blocking out its competitors. Since the company was first to secure this critical pipeline, other smartphone AR players must pay higher premiums.

That’s a major setback for Android devices as Apple products carry a higher brand-name reputation. In other words, Apple gets to charge more, and customers will gladly pony up. But for augmented reality, AAPL products are arguably better in quality and pricing. At that point, it’s simply not fair.

The other concern that competitors must fret over is the lack of alternatives. Before the Finisar deal, Apple sought a different company to supply the laser optics. Though the consumer-tech giant remains mum, rumors suggest that the other supplier is Lumentum Holdings Inc (NASDAQ:LITE).

Lumentum suffered production bottlenecks through much of last year. Management claimed that those issues are now resolved. Still, the difficulties highlight the challenges that AAPL competitors face in the highly specialized AR market.

Can Apple Make Augmented Reality Work in the “Real World?”

Undeniably, Apple has attacked AR vertically, ensuring a critical supply-chain flow and denying the same to others. That said, I have to ask if these endeavors will ultimately matter in the “real world.”

What I mean is that a huge difference exists between being able to do something innovative, and selling that innovation. A few years ago, online news journal Medium published a story that stated the future of Snap Inc (NYSE:SNAP) depended on implementing AR technologies.

Sound familiar?

While Snap obviously didn’t go to the lengths that Apple did, it nevertheless dived heartily into augmented reality. So if this innovation was the future, the markets didn’t care too much about it. Year-to-date, SNAP stock is down 16%. Against its initial public offering, shares are down 27.5%.

Don’t get me wrong: I’m certainly not comparing Apple to Snapchat. What I am saying is that no matter how great Apple is, it still has to make augmented reality relevant. Yes, the technology has already proven incredibly useful. But that still doesn’t address whether consumers will pay for it.

From a technical perspective, I’m very impressed with what Apple delivered at the WWD conference. I’m sure we’re going to see even more impressive innovations over the next few years. However, Apple making augmented reality relevant and practical for its customers is a tough challenge.

The company has made some blunders before. Thus, dominating in AR won’t necessarily result in an automatic victory in the broader smart-device race.

As of this writing, Josh Enomoto is long SNE.