When CEO Tim Cook takes the stage during the Worldwide Developers Conference (WWDC) at the Steve Jobs Theater in Apple Park, California on June 5, he may leave the audience with more questions than answers on how they would like to use Apple’s first iteration of the mixed-reality headset. This could be the most un-Apple way of pitching a new product to consumers, given how Cupertino’s past launch events have historically been sharply focused on must-have features. But it’s mixed-reality headset might take a different route owing to the unproven market and the questionable value proposition, with Apple throwing the ball into the developers’ court on how they adapt the headset before making the device available for mass consumption.
An iPhone (less) future
For years, Apple has been adding new consumers to the iPhone, by far its biggest revenue generator. In the second fiscal quarter ending March this year, the iPhone generated revenues of $51.33 billion. That’s an astonishing figure by any metric. But if we go by the larger trend then it becomes clear that the smartphone market has actually shark year-over-year. India and other developing markets may be bright spots for Apple, but the slowdown in the smartphone market, especially in more mature markets, is a sign that Cupertino is anticipating that iPhone sales will peak at some time or already has. While Apple’s services revenue now makes up a big share of its income pie, it needs to enter a new product category to grow its profits in the long run. iPhone growth has reached an inflection point and Apple knows it well. But the question everyone, including its biggest fans and investors, is asking is what would be the next big product for Apple. Will Apple wait for the iPhone to die out slowly, or replace it with a product that could eventually become its next hit platform?
The reality of headsets
When late Apple co-founder Steve Jobs launched the iPhone in 2007, the device brought the iPod with touch controls, “a revolutionary mobile phone,” and “a breakthrough internet communications device” into one single device. It was a simple message that was communicated in such a way that even a non-tech person could understand. Not only did the iPhone go on to establish the market for smartphones but it also redefined the concept of pocket computers. But there’s a limit to what you can do on the iPhone due to the form factor. Even foldable smartphones from the likes of Samsung and Motorola don’t push the needle beyond a point.
The industry kind of sensed this way early that if there’s a product that could replace the smartphone then it has to be a headset that brings computing directly on the wearer’s face. The idea was lauded by many and investors started to pour money into the concept of Extended Reality (XR), the umbrella term that covers virtual reality (VR), augmented reality (AR), mixed reality (MR), and other such immersive concepts. Soon we found that companies such as Google, Microsoft, Facebook-owner Meta, Snap, HTC and Magic Leap had one single mission: convincing us that the future of computing is on our faces and not in our pockets. Apple, at this point, had stayed away from the headset market but was actively backing Augmented reality (AR), a technology that lets people superimpose digital content (images, sounds, text) over a real-world environment, through its top-tier iPhones and iPads.
Headsets that let you turn your head in VR, or see holograms in AR, started to hit the market but none of them promised to match the excitement initially promised in demos. Google, for instance, wanted consumers to pay $1500 for its pair of AR eyeglasses, a device with a tiny screen embedded in one of the lenses that fed the wearer a constant stream of information, location updates and reminders. Despite Google’s aggressive push, however, Google Glass failed as a consumer product. Microsoft, too, burned its hands with its HoloLens device: a mixed reality-based headset that blends the real with the computer-generated. Meanwhile, Magic Leap, which raised billions from investors, also failed with the promise of building a headset that once promised to replace our smartphones with a more immersive experience.
But if there’s one person who took a leap of faith in the XR space, it was Facebook founder Mark Zuckerburg. He went all for Virtual Reality (VR) with the aim to develop the “Metaverse” – a digital world…a 3D “virtual environment” where you can go inside of — instead of just looking at on a screen, using virtual reality headsets and augmented reality. Zuckerburg even renamed his company and invested tens of billions of dollars in the hope that one day we will all interact and socailise in the Metaverse since science fiction writer Neal Stephenson coined the term for his 1992 novel “Snow Crash”.
Meta may be the biggest name in the VR space, but its business strategy is confusing, to say the least. The company’s own employees have acknowledged that their products are not polished yet.
It’s been a decade since “virtual reality” entered the tech conversations and products were readily available, but the technology has largely failed to take off. Many consumers and developers have struggled with what exactly the metaverse stands for and what is the use case. Neither AR nor VR has must-have applications that bring consumers to these next-generation platforms. There’s little to no excitement in the AR/VR space and clearly the lack of proof of concept is missing. In fact, sales of virtual reality headsets in the US declined 2 per cent year over year to $1.1 billion as of early December, according to NPD Group.
Can Apple save the industry with a mixed-reality headset?
It’s a tough question to ask because nobody knows how its upcoming headset will be received by consumers. Part of the problem is the fundamental difference between a headset and a smartphone – both in development and expertise needed. But like many in the industry, the biggest puzzle in front of Apple is how to sell a headset and to whom. In a recent interview with GQ, CEO Tim Cook argued that augmented reality could enhance “communication” and “connection,” and the headset will be focused on “co-presence.” But those ideas are no different from Meta, or at least what the industry has been using to market these fancy headsets. That means even Apple is also not totally clear about the mixed-reality headset and the direction it may take in the future.
Some current and former Apple employees recently told The New York Times that there are doubts and concerns about the device within the company. Many of them expressed worries about the headset’s high price which could cost $3000, a lot higher than available headsets on the market. Then there are also concerns over the utility of the headset. A recent Bloomberg report also mirrors the NYT report and cites several executives who have expressed concerns over the lack of “vision”, with one comparing the headset to a “science project.”
It is said that Cook’s initial vision was light-weight glasses that people could wear all day. However, the Apple headset which the company will reportedly show off next month, looks like ski goggles and comes with external battery power. The Apple headset is said to have high-end displays and a physical dial to switch between virtual reality and real life.
No doubt the Apple headset is likely to be much more advanced than its competitors have shipped so far, but reports suggest Cupertino has been unable to solve the fundamental issue that niggles these headsets in the first place. Wearing headsets both in social settings or at the office is awkward. Even though the Apple headset will use external cameras to pass through video of the real world to the wearer, the headsets in general give the feeling that the person wearing them is disconnected from the world.
Bloomberg claims the headset project would have cost Apple over $1 billion annually. Apple has reportedly revised sales estimates down from 3 million a year to 900,000 a year, which gives an impression that the company isn’t too optimistic about sales of the headset in the short run.
Although Apple has years of experience in AR, it looks like Cupertino will take it slow with the upcoming mixed-reality headset. This approach is closest to the launch of the Apple Watch, when the company focused on many aspects of the device, rather than sticking to niche or two features, in an attempt to take feedback and work on improving the features.
But the Apple headset comes at a time when sales of high-end VR/AR headsets are low. The market for headsets is tiny in its current form and there is no dominant player in the VR/AR space. That’s quite a different scenario from when Apple launched the iPhone. BlackBerry and Nokia were huge, but Apple had a superior product in the form of the iPhone with the right software and design. Apple took the time to perfect the phone right and understand what consumers really wanted, and the iPhone gamble paid off. Right now, consumers aren’t interested in a headset because they see no value in them. A low turnout of headsets means brands and ecosystem partners are not making money. Apple is, in fact, taking a risk to launch the headset when the iPhone is at its peak.
Experts say Apple needs to convince people that the headset is a better computing platform than the iPhone but that’s going to be a hard task. It could work in favour of Apple or go completely wrong. With Apple reportedly charging $3000 for its headset, it will probably not be for the mainstream consumer market. Apple could pitch it as an enterprise device or pitch it as a “hobby” product aimed at enthusiasts.
If that is the case, the first-generation product will be used to bring developers working on content and apps. That solves the problem of software on these headsets but Apple still has a long road ahead to make the wearable computer ready for mainstream users.