Why do we think that some combination of AR wearables will eventually replace our smartphones? In short: because the customer is always right. Or, more specifically, solving customer problems is the best way to create value.
I’ve been a regular and frequent reader of Daring Fireball for over a decade, because John Gruber always has a great read on Apple’s strategy. I felt like his iPhone anniversary piece, Perfect Ten, was the iPhone tribute I didn’t write. And I bet a lot of people feel that way.
But I think he’s wrong about Apple’s plans for augmented reality as a core technology. In his response to our 5-year Apple model, Munster’s Model, he nails it: “ARKit exists because ARKit is going to be useful and fun on iPhones and iPads today.” That’s true, but what about tomorrow?
At first, and for a long time, AR will be best experienced through our phones as a window into an augmented world. Again, we believe Apple sees the AR future as a combination of the iPhone and some combination of wearables. We expect Apple to sell just 3.4m units of Apple Glasses in FY20 compared to 241.7m iPhone units in the same period. And again, Apple will carefully choreograph the handoff, once again embracing the innovator’s dilemma and upgrade consumers to a superior device. Because eventually, through miniaturization of hardware, improved sensors, improved battery technology, and changes in public perception, AR will be best experienced through wearables. Even after multiple iterations, we expect 30.2m units of Apple Glasses in FY22 vs. 235.2m iPhones in the same period. Not until 2026 do we expect Apple Glasses to overtake the iPhone as a percentage of Apple’s revenue, and even then Apple Glasses will be roughly 35% vs. the iPhone at 30% of revenue.
Back to solving customer problems: The iPhone changed the world because it put an internet-connected personal computer in our pockets, thereby solving countless problems. But the iPhone leaves us with new problems. We’ll eventually look back at the turn of the century and wonder how we could spend so much time looking at our phones. While we eat. While we walk down the street. While we drive. iOS 11’s new Do Not Disturb While Driving “feature” is not the solution to our screen problem. AR is the solution to our screen problem.
AR will create the screenless future without compromising our access to information. In fact, AR will improve and expand our access to information.
For some reason, many people think the idea of wearing some sort of lightweight wearable as a replacement to a phone is unthinkable. However, if you have AirPods, how often do you keep one or both in your ears? Mine are in pretty much all day long, even if I’m not using them. And I, along with the other 64% of adults, also wear glasses. Design is Apple’s core advantage over every other tech company, and I fully expect Apple to design glasses that feel like they are only “on” when you need them.
Each of Apple’s major new product launches in recent years (Apple Watch, AirPods, HomePod) helps to solve the screen problem by providing easier access to digital information by augmenting reality. Using haptic, audio, and speech user interfaces, we are less reliant on touchscreen user interfaces. Clearly, the company is “pulling a string.” As they design increasingly immersive computing platforms, and as technology allows for smaller, better computers, these devices will take “computing share” away from our phones and put it on our wrists, in our ears, and in our field of view – the screenless future.
Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.