Can Facebook Challenge Microsoft In This Next-Gen Market?

Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT) both recently filed patents for new AR (augmented reality) devices that resemble regular glasses instead of bulky headsets.

This idea isn't a fresh one -- Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google Glass, Snap's (NYSE:SNAP) Spectacles, and Magic Leap One all attempted to crack this next-gen market with smaller devices, but they only attracted a niche group of tech enthusiasts. Will Facebook and Microsoft fare any better in this fledgling market?

Why Facebook wants to enter the AR market

Facebook mainly focused on the virtual reality (VR) market after its acquisition of Oculus in 2014. But in 2017 CEO Mark Zuckerberg stated that Facebook wanted to "eventually" develop AR glasses, but didn't have the "science or technology" to build the device that it wanted yet.

In late 2018 Facebook confirmed that it was developing a pair of AR glasses, but stated that there weren't any plans to launch a product. In early 2019 it restructured its AR and VR "Reality Labs" research unit, and officially launched a dedicated group for creating AR glasses.

At Oculus Connect 5, Facebook Reality Labs Chief Scientist Michael Abrash stated that its AR glasses should weigh less than 70 grams and be "socially acceptable" -- unlike the first version of Google Glass, which was widely mocked for its awkward design and protruding camera. Facebook's device looks like a pair of regular sunglasses in its patent filing, and could offer a wider field of view (FOV) than Microsoft's HoloLens or the Magic Leap One.

Facebook could leverage its first-mover's advantage in the VR space to sell its AR glasses. Demand for its PC-bound Oculus Rift headsets remains tepid, but SuperData recently reported that its cheaper stand-alone Oculus Go headsets fared much better, with over half a million shipments during last year's holiday quarter. SuperData expects Facebook's next-gen stand-alone VR headset, the Oculus Quest, to ship 1.3 million units this year.

Facebook likely sells these stand-alone headsets at thin margins (or even losses) to tether more users to the Oculus platform, which offers VR content and social activities linked to Facebook. This strategy could gradually expand Facebook's ecosystem beyond PCs and smartphones and produce fresh opportunities for gathering data and selling ads.

At Oculus Connect 5, Abrash stated that Facebook could blend its VR and AR platforms, which means that it could tether its AR glasses to the Oculus platform. Facebook users could theoretically take pictures of their friends with the devices, use AR overlays on photos, videos, or real-time content, make video calls, and view VR content -- all on a single device. Those features could help Facebook easily leapfrog other AR glasses on the market.

Understanding Microsoft's long game in AR

Microsoft has two main plays on the AR/VR market: the HoloLens AR eadset, which was initially released for developers in 2016, and Windows "Mixed Reality" headsets, which are developed by third-party OEMs. These devices are designed to tether users, especially in the enterprise market, to new AR/VR-oriented features in Windows 10.

However, Microsoft hasn't launched a cheaper commercial version of the HoloLens yet, and the next version -- which it's expected to reveal at Mobile World Congress in February -- will likely be another developer-oriented device with a high price tag.

Meanwhile, its Windows "Mixed Reality" headsets are merely mid-range VR headsets instead of AR headsets like the HoloLens. Microsoft's Mixed Reality Portal, which is similar to Facebook's Oculus Home, serves as a front-end for VR content.

The design in Microsoft's latest patent resembles a miniaturized HoloLens tucked into a pair of Oakley-like sports sunglasses with built-in headphones. The filing also includes designs for control bracelets and rings. The timing of this filing indicates that the device probably isn't the second-generation HoloLens. Instead, it's probably an early concept design for the commercial version of the HoloLens

Which company has a better shot at succeeding?

IDC still expects shipments of AR/VR headsets to surge from 4.2 million units in 2018 to 53.1 million units in 2022. That massive growth rate indicates that there's probably room for Facebook, Microsoft, and other companies to launch AR devices without trampling each other.

However, Facebook could face a tougher uphill battle than Microsoft in the AR market because of its ongoing privacy and security debacles. The launch of its Portal smart screen was tone deaf and poorly timed, and mainstream users could balk at the notion of wearing "Facebook on their faces."

Microsoft might fare better, since Windows 10, Office 365, and Azure give it firm footholds in the enterprise market. But a new hardware device could still wither quickly without adequate software support, so Microsoft must win over more developers and companies before it launches its AR glasses. That's probably why it's taking a much slower approach to this next-gen market than overly eager companies like Google and Snap.

This article originally appeared in The Motley Fool.

Leo Sun is a Tech and Consumer Goods Specialist who has covered the crossroads of Wall Street and Silicon Valley since 2012.The Motley Fool has a disclosure policy.