Google Launches The Glass War: Winners And Losers Abound

| About: Alphabet Inc. (GOOG)

"There will be Apple Glass, and Google Glass, and RIM (now BlackBerry) Glass. These companies are all working on glass. I think everyone is going to be making glass. I think we're also going to have a glass war instead of a smartphone war."

-- Augmented reality pioneer Steve Mann, as quoted by Patently Apple

Recently, events are showing that Mann's words ring true. On February 27, Google (NASDAQ:GOOG) co-founder Sergey Brin publicly moved up the timeline for Google Glass from 2014 to late 2013. In doing so, Brin also launched the latest salvo in the global battle for mobile computing dominance.

Originally dubbed Project Glass, Google created a major buzz last year with a video depicting what a typical day might look like with its revolutionary glasses. On Wednesday, Brin wowed the audience at the TED 2013 conference by demonstrating Google Glass in live action. He put an exclamation point on the event by announcing that the augmented-reality glasses will be available in time for the holidays.

Over the past several months, I have researched this subject with my team at Pipeline Data. We determined that the implications for technology vendors are much farther-reaching than most investors currently realize.

For starters, this announcement officially moved up the timeline for smaller companies that have been waiting for a killer app to take their offerings across the chasm. For example, Google Glass will be highly dependent on voice-recognition technology. This should raise demand for Nuance Communications (NASDAQ:NUAN) as GOOG's competitors rush to play catch-up.

Specific to Google Glass, Himax (NASDAQ:HIMX) may be the first major beneficiary. This $800 million company supplies microdisplays, which allow users to view computer-generated data on high-tech glasses like Google's. Further details can be found in another Seeking Alpha article, "Google Glass Coming Early; Shares Of Himax Are Poised To Triple."

At $50 or even $5 per unit, a vendor like HIMX or NUAN can see revenue growth accelerate overnight. Thus, the stakes for companies like this are very high. However, the stakes are just as high for GOOG's giant smartphone and mobile operating system competitors. If consumers begin using smart-glasses as their interface to smartphones, the war for market share could abruptly move to this new battlefield.

Not surprisingly, our research uncovered that the major mobile players are all urgently investigating their answer to Google Glass. Among the largest players, Microsoft (NASDAQ:MSFT) recently filed patents in this field. Apple (NASDAQ:AAPL) has also been busily working on the intellectual property front.

With GOOG's attempts to wedge its way into operating system prominence, MSFT and AAPL's moves make perfect sense. The battle for Internet dominance is being fought along multiple fronts, and each one needs to be fortified by the incumbents. The market is moving with remarkable speed, amplifying each misstep. AAPL and BlackBerry (NASDAQ:BBRY) found this out the hard way in 2013.

Speaking of BBRY, we found scant evidence that it's in advanced stages of developing an answer to Google Glass. Of course, the company has had its hands full trying to catch up in the smartphone OS market. If glasses turn out to be the next battleground, it seems likely that BBRY will find itself behind yet another eight-ball.

Among the Asian smartphone manufacturers, Samsung (OTC:SSNLF) and SONY (NYSE:SNE) have been reportedly active in this space as well. From our perspective, both vendors obviously recognize that multiple markets are being attacked. Thus, regardless of whether they hope to battle in the OS market, the smartphone market, the interface (glass) market, or all of the above, it is currently critical to assess each market and their interconnections.

No matter which direction these vendors take, it's clear that Google will be making the first major move in the glass war this year. The move won't be a passive one, either. Not only is it being proactive by being first to market, it is also going on the attack by making Google Glass compatible with iPhones.

With this latest development, investors now have another important factor to watch. Owning a dominant mobile operating system or a popular line of phones - or both - is not enough. The user interface is expanding, and thus, so are the criteria by which companies will be judged. By year-end, we predict that winners and losers will be exposed on the basis of their competitive breadth or contribution to enabling a key player's dominance.

The success (or failure) of Google Glass will be surely be the next major event to drive investor sentiment regarding the shifting landscape of winners and losers.

The handicapping has already begun. In 5 short months, Apple transformed from the dominant mobile force to a Samsung/Android victim. The once innovative geniuses are now viewed as falling behind the curve. It still holds a strong position with its phones and iOS operating system, but it seems to be lacking in adjacent areas, such as glass.

Meanwhile, Samsung is running amok in the smartphone market, but is clearly a one-trick pony at this stage. No operating system. No glass. The company has essentially acknowledged this strategic weakness by announcing plans to launch phones based on Tizen, a mobile operating system it has co-developed with Intel (NASDAQ:INTC).

It is interesting to note that both Apple and Samsung sport unimpressive P/Es, around 10. Meanwhile, Google, with its leadership in Search, Android OS, Motorola Mobility unit, and pending push into augmented-reality interfaces (Glass), looks very well-rounded. Is it any wonder that its P/E is nearly double that of Apple or Samsung?

Indeed, while most investors and techies have been eyeing Glass as another cool gadget, we believe Google and its competitors know that it represents something more. It represents the next dimension in the mobile wars and the increasing strategic gap Google seems to be forming.

Disclosure: I am long AAPL, GOOG, HIMX, NUAN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.