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Summary

  • Google Glass has come under intense criticism over the past year, essentially being declared dead before arrival.
  • Many of the criticisms are false, overblown or explainable.
  • Google's search revenues allow it to experiment around with ideas such as Google Glass.

For the past year Google Glass (NASDAQ:GOOG) (NASDAQ:GOOGL) has been heavily criticized by the press and this criticism has really picked up steam recently; with many seeming to believe that the product is finished and dead on arrival (as seen here, here, and here). The thing is, Google Glass hasn't even arrived yet. Recently Google Glass was released for sale to the public at $1500. However it is still in Explorer Mode, which is code for beta mode. A lot of the problems pointed out are false, overblown or explainable. I'm going to run through a few of the most common criticisms and give my take on it.

No Demand

A recent TechCrunch article stated:

"Last week Google made Glass available for purchase to anybody who wants to pay $1,500 for it. You'd be forgiven if you didn't notice. What started out as one of Google's most hyped products more than two years ago, now finds itself on the brink of failure. It's unclear how many people bought Glass this week, but it doesn't seem like there was a massive run on it. Two years ago, that would have been unthinkable."

The problem with that is there is no basis for the writer to say that there was no "massive run" for it, and that the hype surrounding it has faded (the rest of the article does take a more ambivalent view on Google Glass). On the contrary, there is evidence that suggests that Google Glass is still in high demand. On April 15, 2014 Google temporarily put Google Glass up for sale for $1500 and sold out its entire inventory that day.

Google Glass also suffers from the perception that it is solely for geeks, and that limits the amount of people that would buy it. However, Google is working on making the glasses less geeky, and has made them compatible with prescription lens, which should open up a key market for Google. Also, being a geek is increasingly becoming more and more acceptable.

Another huge market that Google Glass could be sold to is the US government.

About a month ago it was reported that the Air Force "is beta-testing Google Glass for possible use on the battlefield. And so far, it likes what it sees." Government contracts tend to be rather lucrative, so that's definitely a positive for Google. Google Glass would also be extremely useful for spy craft, albeit it would cost Google more to make a subtler version that could be used surreptitiously. This would allow them to charge the government more for those types of glasses as well.

Pricing

One of the biggest criticisms of Google Glass is that the price is extremely high, especially for a beta product. There have been numerous teardowns, which show that the price to construct one is far lower than 1500, with Techinsights estimating that Google Glass costs about $80 and IHS estimating that it costs $152.47. Google has denied these claims, but they are likely including the costs of research and development in its decisions on how to price Glass. However, if these teardowns are even close to accurate (perhaps costing $200 for the actual construction), Google Glass could sell for as low as $300 or $400 once it gets out of beta. That's significantly lower than $1500. I would guess that Google is selling it for $1500 right now because it doesn't want to get overwhelmed by new orders (it does have a limited inventory), and only want people who really want Glass to test it out right now. That way they can improve upon it without diverting too many resources to it. The fact that Google had so little Google Glass in its inventory on April 15 also gives evidence to the fact that Google is not trying to get everyone to get it just yet. Another reason may be that the lower price they will eventually charge will feel so significantly different than the current $1500 price tag, that Americans will feel that Google Glass is "cheap" when it actually may just be fairly priced, or fairly priced even if it's still somewhat expensive.

Another criticism that largely stems from the pricing is that Google Glass is an elitist product. This has been compounded by the anti-tech protests that have been shaking up San Francisco for the past few months. Prices going down should help eliminate that perception, at least nationwide. Whether that perception will be eliminated in San Francisco is less certain. Additionally, Google hasn't been working very hard to market Glass to the masses so far, so Google Glass's reputation will likely improve further when they start doing so.

First Mover "Disadvantage"

A recent Seeking Alpha article points out how BlackBerry (NASDAQ:BBRY) was one of the first innovators in the field of smartphones, just as Google is one of the first innovators in the field of wearable technology. It's well known how Apple (NASDAQ:AAPL) came out with the iPhone and crushed BlackBerry, partly because it was able to learn from BlackBerry's mistakes. The thing is, Google is not comparable to BlackBerry in this case. It has not actually released any wearable technology, and has been learning from its own mistakes for two years now, working on improving Google Glass based on feedback they get from its Explorer Program. Apple is also rumored to be releasing an iWatch this year, which means that Apple will likely release a high-end piece of wearable technology before Google takes Google Glass out of beta and truly releases it for sale to the public.

The article also points out that Google has probably spent more on Google Glass than they did on Android, but they also spent far more money on Nest than they did on Android. Google is a totally different animal than the Google of 2005. It is very cash-rich, derives the majority of its net income from a totally different sector than wearable technology (unlike BlackBerry, which relied on smartphone sales) and can afford to waste money to break into a new field, as management is thinking long-term.

Privacy

This is probably the most serious issue concerning Google Glass, especially given the increased scrutiny on Google as a result of the NSA revelations. Google itself has recognized this issue and commented upon it, saying:

"If a company sought to design a secret spy device, they could do a better job than Glass! Let's be honest: if someone wants to secretly record you, there are much, much better cameras out there than one you wear conspicuously on your face and that lights up every time you give a voice command, or press a button," explains the post."

Given that Google Glass lights up when you're recording, I feel that the fears that it'll be used to subtly record people are overblown. Google further comments on the privacy issue, saying "Meanwhile, on privacy, Google draws a comparison to the first cameras in the late 19th century, suggesting that then, as now, claims that a new technology marked 'an end to privacy'" were overblown. "Today, there are more cameras than ever before. In ten years there will be even more cameras, with or without Glass," it says. This is a bit overly dismissive, but the point Google is making is that Glass really isn't the end to privacy that many people try to make it out to be. Exaggerative claims from the media on cameras didn't stop the camera from gaining widespread popularity, and they won't stop Glass either.

Conclusion

Another criticism is that Google Glass has low battery life, but it is currently in beta mode; technical issues like that are expected. I doubt the final product will suffer from low battery life.

What you don't say can be just as important as what you do say, so I'd just like to clarify that I myself do not own Google Glass, but I will probably buy it should it become cheaper.

Given Glass's success on April 15, I believe that Glass (once it gets out of beta and the price comes down) will be able to contribute significantly to Google's revenues, and help Google diversify its business. Glass combined with the growing online advertising market and Google's other long term bets on the future (such as self-driving cars) make Google look like a rather attractive long term investment.

Disclosure: I am long GOOGL, AAPL, BBRY. 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. I have large positions in Apple and Google, and a small speculative position in BlackBerry.

Source: In Defense Of Google Glass