Around a year ago, I wrote up an article stating that Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Glass was being underestimated, and would find more success than journalists and analysts seemed to believe. Unfortunately, since then, it seemed like I was entirely wrong, with reports breaking out in January that Google was planning to kill Google Glass entirely. However, it turns out Google Glass had just been shifted to being marketed exclusively to enterprises. In a sense I was still wrong though- I imagined Glass finding success as a consumer product, but this seems very unlikely at this point, at least for the neat future. Of course, Glass succeeding in the workforce isn't at all guaranteed either, which is why I'm going to examine how likely Google glass is to succeed in this article (and what this potential success would mean for Google)
The biggest key advantages Google has in general right now are that the potential applications for Google Glass in the workplace are vast, that the wearable market is still young, and that Google is very well known, has abundant financial resources and very intelligent people.
As far back in 2013, a business was using Google Glass for practical purposes - this was done by buying Glass from Google, and then creating their own custom app. The business is known as Sullivan Solar Power - workers needed a hands free way to access specs and browse documents, and Google Glass provided them with this. Their custom app allowed them to easily view the specs and documents. However, this method obviously isn't ideal - instead Google should sell Glasses equipped with custom apps, similarly to how IBM (IBM) is currently creating custom enterprise apps for iPhones/iPads (AAPL). Google has a key advantage in this regard in that they have the best of the best engineers - they can handle both the software development and actual physical Glass product. This allows them to capture even more of the potential revenue as profit. Google is planning to sell the Glasses themselves for less than $1500, but with custom software, they could charge a higher price, as they would be providing greater value.
It would also be easier for Google to write the apps, since Glass is a very unique and new interface. They aren't going to be able to sell many Glasses if they expect every company that buys their product to figure out best practices for making Glass Apps on their own. They also won't have any/very limited independent developers on their side to make apps, unlike the Apple Watch, since this product isn't being launched for consumers.
With a custom app selling strategy, Google can break into multiple industries. One large potential market would be the military - being able to read and process information hands free on the battlefield would be extremely valuable. The US alone spends around 700 billion dollars on the military, making this a potential billion-dollar industry for Google to sell to. Another similar market would be police officers - Glasses equipped with facial recognition software would also be very valuable. Any industry that requires the use of a person's hands - manufacturing, oil rigs, construction, etc. could benefit from using Google Glass, especially with custom apps built for their specific industry.
Google's strong cash position is less useful for marketing to businesses than it would be for consumers (massive advertising campaigns wouldn't be particularly effective), but their reputation will certainly help them sell to businesses. Their resources will help them greatly if they should pursue a custom app strategy, and it will allow them to scale very quickly.
A key risk though, is that Google's Enterprise division - Google Apps for Work has seen very limited success. It hasn't made much of a dent in its most direct competitor's - Office 365 - growth, and their cloud services in general is not a market leader, or close to it. There doesn't seem to be much of a focus on the enterprise from the wider company, which will make success very hard. Amazon (AMZN), Microsoft (MSFT) and IBM all have made strong commitments to the cloud, and they're winning the race right now, with Google being left behind, despite price cuts. Google Glass has a lot of potential if Google is willing to put some focus on it, and can articulate a vision for the product.
The "father of the iPod," Tony Fadell is in charge of Google Glass right now, which gives me some hope on the issue of focus, given how famous Apple is for focus. Another positive is that Google doesn't have any competitors that can really compare to its financial or reputational might right now. Given these two factors, and the advantages Google already has, I believe that Google Glass has a strong chance of succeeding.
Given that the total Internet of things market is predicted to be a multi trillion-dollar market by 2020 by multiple research firms and the wearable market alone is predicted to be worth near 100 billion, the opportunity for Google Glass is vast. Of course, the actual profits will depend on their pricing for Glass, cost of materials, and the strategy that they choose to pursue in selling Google Glass. However, the downside risk isn't particularly great while the upside is high, given that no analysts are projecting much, if any revenue from Google Glass in the upcoming years.
Google currently isn't as attractive as it used to be, given a massive jump after its most recent earnings, but it is still slightly undervalued to fairly valued, given its mid teens growth rate, coupled with its roughly 20 P/E. Potential short-term catalysts would be a buyback - if there is one I believe it would be on the GOOG shares, given the large gap that has developed between it and the GOOGL shares. It could also be on both shares, with a larger focus on GOOG. Google Glass may provide a pleasant surprise to investors in the coming years, and even without a success in that front, Google is a buy.
