Google: Getting Serious About Virtual Reality

| About: Alphabet Inc. (GOOG)


GOOG is creating its dedicated VR division as VR reaches an inflection point for mass consumer adoption.

Search, ecosystem and entertainment will be three key areas for GOOG to capitalize on.

Remain bullish on GOOG.

Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is the latest tech giant to increase its focus on virtual reality by creating its dedicated VR division. In my view, VR will be the future of entertainment and potentially the next computer so it is not a surprise to see GOOG, Facebook (NASDAQ:FB), Sony (NYSE:SNE), Microsoft (NASDAQ:MSFT), Samsung and HTC are moving into this area. As for GOOG, the possibilities will be endless - starting with its core search business, followed by its entertainment/media business in YouTube, and other smaller segments in messenger, apps and games. With FB's Oculus already hitting the market and that Sony and HTC both are scheduled to release their own consumer VR later this year, it's not difficult to see mass adoption picking up in late 2016 and 2017 as the hardware price declines and the quality picks up. Below I will highlight several areas where GOOG can excel in VR but it's safe to say that VR will likely be the future and GOOG has the right assets to capitalize on this trend.

First, search. GOOG's VR-search could potentially simplify the search experience by immersing the user into a VR world where search results such as text, audio and video are presented to the users in an organized fashion and allow the users to freely sort through the results to find the ones that are most suitable to their needs. Sorting through multiple search results in the current world involves going through different browser tabs consecutively. However, in the VR world, the tabs can all be presented to the user at the same time, given the user's clear view on the relevant results. This greatly enhances user productivity and I think this is where GOOG can differentiate relative to those from its peers, which focus mostly on entertainment.

Second, ecosystem. GOOG already offers affordable Google Cardboard but the issue is that the quality is rather poor and the experience is simply not comparable against the high-end Oculus device offered by FB (see - Facebook And Oculus Rift: The Price Is Right). The good news for GOOG is that hardware cost is coming down which allows GOOG to migrate from the existing product to a more affordable mainstream product powered by GOOG's own VR software. Judging by how Android drove much of the smartphone growth by penetrating into the low-cost handset segment, GOOG could mimic a similar strategy in VR and push its own version of an VR ecosystem by leveraging the affordable VR hardware that is being produced in Asia. Controlling 80% of the mobile handset OS and another 80% of VR OS would give GOOG an upper hand in the future computing platform.

Finally, entertainment/media. GOOG's YouTube videos are already compatible with VR. Given the engagement shift from traditional TV media to online and YouTube could potentially be the next TV bundle, securing the VR asset to deliver the future of entertainment will be critical for GOOG to drive further ad revenue as some parts of ad market start to reach maturity.

Conclusion, VR is here and it is staying. As matter of fact, I believe this could grow to be the next computer, browser or entertainment gateway. GOOG's focus on VR highlights its importance and I think GOOG is well positioned for the VR trend.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.