Google Making Next Big Steps Into Virtual Reality?

| About: Alphabet Inc. (GOOG)


FT reported that GOOG is working on an improved VR headset.

Positive implication to GOOG as it expands its ecosystem beyond smartphone to VR.

Expect product announcement closer to I/O conference, full launch in expected in September.

The Financial Times reported that Google (NASDAQ:GOOG) (NASDAQ:GOOGL) is developing a new virtual reality headset for smartphones similar to that of the Samsung (OTC:SSNLF) VR Gear. GOOG's VR headset is reported to be heavily integrated with its Android OS and is expected to be unveiled at the I/O conference in May. Given that VR/AR will likely to be the next computing platform, I expect the ecosystem battle between Android, Samsung and iOS to be waged on the VR front as the smartphone market reaches maturity.

While Apple (NASDAQ:AAPL) set the standard for the smartphone market that we know of today, it was really Android that mass commercialized a low-cost mobile OS that drove much of the smartphone growth over the past decade. Looking ahead, I expect GOOG to leverage its experience in Android and relationships with VR hardware makers to mass commercialize Android/Nexus VR. This will ultimately drive GOOG's position in search, media and apps. GOOG's solid Q4 showed us that the core business remains strong, YouTube continues to take ad dollar share away from TV and the Other Bets could lay a multi-year runway for the company's growth outlook. GOOG remains my top internet/tech pick and I also reiterate my cautious view on AAPL given its single-product concentration risk in the iPhone.

GOOG has already established its presence in VR with its Cardboard that has already attracted over 5m users since launch. Cardboard delivers a VR experience in its most simplistic form as it relies on sensors built into the smartphone to detect the position of a user's head. However, the lack of extra sensors does not give the user a realistic VR experience. On the other hand, the new VR headset, which potentially could be called Nexus VR, will feature improved sensors, lenses and more durable plastic casing. The device will be smartphone-based similar to the Samsung VR Gear that relies on its Samsung Galaxy smartphone for much of the processing power. In terms of pecking order, I would argue that this is a certainly an improvement from the Cardboard but not as competitive as the high-end Oculus by Facebook (NASDAQ:FB) or the Sony (NYSE:SNE) PlayStation VR.

In my view, VR will be the next computing platform and the need to establish a dominant ecosystem (ie. computing standard) is one of the main reasons on why multiple technology companies are focusing so much into this space. One the one end we have Samsung and Facebook which already released their VR models while Sony and HTC are not far behind. Microsoft is pursuing AR as an alternative to VR while AAPL and GOOG are both looking to create their higher-end versions.

GOOG's best leverage to VR lies in productivity, big data and multimedia. With search, YouTube, Android and the app ecosystem in place, GOOG needs an established VR platform to integrate these components to deliver a holistic VR experience and will most likely leverage Nexus flagship brand to set the standard that other manufacturers can build on. Judging by GOOG's historical product launch schedule, we could see Nexus VR hit the market by September.

Conclusion - GOOG's mass market strategy with VR will likely to replicate the success it has achieved with Android. Given that FB and SNE's VR remain a niche product designed for hardcore gamers, Nexus VR will likely gain broader traction, thereby helping to drive the growth of the overall industry.

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.