Apple: Vision Pro Could Be Terrible News For Apple

Summary

• Apple just showcased the Vision Pro on Monday.
• There are some cool functionalities, but I have a lot of concerns.
• AAPL runs the risk of cannibalizing the rest of its products.
• META already has a strong hold on the AR/VR market, and it won't be easily displaced.
• Looking for a portfolio of ideas like this one? Members of The Pragmatic Investor get exclusive access to our subscriber-only portfolios. Learn More »

skynesher

Thesis Summary

Apple Inc. (NASDAQ:AAPL) recently presented an array of new features, upgrades and products at the 2023 Worldwide Developers Conference. The most anticipated announcement was the launch of the Vision Pro Headset, an AR headset that will work in conjunction with existing products to take the computer experience to the next level.

While I expect Apple's headset to do well initially, I have some concerns about the long-term viability of the Vision Pro Headset. What will be its ultimate use? And how will it compete with the already popular Oculus Quest developed by Meta Platforms (META)?

In this article, I dive into the pros and cons of the Apple headset and reach my conclusions on the future of this technology.

Here's What We Know

The last time Apple launched a major new product was the Apple Watch in 2014. Almost 10 years later, they finally launched a new product with the Vision Pro Headset. The headset will be available for sale next year, at a retail price of $3,499.

So what is the Vision Pro? In the words of Tim Cook himself, "It's the first Apple product you look through, and not at". The Vision Pro headset creates a limitless canvas on which users can experience the digital world. Users will be able to connect their devices to the headset by simply looking, and everything on your Mac will be displayed on the headset.

This AR headset, unlike others on the market, will be controlled fully by voice, vision, and hands without the need for any additional hardware. Another neat feature will be the integration of a 3D camera.

But what exactly will this headset be used for? Everything you can do in a 2D device, you will be able to take to the Vision Pro, but the real innovation will be in the use of apps that can be improved through the 3D experience. Gaming, entertainment, and video conferencing are just a few.

In Monday's presentation, Apple showcased a 3D version of FaceTime, which also includes the use of AI-generated avatars, "personas".

Though I am personally very curious to see what more the Vision Pro can do, there are also a fair few issues with the problem, and one of them is a biggie.

Issues With The Vision Pro

Like with any new technology, there are a fair few issues with Apple's now headset.

For starters, the AR experience is unnatural to most humans. Nausea is common, and the VR is also reportedly quite heavy. These two issues were reported by The Wall Street Journal's Joanna Stern.

Battery time is another issue. The headset should allegedly carry a 2-hour battery life, which is not that long, and using the device plugged in might not be an option.

And of course, the price is a big one; at $3,499, this piece of hardware is seven times more expensive than the Oculus 2. Even if the Vision Pro is significantly better, is it seven times better?

The above are just some minor problems with the headset which we can overlook. However, I see two major problems for Apple moving forward.

Firstly, we still have no idea what Apps will be available for the headset. Apple will have to entice developers to create Apps before the product launch.

We always viewed this first generation device as a new tool/platform for developers - who now have 6+ months until the headset launches - to create the 'killer app' that takes AR/VR from niche to mainstream,

Source: Morgan Stanley analyst Erik Woodring

Apple will make developer kits available so third parties can start working on new software immediately. Still, stocking the Vision Pro app store will be a big challenge, and the offering might be limited.

More importantly, though, I fear that the Apple headset could cannibalize the rest of its products. So far, Apple's products have all been developed to work seamlessly and simultaneously. You type on the MacBook while listening to music on your AirPods and scroll through social media on your iPhone.

Supposedly, through the Vision Pro headset, one could do all of these things simultaneously. No need to buy the 4K Apple TV, or the iPad, when you can track your movements through the headset and enjoy the complete 3D experience on the headset.

The Vision Pro will only succeed if all else fails.

Apple Is Not Alone

Beyond this, my other main concern is that Apple is late to the game. This market is already highly dominated by one of the largest corporations in the world, META, which I wrote about a few months ago.

In 2022, 80% of the AR headsets sold were Oculus Quest 2. META is a dominant player in this market, which is expected to grow at a CAGR of 37.8% through 2030.

META just recently announced the release of the Oculus Quest 3, while simultaneously lowering the prices for the Oculus 2.

While I am sure that the Apple Vision Pro will garner the attention of millions of Apple fanatics around the world, I don't think it will be able to compete for a significant share of the broader market. If you ask me, Apple is late to the game.

Final Thoughts

While I am excited to see what Apple has to offer, I have some major concerns about the Vision Pro. The biggest one is the possible cannibalization of its other products, followed by the lack of apps developed for this specific hardware so far. I am bullish on AR/VR, but I believe that META is much better positioned to profit from the growth of this segment.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of META either through stock ownership, options, or other derivatives. 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.

Comments

[TurboRocker]

Meta sells a clunky device that usually ends up in people's closets several weeks after purchase, and the minority that continue to use it, use it exclusively for gaming.
Totally different market.

[B26354]

@TurboRocker As a regular global traveler I'm considering a VR like headset for watching content with big screen experience, for long travels, before bed, etc. I'd pay up to $500 (could be easily stolen) but it also needs to be smaller than Apple headset, backpack friendly. I don't care about computing functions as I'd prefer a laptop for all of that. I want a media headset, the smaller the better.

Apple's Vision scope is way too broad for my needs, overkill. The battery pack is also off-putting, granted it's 1.0. It will have its use cases and hardware will improve over time but there will be room for other AR/VR players targeting other needs at lower pricepoints.

[TurboRocker]

@user10343 - "Apple's Vision scope is way too broad for my needs, overkill. "

I don't think Apple had you in mind when they brainstormed on the product.

"over time but there will be room for other AR/VR players targeting other needs at lower pricepoints."

As is the case with most devices. Not sure what your point is.

[B26354]

@TurboRocker You implied others end up in closets. Many lower cost devices will be useful for certain things like media consumption, not just gaming. A $3500 device with heavy materials and wired battery pack is not practical for most people yet. That is a reasonable point.

[SA-NJ52]

@DocEvil

I too am an AAPL investment groupie. My single biggest investment mistake has been selling AAPL too soon.

I now hold the stock in BRK.B and various ETFs. I will wait for the price to fall before I buy it directly.

We are in a 1999-like AI boom right now so that opportunity won't happen for some time.

So even if I don't think much of the goggles product, the groupies will overrule me and will blindly buy the product....so I will still make money.

@SA-NJ52

[Life is good]

One can argue you don't need an apple watch, since you can get the time and health monitoring on the phone. Really, don't overthink this one. There will be a few people that buy this pricey product and it will take years for the product to develop and software to use on it to be developed. It will not move the needle for years.

[1st1]

@Life is good 500,000 units in the first year. 50,000,000 units by the fifth year. 100,000,000 by its tenth year.

[SA-NJ52]

@bart_sst @DocEvil

Since I am not an AAPL groupie, I don't simply accept that whatever AAPL is doing must be right.

I paid 400 for my Ipod many years ago. This was a high price but it was an innovative product that deserved a premium.

But if the cost was 2000 I would have passed and waited for another product or another solution.

This is the situation with the goggles. If there was an onboard 6 hour battery and the product cost 1000-1500, it would be a winner.

Right now, it looks like the Apple Newton.

@SA-NJ52

[DocEvil]

@SA-NJ52 Just to clarify, I'm not an Apple groupie but I am an Apple investment groupie. That said, historically there have been very few Apple products that miss the mark. For that reason, I will give them the benefit of the doubt until they prove me wrong.

[No Guilt]

@SA-NJ52

Do you own the Zuck goggles?

[IndiSamurai]

same was said during iphone launch.

[Ron Seybold]

All those Meta headsets, gathering dust. Like the digital music players of 20 years ago, until the iPod. Or the tablets disappointing everybody until 2010 and the iPad.

[DocEvil]

In the words of Steve Jobs "If we don't cannibalize our products, someone else will." Worrying about cannibalization is what Blockbuster and JCPenney's exec. do.

Saying that "META already has a strong hold on the AR/VR market" reminds me of those who said the same thing about Blackberry. And what about the iPhone cannibalization of the iPods???? Rehashing the same decade-old arguments.

Success or failure in the hardware market is dependent on software development. If Apple manages to invent another App Store it'll be a hit, if not it'll die. Way too soon for articles like this one where authors simply repeat negative opinions with no evidence.

[dima_b]

@DocEvil " reminds me of those who said the same thing about Blackberry" it shouldn't remind you of that because Blackberry and Facebook are not comparable. At the very least FB's market capitalization today is 7x of Blackberry's at its height in 2008. Second, today Facebook is probably the next most desirable destination for talent after Google and Apple, while I don't remember it ever been prestigious to the same level to work for Blackberry (could/can non-geeks even name Blackberry's CEO?).

[DocEvil]

@dima_b On the other hand, Blackberry was a hardware company whereas Meta is an Advertising company. That would mean that Blackberry had much more talent invested in hardware development, more proficiency in hardware distribution, and, for Blackberry, it wasn't a second-tier priority as it is for Meta. Therefore Blackberry should have been the more formidable opponent.

[TurboRocker]

@dima_b - Dima, you would be better off just buying some Apple stock and joining the party. Sitting on the sidelines and watching it grow....as it goes the opposite way of all your negative expectations and biases re: Apple, can't be too much fun I don't think.

[TechStock Hunter]

Apple have a pristine record for strategy & product roadmaps. It takes a brave, or foolish, man to suggest their latest product doesn't make sense.

[dima_b]

@TechStock Hunter it definitely takes a foolish man to not critically and periodically evaluate one's investments

[TechStock Hunter]

@dima_b I do so on a regular basis, but I have learned that Apple rarely misstep - they have earned my trust over the years.

[DocEvil]

@dima_b Apple was one the top 10 best-performing stocks in May. What's to evaluate? They are at an all-time high... and in this market. Really, what more can you expect? If you're not invested in Apple you are losing ground every year. There's just nothing to argue about with Apple's performance.

[Paul T. Lambert]

Technically, it's very impressive with all that computing power and stunning visuals. Aside from the luxury pricing, only two major problems: (1) What do I use it for? (2) Not even Apple has managed to make goggles cool.

[davel]

@Paul T. Lambert

The demo was very clear on that. It is a virtual, mobile expandable screen. There are many applications.

1. You don’t have to buy a 100” tv.
2. You don’t need multi monitors for work or home

The first use case was as a replacement or augments for common work activities including conference calls.

[Paul T. Lambert]

@davel That's all fine and good, but all the previous VR entrants had the same capabilities.

[davel]

@Paul T. Lambert

That’s like saying at the intro of the iPhone all phones could do what it could
1. They could make phone calls
2. They had apps
3. They could connect to the internet

All true. All irrelevant

[Doggywag]

Goggles are so uncool.

[Paul T. Lambert]

@Doggywag Well, you may look like a dork, but who's judging? :-)

[tjmxxx]

@Doggywag what are you Fonzie, deciding what's cool and uncool?

[DocEvil]

@Doggywag True, very true but it'll evolve. The real revolution is in the visual interface, not the goggles. I'd expect that some company (maybe Apple) will evolve the medium away from goggles and refine the interface.

[Beartooth]

It may be a bold call……but personally I don’t think Apple will even exist in 10-20 years

[dima_b]

@Beartooth There is this AI researcher, Eliezer Yudkowsky, he has you beat in making bold calls. He thinks that in 10-20 years we won't even have a civilization. AI will have killed us all.

[nicholas__t01]

@Beartooth a bold call. Lol.

[TechStock Hunter]

@dima_b It won't be AI, it will be Big Pharma.

[WelshWB]

It won't cannibalise the sales in fact it is likely to be targeting a specific market namely the professional market C-level executives, doctors, senior engineers and etc.

The idea that an ordinary person will buy this tool is a little farfetched $3500 is a lot of money to stump out.

[firsTraveler]

@WelshWB Except Appleholics will buy anything with the Apple name plastered on it.

[WelshWB]

@firsTraveler I have a iPhone, iMac and an iPad but I can assure you I will not be silly enough to buy this. As amazing as it looks I can't justify buying something for so much.

All of my Apple products are on the budget end and there are plenty of people like me. In 2020 one of the most popular model was iPhone SE 2020 a budget iPhone. This vision pro is super expensive the next closest thing to this in terms of price is a Mac Pro which is responsible for 11% of computer sales.

[smadadet]

The vision Pro is a solution in search of a problem. It will go nowhere.

[Make good choices]

@smadadet That is the point of view, by most people, when a new technology comes out.

When the first airplane was flown, it was first viewed as a novelty that only the rich could enjoy for the purpose of thrills, and sightseeing from the air.

Look how far it has come.
Don't make the mistake of underestimating human imagination, and the ability to monetize it.

[Doggywag]

@Make good choices So according to you every new thing soars like an airplane.

[DocEvil]

@smadadet So was the iPhone... I mean who needs another phone? I have a BlackBerry! BTW who needs a small computer or a big iPhone? This iPad is doomed.

[SA-NJ52]

I do not buy AAPL products as they are powered by toy OSs. In previous posts I explained how difficult it was to move the songs from my Ipod to my laptop. I needed special software to do that. For Microsoft, you do Ctrl+C and Ctrl+V.

AAPL had to be dragged kicking and screaming to put in the USB-C charger. My Note 8 had this out of the box in 2018...vastly superior to the toy AAPL products of 5 years ago.

I recall paying a ridiculous price for the Ipod but nothing else at the time had a 160 GB hard drive. Microsoft's Zune was a disaster that was only loved by Sheldon on Big Bang.

The main mistake that I have made is to sell AAPL stock. I realise that AAPL groupies love this junk and that drives the stock price higher. I hold AAPL stock in various instruments and I have no intention of selling any stock.

Back to the goggles as Josh Brown called them. Unlike the Ipod, META and others have product and while it may not be a good these products do not cost $3500.

The product is not revolutionary like the 2007 Iphone. META will not make the same mistake as Blackberry and allow AAPL to take over the market.

There will be subsequent releases of the product that will reduce the price and deal with issues like the external battery. I do not see this as a game changer product as the competition will be fierce and AAPL will not provide a price competitive product. Rather they will rely on the groupies to buy the product to stay in their ecosystem.

I will wait for AAPL stock to drop significantly before I buy more. That may not happen anytime soon and I am fine with that.

@SA-NJ52

[bart_sst]

@SA-NJ52 : "I do not buy AAPL products as they are powered by toy OSs."

I know! He-men like us use Windows, not sissy certified Unix implementations like macOS—by far the world's mostly widely used certified Unix implementation.

"META will not make the same mistake as Blackberry and allow AAPL to take over the market."

How will Meta stop Apple from taking over the market? Do tell!

[DocEvil]

@SA-NJ52 Wait, which one is the better, more experienced hardware company, Meta or Apple? You are definitely betting on the underdog. Do yo still have that Windows Phone or maybe the Amazon Phone? What makes you think Meta has a better chance of developing hardware than Apple?

[dima_b]

@DocEvil In terms of hardware, it's not Meta vs Apple. It's Qualcomm vs Apple. In terms of marketing and fanbase... yeah

[Mario Silva]

"AAPL runs the risk of cannibalizing the rest of its products"
That's exactly what Apple wants in the long run, to replace the iphone with those glasses.

"META already has a strong hold on the AR/VR market, and it won't be easily displaced"

It does not matter if Meta or whoever is in this market. Apple will end up dominating the sector, particularly, the high income socioeconomic segment. Apple has a very loyal customer base of 2 billion users, so it is just a matter of time, that this new device ends up strengthening its market position.

the iphone has a market share of around 15%-20% but concentrates more than 80% of the operating profits of the whole smartphone industry; that's what Apple wants with these glasses.

[dima_b]

@Mario Silva I'm trying to understand your argument: 1) Apple's existing user base will replace their current phones and/or computers with the headset; 2) new customers from high income socioeconomic backgrounds segment will buy the headset.

if it's (1), then this is not extra revenue, just a regular replacement cycle. If it's (2), then my question is: since the existing customer alrady already draws heavily from the high-income segment, are there enough potential converts left to drive material increase in revenue?

[Mario Silva]

@dima_b
"1) Apple's existing user base will replace their current phones and/or computers with the headset"
that is what Apple wants for the long term, gradually. It will not happen tomorrow or the next year. So, we should expect that in the next years, the glasses are sold as a new product that is growing gradually, but in the long run, (say 10 years or so), these glasses with a more evolved designed start cannibalize the iphone sales. If those glasses are succesful, Apple would end up replacing the glasses with the iphone. A more expensive product with different ranges of prices and characteristics. That would mean higher revenues for Apple in the end.

2) new customers from high income socioeconomic backgrounds segment will buy the headset.

That's what would happen in the first phase. Knowing Apple, in the next years the product will evolve and will offer a higher range of products with different prices. That's how Apple will capture more segments.

[fredrik2109]

@dima_b Well, if someone/something will replace the iPhone eventually, Apple will want to be/manufacture that. It is an ecosystem as well. These products will coexist for some time.

[James1951]

Short term little to no impact long term, it's going to be huge. Smart money will not be selling.

[thinkabme2020]

I also don't agree. I believe in their success.

[anonshadow]

I could see why Cook wanted to release this despite engineers saying it's not ready. The corded battery pack is not 'a very Apple-y thing to do' but they need to get early adopters and apps developed before Meta gets too strong of a hold in AR/VR.

I also wonder what Meta could come up with if building a $3K+ AR device. I doubt they would unless Apple sells a lot of units. Is possible though that Meta creates a new see-through AR device as a separate product with different purpose. I just don't see mass consumer adoption for many years. Need to get it small enough to be like typical sun glasses.

[davel]

@CitizenOfEarth

I am not sure the external battery can be wished away anytime soon. It takes power to do things. You can’t put a big battery on the face without pain. It seems the external battery will be here for some time.

That said , that can’t be the reason to delay the product.

[DocEvil]

@CitizenOfEarth If they simply said "we can't release it until it's perfect" They'd never release any new product. Geeks wanted multi-tasking on the iPhone, should they have waited? Geeks wanted better than 320-Kbps music quality on the iPod, should they have waited? Same old "but it could be better in another year" argument.

[wboz]

Suspect the killer app may be phone calls where Aunt Margaret is able to materialize on your sofa and vice versa. There will be more. Apple has stocked this device with enough computing power to unlock use cases that couldn't be considered by other platforms. Sort of a "flood the zone" approach to 3rd party development.

But VR does have major risks, as many prior efforts have fond out. Quest success is debatable, hololens clearly a fail.

[kimboslice]

Apple will sell some of these and it won't be a disaster in any way.
Zoom video calls or similar will be done on it.
It contains huge computing power with a chip found in Macbooks.
The price is $3500; the first Macintosh in 1984 cost $7,000 in today's dollars.
If nobody buys it, Apple will have invented something interesting.