Apple is the one company that could make the metaverse cool, very quickly.
Immersing yourself in the 3D world of the metaverse is going to require gear – goggles or glasses to render the images, ear buds or headphones to transit the sounds, and haptics to convey the feel.
Put the design of that gear in the hands of Google, Meta/Facebook/Oculus, Invidia or some startup and the initial total available market will be teenaged boys, a few brave teenaged girls, and guys who drive their mom’s old Corolla and think of GameStop as a hangout, not a meme stock.
Put the design of that gear in the hands of Apple, and it will be sleek. Kids will “flex” the glasses at their neighborhood Starbucks. Parents will put them on their own holiday wish lists.
A God on Earth
This will position Apple as the dominant force in the metaverse, extending its lead as the top provider of mobile phones in the U.S. into a potentially much larger market.
Just like Apple created a music and video ecosystem that started with its iPod hardware and iTunes distribution channel that then extended into iPhones and the iOS (not to mention Mac OS) App store, Apple has the opportunity to dominate in the metaverse.
Just imagine the revenue from the sales of hardware, not to mention a (30%) cut of revenue from all of the app sales!
As Tim Sweeney, CEO of Epic Games said, “This Metaverse is going to be far more pervasive and powerful than anything else. If one central company gains control of this, they will become more powerful than any government and be a god on Earth.”
Forces Aligning Against Apple
Apple faces a big obstacle, though, to becoming a god on earth – the U.S. government, not to mention Tim Sweeney’s Epic Games.
Perhaps no topic aligns the political left and right in the United States more than a disdain for Big Tech.
Texas Senator Ted Cruz said, “I think Big Tech today represents the greatest accumulation of power – market power and monopoly power – over information that the world has ever seen. The players and Big Tech are getting more and more brazen. They behave as if they are completely unaccountable. And at times they behave more like nation states than private companies. I think the (Federal Trade) Commission has not done nearly enough to rein in the abuse of power of Big Tech.”
Lina Khan, the Biden-appointed chair of the FTC made a name for herself calling out Big Tech for its alleged monopoly power.
When Khan was confirmed by the Senate, Massachusetts Senator Elizabeth Warren said, “Giant tech companies like Google, Apple, Facebook and Amazon deserve the growing scrutiny they are facing, and consolidation is choking off competition across American industries. With Chair Khan at the helm, we have a huge opportunity to make big, structural change by reviving antitrust enforcement and fighting monopolies that threaten our economy, our society and our democracy.”
The Missing Link
Apple already has the capabilities to build the audio components of an AR/VR system, in part through its $3 billion acquisition of Beats in 2014. The haptics components – gloves, in particular – would to some extent build on the haptics – the gentle nudges – built into existing Apple products such as the iPhone and Apple Watch. The missing piece is the rendering of visual information through glasses or headsets.
Sure, Apple has mastered mobile device screens, but it’s not a master of all things visual. Even Apple’s high-end professional desktop monitor is based on an LG product. And there are simple AR/VR displays that incorporate mobile handsets like Google Cardboard, but that’s not Apple’s style. AR/VR headsets require design and manufacturing that isn’t like anything that Apple has done before.
The quickest way to develop the capability of producing top-quality glasses/headsets is through an acquisition of an existing producer. It’s what Meta/Facebook did through its $2 billion acquisition of Oculus 2014 and more recently what Google did through its 2020 acquisition of Canadian smart glasses producer North.
Although it hasn’t been a prolific M&A player, Apple has a history of gaining capabilities through acquisitions. In addition to its acquisition of Beats, Apple acquired music-recognition capability through its acquisition of Shazam, facial ID tech through its acquisition of PrimeSense, and touch ID tech through its acquisition of AuthenTec, just to name a few of its deals.
Acquisitions Will Face Scrutiny
The problem is that acquiring an AR/VR optics manufacturer will invite the scrutiny of the FTC. The agency is currently scrutinizing Meta/Facebook’s acquisition of VR fitness app Supernatural, which could complicate the company’s meta plans to dominate the metaverse.
Already, Apple is attracting negative attention on the antitrust front from regulators, Congress and competitors.
Congress is considering two pieces of legislation that seemed aimed at reducing significantly Apple’s power over its App store platform. The Open App Markets Act is designed to “promote competition and reduce gatekeeper power in the app economy, increase choice, improve quality and reduce costs for consumers,” according to a Barron’s article. The American Innovation and Choice Online Act is designed to prohibit tech platforms from “favoring their own products or services, disadvantaging rivals, or discriminating among businesses that use their platforms in a manner that would materially harm competition on the platform,” according to the article.
Competitors and Regulators Teaming Up
Although Apple was the primary winner in 2021 of the antitrust suit filed against it by Fortnite producer Epic Games, Epic’s appeal of the case has drawn the support of 34 state attorneys general, the attorney general for DC and the Department of Justice, according to an Apple Insider article. The Department of Justice shares responsibility with the FTC for enforcement of antitrust laws at the federal level.
Apple rival Microsoft also is supporting Epic’s appeal. “Online commerce and interpersonal connection funnels significantly, and sometimes predominantly, through iOS devices,” claimed Microsoft in an amicus brief. “Few companies, perhaps none since AT&T… at the height of its telephone monopoly, have controlled the pipe through which such an enormous range of economic activity flows.” (A copy of the brief is available on Apple Insider.)
If Apple is unable to acquire the necessary business capabilities to enter the metaverse via M&A, it could achieve the same result through organic growth and acquisition of talent.
The competition for top talent in the AR/VR space, however, is hot. As of the beginning of February 2022, Google had more than 80 positions that included “augmented” in the description, and Apple has more than 120. Meta listed more than 730 open positions for AR/VR related jobs. Meta may have suffered one of the worst stock crashes in history this past week, but part of that was fueled Meta’s multi-billion dollar investment in Reality Labs. Much of that money is going toward talent acquisition. Microsoft also already owns the HoloLens product, and recently announced a nearly $70 billion acquisition of Activision, Blizzard, which will give it even more strength in the games space and a possible portal into the metaverse.
Apple has succeeded in out-innovating its competitors, but its most significant new product releases – the Apple Watch and AirPods came out more than five years ago. Can it overcome the head start of Meta, Google, Microsoft; antitrust regulators; and the fortunes others are investing into their metaverse capabilities?