AR Glasses Business Models: Apple vs Facebook
This week Facebook announced and showed a prototype of Project Aria. I’m particularly excited because I think AR glasses will replace smartphones by the end of the decade (2030). Once the hardware side becomes miniaturized enough, there will no need for smartphones at all.
What hasn’t been discussed by the media is how Facebook’s AR glasses business model is potentially completely different from Apple. Apple’s business model is reliant upon high margin hardware products that are upgraded continually as a status symbol. They also take a significant percentage (30%) of revenue of apps in their app store. Exceptions are made for companies with large armies of lawyers and lobbyists (like Amazon) - but they are the exception.
Facebook’s core revenue source is advertising. They have the best ad buying platform in the world and the best segmentation platform in the world. This unified ad buying platform connects to Facebook and Instagram.
Apple’s AR glasses business model will be just like their iPhone business model. They will take a 30% cut of all software sales. On the hardware side, the glasses will place a higher need to upgrade annually relative to smartphones. After all, glasses will be something on people’s faces. The need to upgrade annually will be even higher than phones as a status symbol.
Facebook’s potential AR glasses business model could be drastically different. They could sell AR glasses at breakeven or even at a loss and benefit. What motivation could Facebook have to sell AR glasses at break even when they have poured billions into it? The answer is advertising.
Think about the data that Amazon’s Alexa or Google Home is collecting. However, it’s limited because the product line is at a static location in the home. With AR glasses, you collect similar information except it’s on mobile users as they move around. I think Amazon knows this and that’s why also dabbling into AR glasses. Facebook’s ad buying platform would have enhanced segmentation options based off of what people see and hear all day long.
Facebook already has the best ad platform and it’s only based on application event tracking. What people actually see and hear is drastically more useful to marketers. Imagine a glass of wine that is red or white in someone’s field of vision multiple times a week (tracked with AR glasses). That’s a good person to target for wine ads. But what if they don’t follow any wine brands or write about it? You’d never know in the current paradigm. But you will know in the future paradigm.
An opportunity arises with Facebook. They can use their AR glasses to encourage more integrations with their ad platform. Other app companies will be incentivized to integrate with the best ad buying platform because that’s where the ad buyers will be. There will be alternative platforms - Apple for instance.
Apple has been very adversarial with apps that make money from ads / freemium model based. Their planned updates on mobile will wreck havoc on the entire advertising ecosystem. Facebook can provide an alternative.
Then there is Snap. Snap’s weakness is it’s strength. Unlike Apple and Facebook - Snap is powerful enough to demand an equal partnership. However, it’s not powerful enough to be a tyrant. This puts Snap at a place where it could become the “Android of AR Glasses.” Or at the very least, it could become an anti-Facebook alternative that isn’t ultra premium like Apple.