When Alphabet Inc (NASDAQ:GOOG) made its first foray into virtual reality (VR) almost two years ago with the release of “Google Cardboard,” many thought it was a joke. There was just no way that a company known for its high-tech endeavors would release a piece of cardboard that wraps around a mobile device and call it VR. But rumor has it that Google is about to get serious about VR and that could mean big things for GOOG stock.
The latest version of Google Cardboard uses a pair of glass lenses and an app to mimic virtual reality. It works with any “Android” or “iOS” smartphone and will set you back a hefty $15.00. All kidding aside, Cardboard was never meant to be a true contender in the increasingly competitive virtual reality space. The technology behind Cardboard is severely lacking compared to competitors’ devices.
But that is about to change.
It looks like Google is going to throw a VR headset in the ring and go head-to-head with the likes of Facebook Inc (NASDAQ:FB), Samsung Electronics Co Ltd (KRX:005930), Sony Corp (NYSE:SNE), and Microsoft Corporation (NASDAQ:MSFT) who have released or are about to release their own virtual reality devices.
According to The Wall Street Journal, Google is developing a virtual reality headset that doesn’t rely on a smartphone, computer, or game console. (Source: “Google Developing Stand-Alone Virtual-Reality Headset,” The Wall Street Journal, February 11, 2016.) That would be a first in the market.
Facebook’s “Oculus Rift” headset requires that it be attached via cable to an Oculus-ready PC. Reviews have been positive for the device, but a common theme is that it’s hard to avoid tripping on the cord or getting tangled in it. Google’s headset would apparently eliminate this problem.
Samsung’s “Gear VR” headset needs a Galaxy smartphone to work, which the Google VR headset would also be free of.
Google’s planned standalone headset appears to fall somewhere between the lower-powered Gear and the graphics-intensive Oculus. (Source: Ibid.) The device will come with a screen plus high-powered processors and outward-facing cameras.
It sounds like the headset will be a great middle ground for consumers. While it won’t be as powerful as the Oculus Rift, it will be as portable as the Gear but with a much more immersive experience and more computing power behind it
There were hints a couple months ago that Google was about to enter the space. In January, Google announced that it was naming Clay Bavor chief at its new virtual reality division. Job openings also went up online shortly after the announcement, with the company seeking candidates who can design and deliver virtual reality hardware. (Source: “Google Developing “High Volume” Consumer VR Hardware,” New Job Postings Suggest, Road to VR, January 23, 2016.)
Google may be a bit late to the game, but fortunately for them the VR market hasn’t taken off yet. Actually, they are arriving just in time, as virtual reality is about to be huge. But is it enough to put a dent in a company worth $500 billion with $78.0 billion a year in revenue?
Forecasts are a bit all over the place, but here’s a look at what the market could become: Market research firm TrendForce predicts that the market for VR hardware and software will reach $70.0 billion by 2020. (Source: “Virtual Reality Could Generate $70 Billion in Real Money by 2020, Re/code,” December 3, 2015.)
Another recent report forecasts that the number of virtual reality devices sold will reach 2.5 million in 2016, 12 million in 2017, and 24 million in 2018. The same report says that by 2018, virtual reality devices will become a $4.0-billion market. (Source: “Augmented and Virtual Reality Devices to Become a $4 Billion-Plus Business in Three Years,” CCS Insight, accessed March 21, 2016.)
It’s safe to say that Google’s foray into virtual reality is going to be worth it.
Let’s not forget that Google is a search ads business at its core. Virtual reality ads might end up being one of the most compelling and effective ways to connect with consumers. Brands such as Coca-Cola, HBO and Nissan have already ventured into this space. As virtual reality takes off, more advertisers are likely to invest in VR ads and Google will be right there to benefit.
The Bottom Line on GOOG Stock
If Google really is working on a standalone virtual reality headset, the device could significantly add to the company’s bottom line. When that happens, VR could be a huge catalyst for GOOG stock.