Apple & The Metaverse – Not yet

2023 is too early.

• Despite feverish speculation, Apple failed to launch a Metaverse device at WWDC 2022 and now speculation has shifted to early 2023 which I continue to think is still much too early.
• Ming-Chi Kuo, one of the leading lights on Apple device speculation, is now expecting Apple to release an AR device in January 2023 and while I think that Apple has no choice but to address this segment eventually, there is no rush for Apple to come to market.
• The Metaverse is being heralded by its proponents as the next iteration of the Internet which today is lived on smartphones and tablets.
• The idea is that Digital Life services will be best experienced on Metaverse-first devices such as a light pair of AR glasses and as a result, usage and engagement will migrate there from smartphones.
• It is not difficult to see how this represents a large threat for Apple as a large majority of its revenue and profit comes from the iPhone.
• If Digital Life moves into the Metaverse, then the relevance of the smartphone will decline, and Apple will experience falling revenues and profits.
• This is why Apple must address the Metaverse even if it thinks it will never take off as it will need a Metaverse-first device to offset any falls in smartphone shipments.
• RFM research (see here and here) has concluded that it will be 2028 or 2029 before the Metaverse is likely to take off partially due to the fact that the technology to provide a fun and engaging user experience remains at an early stage of development.
• This means that no matter how much work Apple puts into its device, it is unlikely to be able to deliver a device worthy of Apple’s reputation much before 2025.
• This is especially the case if Apple is going for AR as the technology to superimpose the Metaverse on top of the real world is even more difficult to get right meaning that it will take longer to perfect.
• I think that it is very unlikely that Apple will come to market with a device that has a compromised user experience because this will damage both its brand and the user experience of the iOS ecosystem.
• One possibility is that it comes to market with a very basic pair of glasses that perform a very simple function and remain very smartphone-centric.
• This would be something similar to what Meta launched with RayBan which offers one or two functions such as reading texts from the iPhone or taking video but remains very smartphone-centric.
• Like Meta, I would expect this to come in conjunction with a large brand very much like the version of the Apple Watch that comes with Hermes.
• I suspect that if anything is launched in 2023, it will be something of this nature and serve as a placeholder while Apple readies its real venture into this space.
• There is little doubt that the Metaverse represents the greatest risk that Apple has faced in 15 years which is why it has no choice but to invest heavily in this space on the off chance that it actually takes off.
• Hence, I view any AR product that Apple produces as an insurance policy just in case the smartphone becomes obsolete giving Apple a way to avoid Nokia’s fate.
• Apple has plenty of warning and almost limitless resources, but I suspect that a change in management would be required for Apple to navigate this transition successfully.
• This is still very far away and so I would not expect this to have any meaningful impact on the shares over either the short or medium term.
• However, the shares still look pretty fully priced meaning that in a market where valuation has begun to matter, this is not the place to be.