Wearable technology has been around for some time. Apple Inc. (NASDAQ:AAPL) revived the languishing mobile music scene with its iPods and replaced brick-like tablets with the iPad, and the company is set to shake up the wearable technology arena. However, Google Inc (NASDAQ:GOOG) is already set to make a splash and offer formidable competition to Apple.
Until now, wearable technology meant products like FitBit or the Nike FuelBand. However, these products are niche and lack broader appeal. Enter Google Inc (NASDAQ:GOOG) with its Google Glass and the entire landscape changes. The product is still not out for mass consumption, but plenty of people have had access to the glasses and the reviews are generally positive. Robert Scoble of Rackspace, who has been using Google Glass for the last two months, claimed that he will never go without them. It is too early to predict the eventual success of Google Glasses, but it certainly is a big step and a precursor of things to come.
Apple Inc. (NASDAQ:AAPL) hinted that it is looking to work in the same direction. It is widely rumored that Apple may counter Google Glass with its iWatch. It is clear that the two giants are ready to battle it out, and now is the time for investors to decide which company is going to come up aces.
Google advantage
Google Inc (NASDAQ:GOOG) will certainly have the advantage of being an early entrant in the field. However, this does not mean that it will not face competition. Apart from Apple Inc. (NASDAQ:AAPL), there are several other companies trying to break into the field. Kickstarter-funded Pebble, a smartwatch, is also gaining traction. When Google Glass becomes publicly available, you can expect a number of companies to join the bandwagon.
Google Inc (NASDAQ:GOOG) is already getting ready for the scenario, as it will not only provide competition but will also offer synergistic benefits. Google Venture, the search giant’s venture capitalist arm, collaborated with Kleiner Perkins Caufield & Byers and Andreessen Horowitz to promote Google Glass-centric start-ups. The venture will help Google in creating an optimal ecosystem for its future range of wearable technology. As smartphones and tablets proved, it’s not just the product that matters but the ecosystem supporting the product.
Google has a history of dabbling in pioneering technologies, but like its driverless cars, most ventures remain side projects for the company. However, with the creation of this new partnership, Google Inc (NASDAQ:GOOG) has indicated that Google Glass is not a hobby venture and that the company intends to develop it as a major platform of the future.
Apple’s challenge
Apple Inc. (NASDAQ:AAPL) set tongues wagging when CEO Tim Cook discussed wearable technology at the D11 conference. Unsurprisingly, the Apple boss was not impressed with Google Glass, but admitted that wearable technology is the direction of future.
Earlier this year, rumors abounded that the company is toying with a wristwatch device. Apparently, the company already has a 100 person team working on the concept. Now, with Cook calling wearables “an important branch of the tree,” it is all the more certain that Apple is ready to invade the field.
Apple Inc. (NASDAQ:AAPL) stock has been tanking for quite some time now and is currently trading near its 52-week low. While the company’s products are still doing well, Apple is fast losing its edge. In order to keep the company’s position as the top dog, Apple is in dire need of another blockbuster and wearable technology fits the bill. Coming up with a pioneering wearable technology device is of more importance for Apple than for Google Inc (NASDAQ:GOOG).
CEO Tim Cook also needs to prove himself as a worthy successor to Steve Jobs and the introduction of an iWatch may raise his personal stature too. For Apple Inc. (NASDAQ:AAPL), the introduction of the iWatch is not only about augmenting its product portfolio but also to reassure its investors that the company is at the forefront of cutting edge technology.
Investment thesis
In the coming months, Google, Apple and hopefully a number of other companies will be slugging it out in the wearable tech segment.
Google Inc (NASDAQ:GOOG)’s short term plans are more concrete. Glass is already out and could hit the mass market later this year. IMS Research predicts a steep rise in demand for SmartGlass products by year 2016, when the volume could hit 10 million units annually, up from 124,000 units in 2013. By virtue of early entry and product superiority, Google is expected to grab a lion’s share of the pie.
IMS Research predicts the wearable technology market to be worth $6 billion by 2016. With some very rough back-of-the-envelope calculations, I estimate that Google Inc (NASDAQ:GOOG) may be earning $3-4 billion in revenue from its Google Glass and allied products by 2016. This would mean a tidy new revenue stream for the search giant, whose current revenue stands at around $50 billion. Since a stock’s current market price is theoretically the discounted value of its future earnings, I expect the stock to have good upside on account of Google Glass.
Apple Inc. (NASDAQ:AAPL), on the other hand, offers a fuzzier picture. As there is no concrete product announcement, it is difficult to quantify the impact of iWatch on Apple’s revenue and profitability. However, the stock is currently hovering around its 52-week low and the company is barely clinging to its cool factor. Announcing a new cutting edge wearable product will, at the very least, help arrest the fall of Apple stock price.
Jag Mitra has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG).
The article Wearable Technology: Apple versus Google originally appeared on Fool.com.
Jag is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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