Apple may soon show off its biggest and riskiest new hardware product in years

By Samantha Murphy Kelly, CNN Business

(CNN) — Next week, Apple may unveil its most ambitious new hardware product in years, but it’s in a product category that is anything but a proven winner.

Apple is widely expected to introduce a “mixed reality” headset at its annual developer event on Monday that offers both virtual reality and augmented reality, a technology that overlays virtual images on live video of the real world.

The highly-anticipated release of an AR/VR headset would be Apple’s biggest hardware product launch since the debut of the Apple Watch in 2015. It could signal a new era for the company and potentially revolutionize how millions interact with computers and the world around them.

But even for Apple, with its formidable track record, this launch faces challenges on multiple fronts.

The company is reportedly considering a $3,000 price tag for the device, far more than most of its products and testing potential buyers at a time of lingering uncertainty in the global economy. Other tech companies have struggled to find mainstream traction for headsets. And in the years that Apple has been rumored to be working on the product, the tech community has shifted its focus from VR to another buzzy technology: artificial intelligence.

But if any company can prove skeptics wrong, it’s Apple. The company’s entry into the market combined with its vast customer base has the potential to breathe new life into the world of headsets.

“Just like its other devices – Macs, iPads, iPhones, and Watches – this represents a new way to interact digitally with others and with applications,” said Ramon Llamas, a director at market research firm IDC. “And because [the market] is – for all intents and purposes – still in its initial stages, Apple can help shape the narrative of what AR/VR can be like and make money off of it with devices and services.”

Apple’s long bet on augmented reality

Apple CEO Tim Cook has long expressed interest in augmented reality.

In a 2016 interview with the Washington Post, Cook said: “I think AR is extremely interesting and sort of a core technology. So, yes, it’s something we’re doing a lot of things on behind that curtain that we talked about.”

In an interview earlier this year with GQ, Cook talked up the potential for AR to help people communicate and collaborate with each other.

“We might be able to collaborate on something much easier if we were sitting here brainstorming about it and all of a sudden we could pull up something digitally and both see it and begin to collaborate on it and create with it,” he said.

The early potential for AR can be seen in some iPhone apps like Ikea Place and Measure, as well as various Apple Watch apps. For example, iPhone users can point the device’s camera at a table and a virtual tape measure appears to allow them to take its measurements.

On Monday, Apple may show how it plans to take AR to the next level.

Apple’s headset is reported to have two main functions: a virtual reality setting and a mixed-reality component, which lets users see augmented reality objects projected onto the real world. According to Bloomberg, the device, which could be called Reality One or Reality Pro, is expected to have an iOS-like interface, display immersive video and include cameras and sensors to allow users to control it via their hands, eye movements and with Siri.

Apple’s new headset is also expected to pack apps for gaming, fitness and meditation, and offer access to iOS apps such as Messages, FaceTime and Safari, according to Bloomberg. With the FaceTime option, for example, the headset will “render a user’s face and full body in virtual reality,” according to Bloomberg, to create the feeling that both are “in the same room.”

The rumored headset could appeal to more consumers once it comes down in price or introduces enough compelling apps and experiences. But to start, the audience may be limited.

Some experts believe Apple’s rumored headset may resonate most with the enterprise market and enable various applications such as training and education. It could also allow for collaboration in meetings with more immersive videoconferencing capabilities and tools like virtual whiteboards.

“The enterprise market is excited for a new headset competitor, especially one that likely brings strong developer and content support along with it,” said Eric Abbruzzese, research direction at market research firm ABI Research who focuses on AR and VR. “So it is great timing for that market.”

An uncertain market

For now, the overall headset market remains small. There were 8.8 million AR/VR headsets shipped globally last year, according to data from market research firm IDC. That represented a 21% decline from the prior year.

By comparison, Apple is reported to sell hundreds of millions of iPhones a year.

Facebook-parent Meta, which dominates the nascent VR market, faces challenges, too. It has come under pressure from investors for losing billions on its efforts to build VR products and a virtual world called the metaverse. The Wall Street Journal reported last year that Meta had just 200,000 active users in Horizon Worlds, its app for socializing in VR.

On Thursday, Meta CEO Mark Zuckerberg tried to preempt the Apple announcement by teasing the more affordable Meta Quest 3 headset ($499), which promises improved performance, new mixed-reality features and a sleeker, more comfortable design.

Other headsets and smartglasses products have struggled over the years. Google recently stopped selling Glass, a decade after it was first unveiled. And Snapchat’s parent company has made multiple efforts to create smart sunglasses, after taking a nearly $40 million writedown for excess inventory of the product early on.

Abbruzzese said the first wave of consumer demand for Apple’s headset could come from devoted Apple fans who are deep in the company’s product ecosystem and see the value of connecting Apple services to the new headset.

Apple could then push for a more “mass market headset” in 2024 or 2025, Abbruzzese said.

As with Apple’s prior hardware products, consumers don’t always flock to the first-generation version. Developers also need time to build applications that would be a draw for a wider audience.

Unlike almost any other company, however, Apple can create demand for an experimental new product or category. Apple also has a secret weapon that many of its peers do not: hundreds of stores where consumers can walk in and potentially try the headset out.

“Apple does not need to do much other than be Apple,” Abbruzzese said. “There will be interest.”

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