Snap bets on augmented reality glasses, but is it seeing clearly?

Building augmented reality glasses is “a journey”, a “blue ocean strategy”, a leap into new territory, says Evan Spiegel, the co-founder and chief executive of Snap.
Stuffing highly complex technology, not to mention batteries, into a wearable pair of frames is certainly a technological holy grail.
On Tuesday evening, Snap revealed the fifth generation of Spectacles, the first time they have been updated since 2021.
Despite the drawbacks — the weight and short 45-minute battery life — the latest version, uniting the digital and real worlds, is an impressive feat of engineering.
As it copes with a floundering share price, a challenging ad market, onerous regulation on social media and deep-pocketed competitors, some investors wonder if the loss-making company can afford to swim in such uncharted waters. It has not disclosed how much it has spent on research and development for the product.
Spiegel said it was an investment in the company’s future: “I don’t think it’s enough to just execute on the business of today. I think you have to build the business of tomorrow”.
Analysts at Deutsche Bank seem to agree. They said in a recent note “we believe that ongoing investment in new products, features, and the application of recommendation rankings will increase existing user durability as well as attract new users to the platform”.
For the uninitiated, Snapchat is a mobile app that lets people send photos, videos and messages. These “snaps” disappear after the person receiving them views them. The draw is its popular effects, including filters that overlay graphics onto photographs.
These partly explain why the company is investing in augmented reality (AR) glasses, an attempt to move the images on the app into the real world. The camera, in the company’s words, “presents the greatest opportunity to improve the way people live and communicate”.
Spiegel says: “Our vision for glasses is that we can build technology that keeps people in the real world, brings them together with their friends, and allows them to use technology in a much more natural way.”
As Jamie MacEwan, who covers tech for Enders Analysis, puts it: “The idea of seamlessly blending entertainment and productivity into the world is exciting. But still theoretical, as manufacturers have a mountain to climb first. You need an affordable, lightweight device that’s comfortable to wear but has decent battery life, compelling applications and a good enough display to be truly usable.
“These glasses simply don’t do enough to change the world. But they are closer to the form factor and pricing that will sell AR than Apple’s headset”.
By the end of this decade, Spiegel believes, people will be walking down the street wearing them.
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“There’s room to go on improving the wearability and the runtime,” Spiegel told The Times, “but I think one of the reasons we’re so excited about this is that it will allow people to develop many more experiences. That’s going to be really important as we begin to build this developer ecosystem, which will enable many more experiences as the glasses are increasingly ready for a larger audience”.
Today, the company is producing a small run of several thousand of the bulky specs, and selling them to its developers through a subscription of $99 a month. “First we want to build the adoption, build the software and then build the scale,” says Qi Pan, Snap’s director of computer vision engineering, based in London.
“We’ve used every millimetre of space,” he adds. “Over time we’ll make them lighter, we would want these eventually to become the same form factor as your regular glasses . . . But I think it will still be a few years before they’ve shrunk down enough.”
Snap is not alone in investing in AR glasses. Meta, which has a collaboration with Ray Ban, is expected to launch its own pair at the end of this month, codenamed Orion.
Andrew Bosworth, Meta’s chief technology officer, hyped it up to the Verge, the US technology website, last year: “I think it might be the most advanced piece of technology on the planet in its domain”.
Google launched Google Glass years ago, which flopped in the consumer market, but the company continues to develop AR glasses for businesses and is rumoured to be working on a consumer-focused pair. Apple is also reportedly developing AR glasses, as part of its long-term strategy to introduce wearable AR technology, expected around 2027.
Other companies in the space include Magic Leap and Niantic.
For Snap, it has not been an easy journey. Snap announced in 2022 that it was narrowing its “investment scope” in Spectacles amid layoffs of 20 per cent of employees. It cut a further 10 per cent in February this year and now employs about 4,700 people.
It also has a mixed track record when it comes to hardware. It had to recall its Pixie flying camera devices earlier this year because of battery fires.
In a boon for the UK, it has played a leading role in the glasses’ development.
The 100in AR displays are built near Oxford by a company called WaveOptics, bought by Snap in 2021 for $500 million. The computer vision software, which helps the glasses understand and interpret the world, is developed in London.
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To get them to the kind of “normal” that we might recognise from our everyday specs, everything in these thick frames now needs to get smaller, except the battery life.
Spiegel, 34, founded Snap in 2011 along with two others from Stanford University, Bobby Murphy and Reggie Brown.
The company has 850 million monthly active users, lagging far behind its larger and more popular peers, TikTok, Facebook and Instagram.
Its smaller scale led an investor on a recent earnings call to question whether it was “fundamentally disadvantaged”.
It has, however, an advantage in its young demographic. Three quarters of young people aged 13 to 34 in more than 25 countries use Snapchat, the company boasts, but it says more than 80 per cent of these are over 18.
Snap’s bread and butter is advertising, where it is playing catch-up with its peers, with a fraction of sales from subscriptions.
In its latest quarter, revenue was $1.24 billion, up 16 per cent from the year before. It made a loss in this period of $249 million, down from $377 million in 2023. In contrast, Meta made $39 billion in revenue in its latest quarter.
Despite “pacing towards record annual revenue”, as Spiegel told staff in September, its share price is down 64 per cent since its float in 2017.
Why? “The answer is simple,” its chief executive said. “Our advertising business is growing slower than our competitors.”
Spiegel is redoubling efforts to shake up the mix of small and medium-sized advertisers who use the platform. Addressing the share price is not just critical for investors but also for staff incentivised to stay by stock options.
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He does not see a contradiction with the Spectacles investment.
“It’s obviously critical that we continue to serve our advertising partners and help them grow their businesses,” Spiegel explains. “It’s also important that we think long term and invest in the long-term success of Snap, in addition to accelerating our advertising business today.”
Snap is not alone in investing in AR glasses.
Meta is expected to launch its own pair at the end of this month but Spiegel still believes that it is an open field and that his bet may pay off. “There isn’t a dominant company in glasses right now. We’re a leader in augmented reality. This is a market that’s just beginning to develop, and that’s very exciting”.
Perhaps one area where it doesn’t feel it is playing catch-up.