In an interview with Recode following Facebook’s F8 conference, Mark Zuckerberg laid out his rationale for Facebook’s big bet on augmented reality:

“Think about how many of the things you use [that] don’t actually need to be physical. You want to play a board game? You snap your fingers, and here’s the board game. You want to watch TV? You don’t need a physical hardware TV, you buy a one-dollar app ‘TV’ and put it on the wall.” – Mark Zuckerberg

To push towards this future – and in an attempt to own the underlying technology – Facebook launched its “Camera Effects Platform,” an open platform for developers to build AR-features and lenses for the Facebook in-app camera. Zuckerberg also confirmed to Recode that Facebook is building “AR hardware” and shared his thoughts on the future of AR and VR; among them:

• There will be demand for separate VR and AR products in the future.
• The technology doesn’t yet exist to create the AR glasses that industry leaders are envisioning.
• Building VR products today will help build the AR products of the future.
• AR will be a bigger business than VR.

Our take: AR will enhance the smartphone, then replace it. It’s consensus that AR will be bigger than VR over at least the next 10 years — and we agree. AR will enhance the smartphone, then replace it in that time frame. But if you look out further than that, perhaps 30+ years, the immersiveness of VR has the potential to be so good that it rivals base reality. This will require advances in both artificial intelligence and neuroscience, not just digital enhancement. If VR can create alternate worlds as rich as the real one, we think the opportunity would surpass anything humans have created to date.

Facebook gets it, and they are investing accordingly. In fact, the biggest players in the space will collectively spend over $51B on R&D in 2017, of which we estimate $4B will be AR-related spend.

From Google’s work on Glass (2013) and Tango (2014) to Microsoft’s investment in Hololens to Apple’s uncharacteristically vocal pursuit of AR as a core technology, the biggest players are determined not to miss out on the next dominant computing platform and the AR technology underneath it. In fact, in our assessment, Facebook lags behind other incumbents including Google, Apple and Microsoft. But they’ve got a foothold in social and, today, AR is expanding through social – the most forward-thinking AR application is Snapchat. Everyone else is following fast and F8 is a clear indicator that Facebook is doubling down on AR in the race to own the OS of the future.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.