Why Facebook Is All-In on Augmented Reality

By Motley Fool Staff Markets Fool.com

In this segment from Market Foolery,host Mac Greer,Million Dollar Portfolio's Matt Argersinger, and Supernova and Rule Breakers' Aaron Bush talk about the future of Facebook (NASDAQ: FB), which once again sounds an awful lot like the immediate past for up-and-coming rival Snap(NYSE: SNAP). Is there any reason why Facebook can't copy its way to future success?

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A full transcript follows the video.

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This video was recorded on April 19, 2017.

Mac Greer:Let's move on toa little company called Facebook. Facebook, doubling down on augmented reality inthe Facebook F8 conference on Tuesday, Aaron.CEO Mark Zuckerberg said augmentedreality will be Facebook's "second act."Zuckerberg introduced a new platform that will allowFacebook users to leverage augmented reality. What do you think?

Aaron Bush:I think this is another blatant rip-off ofSnapchat. Haveyou guys looked at the Facebook app at all lately?

Greer:Whatdoes that allow you to do?

Bush:Rightat the top, before anything else, there are Facebook Stories, which issomething that was also completely taken from Snapchat. Right in the top corner is the camera. This is where the augmented-reality portion iscoming into play. You can take a picture, put ondifferent filters, essentially, and it will overlaywhatever fancy filter the team has put in place over your face, or whatever it is.

Greer:Using Facebook's own camera app?

Bush:Yeah,using Facebook's own camera app, which,again, taken straight out of Snapchat's playbook.I guess I would just say, Evan Spiegel has -- andthis is the joke that's going around --Evan Spiegel, Snapchat CEO, isessentially Facebook'schief product officer. This is another example of that. I think it really only benefits Facebook here. The barriers to copying are incredibly low. I think theaugmented-reality functionality should add fun and intrigue for the users, it should add another source of revenue as advertisers pay to have their custom filters and masks and that kind of stuff. Then it decreases the differentiation between Facebook and Snapchat. And because Facebook is so huge, and has the scale, I think what's going to happen is it's going to cause people to be less inspired to go over and try Snapchat. So it's a way of building up its own fortress through copying.

Greer:Matt, what do you think?

Matt Argersinger:It's rare that you see a company which we put in the imitator category, as Aaron is describing, be very successful. But when you're a company of Facebook's size, greater net worth, greater capital resources,they can do it. As a Facebook shareholder --I'm not one, but as a Facebook shareholder, I would sayI'm probably pretty excited becauseZuckerberg and team can do this. So whenever there's a new platform, a new company that's doing innovative things, Facebook can either copy them or buy them. So there's this moat that they have, essentially, with the network size and the balance sheet that they have. AndZuckerberg has done this very effectively for many years. It's not just Snapchat. Whatever happens, I think Facebook is going to take advantage of the best technology, best experience out there. And they have the resources to eitherreplicate it or buy it.

Greer:I want to go back to that quote, whereZuckerberg said that augmented reality is going to be Facebook's second act. Do you agree with that? If not, what will Facebook's second act be? Do they even need a second act? I think of Google, andthat's one heck of a first act.

Bush:I don't think they need a second act.I think it's hyperbole. I don't think AR is going to be a giant source of revenue that replaces the core of Facebook. ButI do think they bet wrong. They bet, three or four years ago, on VR. And AR was the first to come to market.

Greer:Explain the difference between VR and AR.

Bush:Sure. Virtual reality is when you'recompletely immersed. You put on a headset and it hascompletely covered your field of view,and you feel like you're somewhere else. Augmented reality just overlaysinteractive imagery over the real world. Both follow andrely on similar technological tailwinds, but they are fundamentally different.

But in terms of what Facebook's second act would be, I don't think it's either of those. I think it has something to do with the messaging, and figuring outhow to monetize that better. Right now, they have over a billion people on Facebook Messenger, they have over a billion people on WhatsApp. Theyjust started testing advertising there. But I think, for example, the ex-PayPalpresident is the head of Facebook Messenger. So I think building paymentsinfrastructure is going to be very important,figuring out how they can help people pay for things, or send money over to each other. I think that's going to be huge.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Facebook and PayPal Holdings. Mac Greer owns shares of Alphabet (C shares). Matthew Argersinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and PayPal Holdings. The Motley Fool has a disclosure policy.