Apple is tinkering with augmented reality, says analyst

Apple may be looking to enter the augmented reality arena, according to Piper Jaffray analyst Gene Munster.

In an investor's note released Wednesday, Munster cited conversations with industry contacts who claim that Apple has a small team exploring augmented reality, which he believes "has the potential to be as profound a technology platform as the smartphone today." The analyst also said he thinks Apple has the ability to create products that consumers would truly crave as opposed to the prototype devices available today.

So what exactly is augmented reality? And how is it different from virtual reality?

Augmented reality overlays digital information onto the real world. Perhaps the best example to date is a product like Google Glass, which lets you see the world around you as it is, but also projects information onto a lens in front of your eyes. In contrast, virtual reality places you into a total digital environment with no awareness of the world around you -- think of headsets like the Oculus Rift or Sony's Morpheus.

Augmented-reality devices are already popping up. Beyond Google Glass, other products due out this year include Sony's SmartEyeglass Developer Edition and Microsoft's HoloLens. But consumer adoption and acceptance of such devices can be problematic, especially since users are forced to wear clunky and obtrusive glasses. Google pulled the plug on Glass in January, saying the $1,500 device was years away from becoming a mass-market product. (Google also said it has plans for a follow-on product.)

So how might Apple succeed where Google has so far failed?

Just as Apple designed its new Apple Watch to emphasize style over technology, Munster said, the company could do the same with a wearable AR device.

"We believe that wearables are meant to be worn and seen, thus they need to be fashionable or desirable to wear," Munster said. "Augmented reality will require some type of technology that projects images in the user's eyesight (ultimately augmented reality may be delivered via implants). We believe that Apple has the unique ability to combine the technology of augmented reality with attractive fashion/design that users will actually want to wear."

Though Munster believes Apple is looking into the possibilities with augmented reality, an actual device could be years away. Right now, Apple's team is simply trying to figure out how to make a wearable AR device that would be fashionably and socially acceptable. As such, the current experiments may not even result in an actual product.

But Apple has brought in a slew of hires from the fashion and retail world to help launch the Apple Watch and turn the company into more of a fashion brand, according to Munster. Those include former Burberry CEO Angela Ahrendts to head retail, former Yves Saint Laurent CEO Paul Deneve as vice president of special projects, designer Marc Newson and former global marketing director for Gap Marcela Aguilar as Apple's global marketing director.

"We believe the company's growing abilities in fashion and design could help the company develop other wearable products longer-term, particularly augmented reality focused devices," Munster said.

Apple could also adopt augmented reality for its existing lineup of mobile devices. The company has filed several patents with the the US Patent and Trademark Office that deal with augmented reality. As one example, an Apple patent application published last November called "Transparent electronic device" envisioned a way of overlaying images over real-world viewable objects.

Apple did not immediately respond to CNET's request for comment.