Brief:

• Facebook has reportedly partnered with Ray-Ban parent company Luxottica to develop augmented reality (AR) glasses that would replace smartphones, sources familiar with the matter told CNBC. The companies want to bring the smart glasses, which are internally code-named "Orion," to market as early as 2023.
• The AR-equipped glasses would let users make phone calls, see digital information in a small display and livestream their surroundings to friends and followers on social media. Facebook has hundreds of employees working on the device, but has struggled to reduce the glasses' size to a form factor that would appeal to consumers, per CNBC. Facebook also is developing a voice assistant that would work with the glasses and has experimented with a ring device equipped with a motion sensor to input information.
• The company is also working on glasses that will allow users to record their surroundings, similar to Snap Spectacles. The glasses are code-named "Stella," according to a report by The Information.

Insight:

Facebook's reported partnership with Luxottica indicates that the social media giant is set on developing AR-equipped smart glasses that would give consumers an alternative to smartphones. While the market for mobile phones is crowded with competitors, AR headsets are a fledgling product category that's mostly wide open.

The International Data Corp. this year estimated that annual AR headset shipments will grow about 47% a year to 36.7 million units by 2023, when Facebook reportedly aims to introduce its device. That forecast means that AR headsets will be a niche product compared with smartphones, whose shipments will total 1.3 billion by 2023, per a separate IDC forecast. AR headsets have had limited appeal because of their expense and narrow range of functionality, which mostly has focused on enterprise applications. Google was an early entrant into the category with its Google Glass headset.

The development of the "Stella" glasses, which appear to function like Snap Spectacles, represents the social media giant's latest move to copy Snap. Previously, it's adopted Snapchat's popular AR filters and Story functionality for both its main social network and Instagram app.

Facebook has struggled to create a hit product in hardware categories such as smartphones and smart displays, but smart glasses may give the company a chance to get in early on a growing market. The company faces steep competition from other tech giants that are creating devices that superimpose computer-generated images on the lenses of wearable glasses.

The consumer market for AR headsets has expanded in fits and starts over the years. Google ended its Glass Explorer program in 2015 but later relaunched the product as Glass Enterprise Edition for workplace uses. Microsoft's HoloLens 2 headset is mostly intended for the enterprise market, while Magic Leap's One AR glasses are geared toward consumers. Apple is working on an AR headset that an analyst this year estimated would begin production as early as Q4.