Intel (NASDAQ:INTC) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) are collaborating on new 3D camera and virtual reality technologies that could open the door to new VR games and experiences on mobile devices. Intel recently integrated its 3D-sensing RealSense cameras into Google's Project Tango, a tablet that scans and transforms real-world surroundings into virtual ones.

What is Project Tango?
With a Project Tango tablet, a user can scan a room, rendering furniture and other items into 3D objects. Google previously showcased this technology by combining the tablet with a VR headset, which transforms a user's "real" world into a virtual one.

Intel believes that combining RealSense and Project Tango will help developers develop mobile apps for "3D scanning, indoor navigation, depth-enabled photography and video, measurements and immersive augmented reality and virtual reality." The SDK (software development kit) will be released to Android developers by the end of 2015.

The collaboration will also shrink down Project Tango from tablets to smartphones. To work properly with the Project Tango SDK, Intel will launch a new Atom-powered smartphone design that uses a RealSense camera with depth-mapping video at 60fps. The device also includes a wide field of view feature-tracking camera and high-precision motion sensors, both of which Project Tango requires.

How does this help Intel?
Collaborating with Google on Project Tango helps Intel in three ways. First, it shifts the focus away from sluggish PC sales, which caused it to slash its full-year revenue outlook by nearly $1 billion back in March. Second, it showcases the strengths of RealSense cameras, which might boost sales of RealSense-equipped laptops by convincing some users to upgrade. Lastly, it helps its smartphone designs stand out against competitors likeQualcomm and MediaTek.

Expanding into the mobile market is a key strategy for Intel, which has been buying its way into an ARM-dominated market by giving OEM's co-marketing agreements, financial assistance for logic board redesigns, and steep discounts on Atom chips. Those subsidies caused Intel's mobile division to post a $4.2 billion operating loss last year -- up from a loss of $3.1 billion a year earlier. Since Intel practically gave out chips for free, the unit's revenue also plunged from $1.4 billion to $202 million. Nonetheless, those payments helped Intel gain a toehold in the smartphone market, and it overtook Qualcomm as the largest maker of non-iPad tablet chips last October.

Looking ahead, Intel is counting on "turnkey designs" -- which are basically Intel-made phones licensed to smartphone makers -- to boost its share in emerging markets. Since Qualcomm, MediaTek, and other chip makers all offer similar turnkey designs, Intel's integration of RealSense cameras could help it stand out in that crowded market.

How does this help Google?
For Google, Project Tango enhances its AR and VR portfolio, which already includes Glass, Cardboard, and a large investment in AR headset maker Magic Leap. It also recently spun off AR game maker Niantic Labs into a separate company.

Some of those efforts have been successful. Google Cardboard's low-cost DIY approach helped mainstream customers experience VR for the first time. The core app has been installed up to five million times, and its popularity encouraged developers to create more VR apps. Niantic Labs' AR game, Ingress, has been downloaded over 12 million times. Google Glass, however, flopped due to its awkward appearance and privacy concerns.

Google wants to expand into the AR and VR markets as these apps and devices can help it gather more data on users. Enhancing real-world environments with AR overlays gives users useful information and provides Google with more location and search-based data. VR worlds give users an opportunity to connect with each other in digital environments, possibly giving Google deeper insights on its users by analyzing interactions. Facebook already teased those possibilities with its VR headset, Oculus Rift, so Google is likely looking in the same direction.

The road ahead
Research firm Digi-Capital estimates that the AR and VR markets will grow from practically nothing this year to $120 billion and $30 billion by 2020, respectively. The growth of the AR market is expected to be fueled by enterprise/consumer apps, e-commerce uses, voice calls, Web browsing, and other applications. The VR market is expected to be supported by the growth of VR games, movies, and experiences.

For now, the combination of RealSense and Project Tango won't generate much meaningful revenue for Intel or Google. However, it could help both companies widen their defensive moats against their respective rivals in chip making and digital advertising. Therefore, investors should keep an eye on this alliance, which could set the foundations for bigger product launches in the near future.

http://www.fool.com/investing/general/2015/08/23/intel-corporation-and-google-inc-team-up-for-virtu.aspx