For an industry that rarely has big news anymore, this was a huge week for virtual reality. Unsurprisingly, all the key data points are about the industry’s sole benefactor these days, having managed to raise the cost of entry into the VR ecosystem, Meta finds itself in a new war with the US government over VR and announces it. Again this quarter, Reality Lab had burned a lot of money in its efforts.
The weirdest news was Meta’s seemingly unprecedented move to raise the prices of Quest 2 by $100. This, again, is a one-year-old headset that Meta is allegedly selling at a loss to get more consumers to market. This massive increase brings the entry price from $299 to $399, showing that the company’s willingness to subsidize headphones for relevance has limits.
This price increase is accompanied by record inflation levels and a hostile stock market that has taken a particularly strong ax to Meta’s stock price. The company’s stock is now trading below 5 years ago, and spending at Reality Labs has become a more appropriate concern for investors as the company’s revenue growth begins to wane.
VR and the metaverse are becoming very expensive endeavors for Meta. The company announced Wednesday that it spent $2.8 billion on Reality Labs in Q2 alone; This figure shows that the company’s metaverse dreams are more than just hockey marketing talk and remain a substantial financial bet with little upside in the short term in an arena where it is abundant. big tech giants seem to be pulling back on R&D spending in recent years.
What is worth remembering is why Meta followed the strategy of initially selling headphones at cost. This wasn’t the company’s initial plan, the Rift headset and controllers were selling for around $800 at launch, and it was only after years of price drops that the company was able to scale device sales. This was, of course, hardware that required a gaming PC and had close rivals at similar price points.
Fast forward 5 years and there may still be a handful of earphones out there, but the cornerstone of the increase in headphone numbers recently seems to be pinned to the Quest 2, which is only the lowest-cost entry point on the market. Raising the prices of tech hardware products in the middle of their life cycle certainly points to a fundamental miscalculation and the company is less likely to repeat it.
It looks like the VR industry will have to compete on relative values as the company moves towards the launch of the “Project Cambria” headset that Bloomberg reports will be called Quest Pro, and rumors are fixed at a $1500 price point. Justify something closer to the true cost of its ecosystem and hardware for consumers. This will be a big, sudden change for Meta and I question how big the user base is for a $1,500 headphone in 2022, even with a “professional” focus.
Meta’s efforts don’t happen in complete solitude. Sony revealed new details about its second-generation headset this week, and Apple is investing heavily in its long-delayed mixed reality headset release, a device that could cost more than $3,000 at launch and will undoubtedly serve as an outlier. “Pro” product suite.
However, when it comes to acquiring new initiatives and products in the VR space, Apple seems poised to gain an edge. Meta’s big-spending efforts to win big in the metaverse faced a rather alarming challenge Wednesday when the FTC announced they were suing to prevent Meta from acquiring VR developer Within, the studio behind VR fitness app Supernatural. One block of the deal, which is reportedly worth over $400 million, will be a pretty dramatic rebuke for one of the VR industry’s only exit opportunities, in an industry phase where revenue is hard to come by and VR startups are failing to win. investor interest is high.
After the better part of a decade since Facebook bought Oculus, the VR industry is still as completely dependent on Meta’s checkbook as ever. A downturn in the public market is forcing the company to adjust its endless spending on the subcategory, and it’s clear there will be many secondary effects down the road.
