For an industry that doesn’t have big news anymore, this week has been too big for virtual reality. Unsurprisingly, all the significant data points are tied to the industry’s single benefactor these days, Meta, which has managed to drive up the cost of entry into its VR ecosystem and finds itself in a new battle with the US government over VR, and has announced it. Once again, it spent a tremendous amount of money on Reality Lab’s efforts this quarter.
The strangest piece of news was certainly the seemingly unprecedented move by Meta to raise the prices of the Quest 2 by $100. This is, once again, a one-year-old headphone that Meta was allegedly selling at a loss in order to get more consumers into the market. This massive increase takes the entry price from $299 to $399, and suggests that the company’s desire to support headphones in relevance has its limits.
This price rise is accompanied by record levels of inflation and a hostile stock market that particularly affected the Meta share price. The company’s stock now trades below where it was 5 years ago and spending at Reality Labs has become a more important concern for investors as the company’s revenue growth begins to wane.
VR and the metaverse have become Meta’s expensive endeavors. The company announced Wednesday that it spent $2.8 billion on Reality Labs in the second quarter alone, a number that demonstrates that the company’s faltering dreams are more than simple marketing rhetoric and remain a big financial bet with little near-term upside in an arena where a lot of looks seem to be. Big tech giants have been pulling back their R&D spending in recent years.
What’s worth remembering is why Meta has followed the cost-price headphones strategy to start with. This wasn’t the company’s initial plan, the Rift headset and its consoles sold for nearly $800 at launch, and the company wasn’t able to ramp up sales of the device until years of low prices. This was, of course, a piece of hardware that required a gaming PC and was one with close competitors at similar price points.
Fast-forward 5 years and there may still be a few headphones out there, but the cornerstone of the headphone growth lately seems to be tied exclusively to the Quest 2 which is the lowest cost entry point in the market. Raising the prices of technical hardware products in the middle of their life cycle certainly indicates a fundamental miscalculation that the company is unlikely to repeat.
As the company moves toward a “Project Cambria” headset that Bloomberg has reported will be called the Quest Pro and the rumors have been pinned to a $1,500 price point, it looks like the VR industry will have to compete on the comparative advantages of its ecosystem and justify something closer to the true cost. devices to consumers. This would be a big and surprising turnaround for Meta, and I wonder what audience will be for a $1,500 headset in 2022, even if the focus is “professional”.
Meta efforts do not occur entirely in isolation. Sony announced new details about its second-generation headphones this week, and Apple has invested heavily in the long-delayed version of a mixed reality headset, a device that could cost upwards of $3,000 when eventually released, and will undoubtedly work. as a third party in its range of “Pro” products.
It appears that Apple is poised to gain an advantage when it comes to acquiring new startups and products in the field of virtual reality. Meta’s big-spending efforts to win big in the metaverse faced a troubling challenge on Wednesday when the FTC announced that it was suing to block the purchase of Meta for VR developer Inside, the studio behind VR fitness app Supernatural. A block of the deal, said to be worth more than $400 million, would be a stunning rebuke to one of the VR industry’s only exit opportunities, during a phase of the industry where revenue is hard to come by and VR startups fail to earn. Lots of investor interest.
After the better part of a decade since Facebook’s acquisition of Oculus, the VR industry is still as completely dependent on the Meta checkbook as ever. The general market downturn is adjusting the company’s infinite spending on the subcategory and there are clearly a lot of secondary effects down the road.
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