For an industry that rarely gets big news, this was an awfully big week for VR. Unsurprisingly, all the important data points are related to the industry’s only benefactor these days, Meta, which managed to raise the cost of entry to its VR ecosystem, is in a new battle with the government of the US for VR and announces that it had, again, burned through a lot of money on its Reality Lab efforts this quarter.
The strangest news was certainly Meta’s seemingly unprecedented move to raise Quest 2 prices by $100. This is, again, a year-old headset that Meta has allegedly been selling at a loss to attract more consumers to the market. This sharp increase takes the entry price from $299 to $399 and indicates that the company’s willingness to subsidize the headset to relevance has its limits.
This price hike comes alongside record levels of inflation and a hostile stock market that has taken a particularly hard ax to Meta’s share price. The company’s stock is now trading below where it was 5 years ago, and spending on Reality Labs has become a more pertinent concern for investors as the company’s revenue growth begins to fade .
VR and the metaverse are becoming very expensive endeavors for Meta. The company announced Wednesday that it had spent $2.8 billion on Reality Labs alone in the second quarter, a number that shows the company’s metaverse dreams are more than just marketing and remain a substantial financial gamble with little near-term upside. in an area where many The big tech giants seem to have reduced their R&D spending in recent years.
$2.8 billion loss (expense) for Meta Reality Labs in the second quarter. This is a whole seed-funded AR/VR ecosystem. I think if this is 300 x Series A funding, or more than 3 per day for each day of the quarter!
— sarah guo 🌱 (@saranormous) July 27, 2022
What’s worth remembering is why Meta pursued the strategy of selling headphones at a price to begin with. This wasn’t the company’s initial plan, the Rift headset and its controllers retailed for nearly $800 when they launched, and it was only after years of price drops that the company was able to increase device sales. This was, of course, a piece of hardware that a gaming PC needed and had close competitors at similar prices.
Fast forward 5 years and there may still be a handful of headphones out there, but the cornerstone of the growth in the number of headphones recently seems to be fixed exclusively on the Quest 2, which is the lowest cost entry point of the market Rising prices for the technology hardware product in the middle of its life cycle certainly suggests a fundamental miscalculation and the company is less likely to repeat it.
As the company heads toward the launch of its “Project Cambria” headset, which Bloomberg has reported will be called the Quest Pro and is rumored to be priced at $1,500, the virtual reality looks like it will be forced to compete on relative merits. of its ecosystem and justify something closer to the actual cost of its hardware to consumers. This would be a huge sudden change for Meta and I wonder what the big user audience is for a $1500 headset in 2022, even one with a “professional” focus.
Meta’s efforts are not done entirely in solitude. Sony announced new details about its second-generation headset this week, and Apple has been investing heavily in a long-delayed launch of a mixed-reality headset, a device that could cost more than $3,000 at launch, and without no doubt, it will serve as an outlier in its “Pro” product suite.
However, Apple seems poised to gain an advantage when it comes to acquiring new companies and products in the VR space. Meta’s efforts to spend big to win big in the metaverse met a rather troubling challenge on Wednesday when the FTC announced it was suing to block Meta’s purchase of VR developer Within, the studio behind the app fitness VR Supernatural. A block of the deal, which was reportedly worth more than $400 million, would be a pretty surprising repudiation of one of the only exit opportunities in the virtual reality industry, during a stage in the industry when the revenue is hard to come by and virtual reality startups fail to make a profit. much interest from investors.
After the better part of a decade since Facebook’s acquisition of Oculus, the VR industry remains as dependent on Meta’s checkbook as ever. A public market slump is forcing an adjustment to the company’s endless spending in the subcategory, and it’s clear there will be plenty of knock-on effects down the road.