For an industry that rarely has big news anymore, this was a really big week for virtual reality. Unsurprisingly, all major data points are tied to the industry’s sole benefactor these days, Meta, who managed to increase the cost of access to its VR ecosystem, finds itself in a new battle with the US government over VR, announcing that it had once again burned an awful lot of money on its Reality Lab efforts this quarter.
The strangest news was definitely Meta’s seemingly unprecedented move to drive up the prices of the Quest 2 by $100. This is another year-old headset that Meta has supposedly sold at a loss to lure more consumers into the market. This hefty increase brings the entry-level price from $299 to $399 and signals that the company’s willingness to subsidize headsets for relevance has its limits.
This price increase has been accompanied by record inflation levels and a hostile stock market that has caused a particularly strong battle with Meta’s stock price. The company’s stock is now trading below 5 years ago and spending at Reality Labs has become a more pertinent concern for investors as the company’s revenue growth begins to slow down.
VR and the metaverse are going to be very expensive endeavors for Meta. The company announced Wednesday that it had spent $2.8 billion on Reality Labs in the second quarter alone, a number that shows the company’s metaverse dreams are more than just hokey marketing, and remain a substantial financial gamble with little. short-term upside in an arena where many of the big tech giants have appeared to be scaling back their R&D spending in recent years.
What’s worth remembering is why Meta followed the strategy of selling headsets at cost to begin with. This was not the company’s original plan, the Rift headset and its controllers sold for nearly $800 when they launched and it was only after years of price drops that the company was able to scale up sales of the device. That, of course, was a piece of hardware that required a gaming PC and that was one with close competitors at similar price points.
Fast forward 5 years and there may still be a handful of headsets out there, but the cornerstone of headset growth lately seems to have been tied exclusively to the Quest 2, the cheapest entry point on the market. Raising the prices of tech hardware products in the middle of its lifecycle certainly suggests a fundamental miscalculation and one that the company is less likely to repeat.
As the company moves towards the release of its “Project Cambria” headset that Bloomberg has reported will be called the Quest Pro and is rumored to be priced at $1500, the VR industry appears to be forced to compete. on the relative merits of its ecosystem and justify something closer to the true cost of its hardware to consumers. This would be a big, sudden shift for Meta to make and I wonder how big the user audience for a $1,500 headset will be in 2022, even one with a “professional” focus.
Meta’s efforts do not take place entirely in solitude. Sony announced new details about its second-generation headset this week, and Apple has invested heavily in a long-delayed release of a mixed reality headset, a device that could cost more than $3,000 when it finally releases and will no doubt serve as a outlier in its line of “Pro” products.
However, Apple seems poised to gain an edge when it comes to acquiring new startups and products in the VR space. Meta’s efforts to spend big to win big in the metaverse met a pretty worrisome challenge on Wednesday when the FTC announced they were filing suit against Meta’s purchase of VR developer Within, the studio behind VR fitness app Supernatural. A freeze on the deal, which was reportedly worth more than $400 million, would be a pretty stunning rebuke to one of the VR industry’s only exit options, at a stage of the industry where revenues are hard to come by and VR startups are failing to earn much investor interest.
After the better part of a decade since Facebook’s Oculus acquisition, the VR industry is still as completely dependent on Meta’s checkbook as ever. A downturn in the public market forces an adjustment to the company’s infinite spending on the subcategory, and it’s clear that plenty of second-order effects are on the way.