This was an important week for virtual reality. All of the important data points are related to Meta, the company that raised the cost of entry to its virtual reality platform, and which now finds itself in a battle with the US government over virtual reality.
Meta jacked up the prices of the Quest 2 by $100, which was the strangest part. Meta has been selling a one-year-old headset at a loss in order to get more consumers to buy it. The company's willingness to subsidize headsets into relevancy has its limits, as evidenced by the hefty increase in the entry price.
The hostile stock market has taken a particularly strong hatchet to Meta's stock price. Reality Labs spending has become a concern for investors as the company's revenue growth starts to fade, as the company's stock is now trading below where it was five years ago.
The cost of virtual reality and the metaverse is getting very high. The company announced Wednesday that they had spent $2.8 billion on Reality Labs in Q2 alone, a number showcasing that the company's metaverse dreams are more than just hokey marketing speak and remain a substantial financial bet with little near-term upside.
$2.8 billion of loss (spend) for Meta’s Reality Labs in Q2. That’s an entire AR/VR ecosystem’s worth of startup funding. I think if that as 300 x Series A financings, or more than 3 per day for every day in the quarter!
— sarah guo
(@saranormous) July 27, 2022
Meta pursued the strategy of selling headsets at-cost in order to make money. It was only after years of price drops that the company was able to scale sales of the device. That was a piece of hardware that required a gaming PC and was one with close competitors at similar price points.
The cornerstone of headset number growth recently has seemed to be pinned exclusively to the Quest 2 which is the lowest cost point of entry on the market. Raising prices of tech hardware in the middle of its lifecycle suggests a fundamental miscalculation and is less likely to be repeated.
Meta is raising the price of Quest 2 virtual reality headsets by $100
As the company barrels towards the release of its "Project Cambria" headset which will be called the Quest Pro and rumors have pegged at a $1500 price point, the virtual reality industry seems like it's going to be forced to compete on the relative merits of its system and justify something closer to I don't know how big the audience of users for a $1,500 headset is in 2022, even one with a "professional" focus.
Meta's efforts aren't done in isolation. Apple has been investing heavily in a long-awaited mixed reality headset release, a device which may cost upwards of $3,000 when it is eventually released and will undoubtedly serve as an outlier in its suite of "pro" products.
Apple is poised to gain an advantage when it comes to acquiring new companies in the virtual reality space. The FTC filed a lawsuit to block Meta's purchase of Within, the studio behind the virtual reality app Supernatural. A block of the deal, which was reportedly for over $400 million, would be a pretty stunning rebuke of one of the only exit opportunities in the industry.
The virtual reality industry is still dependent on Meta after a decade. A public market downturn is forcing an adjustment to the company's infinite spend on the subcategory.
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