Metaverse is off to an ominous start after VR headset sales fall in 2022

Meta CEO Mark Zuckerberg shows off an Oculus Rift virtual reality (VR) headset and Oculus Touch controllers at the Oculus Connect 3 event in San Jose, California, U.S., Thursday, Oct. 6, 2016.

David Paul Morris | Bloomberg | Getty Images

More than a year after changing the name of his company to Meta and promises to spend billions of dollars developing the metaverse, Mark Zuckerberg’s venture into virtual reality is not paying off.

Sales of VR headsets in the U.S. this year fell 2% from a year earlier to $1.1 billion in early December, according to data shared with CNBC by research firm NPD Group. Facebook’s advertising business generates that much revenue approximately every three days.

With the advertising industry mired in crisis, Zuckerberg has turned to virtual reality devices and related technologies to drag Meta into the future. But data from analyst firm CCS Insight reveals that global shipments of VR headsets as well as augmented reality devices fell more than 12% year-on-year to 9.6 million in 2022.

Taken together, the VR headset sales and shipment estimates paint a troubled picture for Meta, whose stock price has lost about two-thirds of its value this year. Zuckerberg said he was playing the long game with the metaverse, expecting it to take up to a decade to become mainstream and predicting it will eventually host hundreds of billions of dollars in commerce.

It’s not just Meta. Many venture capitalists and other technology companies have bet big in the past decade on a futuristic world of virtual work, education, fitness and sports.

Released in 2020, Meta’s Quest 2 headset is by far the market leader in VR, according to several analysts. Competing devices from companies such as Valve, HP and sony represent a small part of the market.

Sales of Meta’s flagship Quest device fell in 2022, a decline attributable to the device’s big year in 2021, said Ben Arnold, consumer electronics analyst at NPD.

“Virtual reality had a great holiday in 2021,” Arnold said, citing various promotions that helped boost sales of the devices at a time when gaming consoles like Sony’s PlayStation 5 were in short supply. “It was a great time last year to get one of these products, and VR absolutely crushed it.”

VR headset revenue in the U.S. will double in 2021, from about $530 million in 2020, according to NPD.

A confluence of factors contributed to lower sales and shipments in 2022.

The Quest 2 has been around for a few years and, like any consumer electronic device, has lost its appeal as it ages. And while Meta released a new VR headset this fall, the Quest Pro, that device is aimed at businesses and costs $1,100 more than the Quest 2, making it even more out of reach for many VR enthusiasts. .

Meta decided over the summer to raise the price of the Quest 2 by $100, citing inflationary pressures.

CCS Insight analyst Leo Gebbie said in an email that Meta’s price increase came as a surprise “given that the company was willing to sell the headset at such a low margin to try to drive the adoption of virtual reality and win a high market share”.

Meta declined to comment on its VR headset sales or third-party estimates.

All eyes on Apple

Next year is expected to be another “slow year” for the VR market, CCS Insight told me in its latest report, citing a weak economy and inflation.

Gebbie said that “consumer budgets will tighten” and that “non-essential purchases like VR headsets will likely suffer.”

Sony’s next-generation VR headset will cost $550 when it debuts in February. Arnold said that while the PlayStation VR2 will “give the market a bit of a boost”, it likely won’t impact the overall VR market as much as the Quest 2, as Sony’s device requires owners to have a PlayStation 5 as a means of delivering . helmet.

Sony PlayStation VR2 headset

sony

“The total addressable market for PSVR2 will be PlayStation owners,” Arnold said.

A big question for next year is whether Applerumored to unveil a VR headset.

Apple could create a compelling VR headset with an accompanying software ecosystem, Arnold said.

In addition, Apple’s reputation as a leader in consumer technology could give the VR market a spark, making the technology more appealing to the general public.

“If any company has the ability to transform the VR market overnight, it’s Apple,” Gebbie said. “With its hugely loyal fan base, many of whom are comfortable spending large sums of money on technology, we expect it to perform very well should Apple release a headset.”

Apple is reportedly building a VR headset with AR functionality for release as early as 2023.

Eric Abbruzzese, director of research at ABI Research, said Apple could successfully launch a VR headset aimed at businesses, which would likely help attract developers to the community. But the high price of a corporate VR headset, which would likely cost several thousand dollars, would still make it difficult for Apple to move the needle, Abbruzzese said.

“It probably won’t even ship 5 million units in the first year,” Abbruzzese said of an Apple company VR headset. “But it’s the first notable product from a big, historic tech player.”

Apple did not respond to a request for comment.

One major thing the VR world is missing is a blockbuster hit or a killer app.

Some games have gained traction, such as musical rhythm game Beat the Saber and VR versions of popular titles such as Resident Evil, Abbruzzese said. And some users show more interest in using virtual reality for fitness activities.

But in the console market, “hit games like FIFA and Call of Duty ship hundreds of millions of products,” he said.

Meanwhile, Meta’s Horizon World social virtual reality platform is still in its experimental phase.

“The only Metaverse product is really Horizon, and it’s not good at the moment,” Abbruzzese said.

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