The VR market is shrinking as giants pour billions of dollars into the metaverse.

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    Meta Platform Inc. attendee at the Telefónica SA stand during the second day of the Mobile World Congress held at the Fira de Barcelona venue on Tuesday, February 28, 2023 in Barcelona, ​​Spain. Oculus Quest 2 virtual reality (VR) headset.

    Angel Garcia | Bloomberg | Getty Images

    As of Nov. 25, sales of VR headsets and augmented reality glasses in the U.S. will decline nearly 40% to $664 million in 2023, according to data shared with CNBC by research firm Sarcana. It is expected that this will happen. This is a significant decrease compared to last year, when sales of AR and VR devices decreased by 2% to $1.1 billion.

    Two years of decline highlights the continued challenge of the meta moving from a niche gaming corner to the mainstream. Zuckerberg announced Facebook's transition to meta in late 2021, saying it would take 10 years to reach 1 billion users, but he offered more optimistic data to appease shareholder base. You may need to start showing. This is important given the company's heavy and risky position. investment.

    So far, there have been no breakthroughs or killer apps to demonstrate Zuckerberg's vision. Meta's Reality Labs division, which develops VR and AR technology, posted a loss of $3.7 billion on revenue of $210 million in the third quarter. All told, the division has lost about $25 billion since early 2022, shortly after Mr. Zuckerberg changed the company's name.

    Mehta declined to comment for this article, but pointed to a Monday blog post by Andrew Bosworth, the chief technology officer who runs Reality Labs. Bosworth called artificial intelligence and the metaverse “two long-term bets on future technologies,” and said they are “starting to intersect as products that are accessible to a lot of people.”

    “Making long-term bets on emerging technologies is not easy,” Bosworth wrote. “There's no guarantee it'll work, and it won't be cheap. This is one of the most valuable things a technology company can do, and it's the only way to stay relevant in the long term.”

    Meta is currently the leader in the VR market, with sales of its Quest-branded headsets far ahead of the U.S. market, said Ben Arnold, a consumer technology analyst at Circana. Arnold said Sony launched its second-generation PlayStation VR2 headset earlier this year, but it didn't gain much market share because the device relied on the PlayStation 5 video game console.

    Sony did not respond to a request for comment.

    Arnold said the market is tough this year due to a lack of new standalone VR headsets to excite users and a continued lack of innovative apps with broad appeal to mainstream consumers. I think it depends.

    Meta announced the Quest 3 VR in October, starting at $499, $200 more than the starting price of its 2020 predecessor, the base model of the Quest 2. At least it sold well enough to lift the VR market. Even during important holidays. Suppose there was a total of one week in a year.

    Facebook Chief Technology Officer Andrew Bosworth speaks at the MetaConnect event held at Meta Headquarters in Menlo Park, California on September 27, 2023.

    Josh Adelson | AFP | Getty Images

    According to data from Circana, sales of VR headsets in the U.S. during the eight-week period from October to November were $271 million, up 42% from $191 million in the same period last year.

    Arnold said the design and appeal of VR headsets has improved significantly in recent years, and that “products are progressing on a schedule that makes sense.”

    “If there's a challenge there, it's how do we bring great content to this hardware so that developers can put more resources into building games and building some kind of experience? It's about how you pull the levers,” Arnold said. “It's a little bit about economics, how many people are attracted to this platform or this particular tool, and if I'm a developer, is it worth my time?”

    Meta believes the Quest 3 will inspire developers to create engaging apps and games that take advantage of the device's so-called pass-through feature, which enables augmented reality experiences that blend digital graphics with real-world experiences. I hope so. Several developers who attended Meta's Connect conference in September said the pass-through technology represents an upgrade from Quest 2.

    “Within months of the release of Meta Quest 3, seven of the top 20 apps were mixed reality apps,” Bosworth wrote in a blog post. He said Mehta sees “a strong signal that people really value these experiences.”

    Bosworth said Meta is testing generative AI technology to enable its latest Ray-Ban smart glasses to translate foreign languages ​​and add funny captions to photos taken. “

    “Ray-Ban Meta smart glasses allow AI to see the world from our perspective for the first time,” he wrote.

    The company's second-generation Ray-Ban glasses went on sale in October with a starting price of $299. Meta hopes these devices will give Zuckerberg a new avenue to realize the Metaverse vision previously tied to the Quest headset.

    Heading into 2024, the biggest wildcard in the VR market is Apple.

    In June, Apple announced the Vision Pro mixed reality headset, expected to hit the market next year with a starting price of $3,499.

    The premium price indicates Apple is targeting early adopters, developers and enterprises as potential customers, VR developers told CNBC at Meta's Connect event. VR enthusiasts are excited about Apple's first headset, given the company's tremendous success with consumer devices and the Vision Pro's ability to integrate with products like the iPhone and iPad. .

    Apple did not respond to a request for comment.

    According to IDC research, the introduction of Vision Pro could also play a key role in energizing the emerging VR and AR market in 2024. In his September News release on the state of the market, IDC's Director of Research Ramon Lamas said: Apple's entry next year will bring much-needed attention to a smaller market, but it will also help other companies in other ways. ” will be forced to compete with. ”

    JMP Securities analyst Andrew Boone said he was initially so impressed with Apple's Vision Pro demo that he began to worry about Meta's future in the market.

    At first, Boone said he thought “Apple was so far ahead that Meta would give up.''

    “I think my tone has changed on this,” he said. “I think the price was too high to really get mass demand, so Zuke is looking at another version. Obviously, Quest is more focused on gaming.”

    Boone said there are “enough differences” between the Quest and Vision Pro devices to cater to different crowds, but he expects to learn more about the VR market over the next 12 months. states.

    Rolf Illenberger, CEO of German VR startup VRDirect, said companies are excited about the Vision Pro “because it's Apple,” but there's a perception that it's a “lifestyle” device. Apple's demo highlighted more entertainment-friendly uses, such as the ability to watch movies on a giant virtual display. Apple describes Vision Pro as a “spatial computer” that can blend the physical world with digital content and visuals.

    “The product is premium, so people had to think about what a super-premium experience would look like and what use cases would come out of it,” Circana's Arnold said.

    Illenberger believes Meta's Quest 3 has the potential to have a significant impact within enterprises with features such as employee training, onboarding, and marketing. He said the device is $500 cheaper than the 2022 Quest Pro, a business device, and has many of the same features.

    Consumers have an even harder time. Ellenberger said that aside from “early adopters and avid gaming kids,” there is “no solid enough basis for him to spend even $500 on VR.”

    In the enterprise VR market, Meta and Taiwan's HTC are the main suppliers of devices. TikTok's parent company ByteDance's Pico-branded headsets are “increasingly losing ground,” Illenberger said. ByteDance is reportedly canceling the next version of its Pico headset and instead moving resources to another device similar to Apple's Vision Pro.

    ByteDance did not respond to a request for comment.

    Regarding the sale, Illenberger said Meta is beginning to benefit from the name change in late 2021. Zuckerberg's rebranding has had a “psychological” impact on some companies, he said, making them feel more comfortable buying devices without the stigma. Facebook brand and the many data privacy scams associated with it

    “Rebranding the company to Meta was a great decision,” Ellenberger said. “Not because he's claiming a market for his company, but because people are increasingly forgetting that Meta is actually his Facebook.”

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