The VR market is shrinking as Meta Corporation pours billions of dollars into the Metaverse

Sales of virtual reality headsets and augmented reality glasses in the United States fell nearly 40% to $664 million in 2023, as of November 25, according to data that research firm Circana shared with CNBC. This is a steeper decline than last year, when sales of augmented reality and virtual reality devices fell 2% to $1.1 billion.

The two-year decline underscores the ongoing challenge Meta faces in bringing immersive technology out of the niche gaming corner and into the mainstream. While Zuckerberg, when announcing Facebook’s pivot to Meta in late 2021, said it would likely take a decade to reach 1 billion users, he may need to start offering more optimistic data to satisfy a shareholder base that has criticized the company as being too big and too risky. Investments.

So far, there has been no major success — or killer app — to validate Zuckerberg’s vision. Meta’s Reality Labs unit, which develops virtual reality and augmented reality technologies, lost $3.7 billion in the third quarter on sales of $210 million. In total, the division has lost about $25 billion since the start of 2022, shortly after Zuckerberg renamed his company.

Meta declined to provide a comment on this story, but referred to A Blog post Monday from chief technology officer Andrew Bosworth, who runs Reality Labs. Bosworth described artificial intelligence and the metaverse as “two long-term bets on future technologies,” and said they were beginning to “intersect in the form of products accessible to large numbers of people.”

“Making long-term bets on emerging technologies is not easy,” Bosworth wrote. “Its success is not guaranteed, and it certainly isn’t cheap. It’s also one of the most valuable things a tech company can do — and the only way to stay relevant in the long term.”

Meta is currently the leader in the virtual reality market, with sales of Quest-branded headsets representing the bulk of the U.S. market by a significant margin, it said. Ben Arnold, consumer technology analyst at Circana. Sony released its second-generation PlayStation VR2 headset earlier this year, but it didn’t gain a large share of the market due in part to the device’s reliance on the PlayStation 5 video game console, Arnold said.

Sony did not respond to a request for comment.

Arnold attributed the market’s tough year to a dearth of new standalone VR headsets that could interest users, and a continued lack of a premium app with broad appeal among mainstream consumers.

Meta debuted the Quest 3 VR in October, with a starting price of $499, or $200 more than the previous base model of the Quest 2 was priced in 2020. Sales have at least been strong enough to help lift the VR market During the pivotal holiday period, even if the year is only a week long.

Circana data showed that during an eight-week period from October to November, virtual reality headset sales in the United States amounted to $271 million, an increase of 42% from the $191 million achieved during the same period last year.

Arnold said the design and appeal of virtual reality headsets have improved significantly over the years, and that “products are progressing on a logical timeline.”

“If there’s a challenge here, it’s how do you get great content to these devices, and how do you leverage some of those levers that enable a developer to allocate more resources to building a game or some type of experience,” Arnold said. “It’s a little bit about economics, a little bit about how many people are attracted to this particular platform or device, and if I’m a developer, is it worth my time.”

Meta hopes that Quest 3 will inspire developers to create engaging apps and games that use the device’s so-called passability feature, which allows for augmented reality experiences that blend digital graphics with real-world experiences. Several developers who attended Meta’s Connect conference in September said the traversal technology represents an upgrade from Quest 2.

“Within months of Meta Quest 3’s launch, seven of the top 20 apps are mixed reality apps,” Bosworth wrote on his blog. Meta “sees strong signs that people really value these experiences,” he added.

Meta is testing generative AI techniques in its latest Ray-Ban smart glasses to help people translate foreign languages ​​“or come up with a funny caption for a photo you took,” Bosworth said.

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

The company’s second-generation Ray-Ban sunglasses were released in October with a starting price of $299. Meta hopes the devices will provide another path for Zuckerberg to realize his transformative vision, which has until now been tied to the Quest headphones.

Heading into 2024, Apple will be the big trump card of the VR market.

In June, Apple unveiled its Vision Pro mixed reality headset, which is scheduled to hit the market next year at a starting price of $3,499.

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

Apple did not respond to a request for comment.

The Vision Pro’s debut could also play a pivotal role in boosting the emerging VR and AR market in 2024, according to research From IDC. In a September press release on the state of the market, IDC research director Ramon Llamas said: “Apple’s entry next year will bring much-needed attention to a small market, but it will also force other companies to compete in different ways.”

Andrew Boone, an analyst at JMP Securities, said he was initially so impressed by Apple’s Vision Pro demos that he began to worry about the Meta’s future in the market.

Boone said his initial thought was that “Apple was so advanced that Meta might give up.”

“I think my tone on this has changed,” he said. “I think the price was too high to actually get a large order, so Zuck is going for a different version of this. Obviously, the mission is more game-focused.”

Boone says there’s “enough differentiation” between the Quest and Vision Pro devices that they can cater to different crowds, though he expects to learn more about the VR market over the next 12 months.

Rolf Illenberger, CEO of German virtual reality startup VRdirect, said companies are excited about the Vision Pro “because it’s Apple,” but there’s a perception that it’s more of a “lifestyle” device. Apple’s demos highlighted more entertainment-friendly uses such as the ability to watch movies on a giant virtual screen. Apple describes the Vision Pro as a “spatial computer” capable of blending the physical world with digital content and visuals.

“This product is premium, so it got people thinking about what a premium experience looks like and what use cases arise from that,” Circana’s Arnold said.

Illenberger sees the potential for Meta’s Quest 3 to create significant buzz in the enterprise for tasks like workforce training, onboarding, and marketing. He noted that the device is $500 cheaper than the Quest Pro, which was released in 2022 as a more business-focused device, and has many of the same features.

The consumer is more challenged. Aside from “early adopters and kids obsessed with gaming,” Ellenberger says, “there aren’t enough compelling arguments to spend even $500 on VR.”

In the enterprise VR market, Meta and Taiwan’s HTC are the leading hardware suppliers. Pico-branded headphones from TikTok’s parent company ByteDance are “losing more and more steam,” Ellenberger said. At ByteDance It said The company has canceled the next version of its Pico headset and is instead shifting resources to another device more similar to Apple’s Vision Pro.

ByteDance did not respond to a request for comment.

When it comes to selling to businesses, Ellenberger says Meta began benefiting from its name change in late 2021. He said Zuckerberg’s rebranding had a “psychological” impact on some companies that feel more comfortable buying hardware without distorting it. The Facebook brand and the many data privacy scandals associated with it

“Rebranding the company to Meta was a genius move,” Ellenberger said. “Not because he controls the market for his company, but more and more people are forgetting that Meta is actually Facebook.”

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