Metaverse off to ominous start after VR headset sales shrank in 2022

Over a year after changing his company’s name to Meta and committing to spend billions of dollars developing the metaverse, Mark Zuckerberg’s bet on virtual reality is no closer to paying off.

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

With the ad business mired in a slump, Zuckerberg has been looking to VR devices and related technology to pull Meta into the future. But data from analyst firm CCS Insight reveals that worldwide shipments of VR headsets as well as augmented reality devices dropped more than 12% year over year to 9.6 million in 2022.

Taken together, the estimates of VR headset sales and shipments create a problematic picture for Meta, whose stock price has lost about two-thirds of its value this year. Zuckerberg has said he’s playing the long game with the metaverse, expecting it take up to a decade to go mainstream and projecting it will eventually host hundreds of billions of dollars in commerce.

It’s not just Meta. Numerous venture firms and other tech companies have wagered big over the past decade on a futuristic world of virtual work, education, fitness and sports.

Meta’s Quest 2 headset, released in 2020, is by far the leader in the VR market, according to several analysts. Competing devices from companies like Valve, HP and Sony represent a small fraction of the market.

Sales of Meta’s flagship Quest device dropped in 2022, a decline that can be attributed to the device’s big year in 2021, said Ben Arnold, NPD’s consumer electronics analyst.

“VR had an amazing holiday in 2021,” Arnold said, referring to 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 totally crushed it.”

VR headset revenue in the U.S. doubled 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 electronics device, has lost some appeal as it’s aged. And while Meta released a new VR headset in fall, the Quest Pro, that device is geared toward businesses and costs $1,100 more than the Quest 2, pushing it even further 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.

Leo Gebbie, an analyst at CCS Insight, said in an email that Meta’s price increase was a surprise “given that the company has been willing to sell the headset at such a low margin to try and drive uptake of VR and gain a high market share.”

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

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

Gebbie said “consumer budgets will be tightening,” and “non-essential purchases like VR headsets are likely to be the casualty of this.”

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 kind of a shot in the arm,” it will likely not influence the overall VR market as much as the Quest 2 because Sony’s device requires owners to have a PlayStation 5 as way to power the headset.

“The total addressable market of the PSVR2 is going to be PlayStation owners,” Arnold said.

A major question for next year remains whether Apple, as long rumored, will unveil a VR headset.

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

Additionally, Apple’s reputation as a leader in consumer technology could provide a spark to the dim VR market, making the technology more attractive to the general public.

“If one company has the ability to transform the VR market overnight, it’s Apple,” said Gebbie. “With its hugely loyal fanbase, many of whom are comfortable with spending large amounts of money on technology, if Apple was to launch a headset we expect that it would perform very well.”

Apple is reportedly building a VR headset with AR features for a release as soon as 2023.

Eric Abbruzzese, a research director at ABI Research, said Apple could have success launching a VR headset geared toward businesses, which would likely help lure developers to the community. But the high price of an enterprise VR headset, which would likely retail for 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 its first year,” Abbruzzese said of an Apple enterprise VR headset. “But it is the first notable product from a huge tech incumbent.”

Apple didn’t respond to a request for comment.

One major thing the VR world lacks is a breakout hit, or a killer app.

Some games have gotten traction, like the musical rhythm game Beat Saber and VR versions of popular titles like Resident Evil, Abbruzzese said. And some users are showing more interest in using VR for fitness activities.

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

Meanwhile Meta’s Horizon Worlds social VR platform is still in its experimental phase.

“The only metaverse product really is Horizon and it’s not good right now,” Abbruzzese said.

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