Inflation Hits VR
Meta’s (FB) Oculus Quest 2 is the best-selling VR headset, and while we expect Meta loses money on every Quest it sells, the idea of seeding the market to encourage consumers to try a new technology is certainly not a new one in the CE space, and the price of the Quest 2 ($300 to $400) is low enough to embolden consumers to take the plunge despite the rather limited content available to users. While competitive XR headsets can run as high as $12,000 there are a number of soon-to-be released headsets that are expected to be priced in the $450 - $550 price category, with comparative specs to the Quest, but what makes this even more challenging for Meta is the price increase that they have just instituted for the Quest 2 headset, which will raise the price of the two models between 25% and 33%, along with accessories and refurbished headsets.
Understandably the company has indicated the need for the change in order to compensate for the increased cost of materials, silicon, and logistics, which it has likely been eating for the last few quarters, and with thye macro situation putting pressure on Meta’s base businesses, the word likely came down that it was time to at least catch up to those increases. While it would be difficult for almost any CE brands to generate comparable share to the Quest VR line, there are a number of potential contenders, particularly Chinese brands, that will likely give Meta a run for their money, with Skyworth (751.HK) among the most aggressive as to price and Pico (pvt), owned by Chinese content giant ByteDance (pvt). Skyworth is expected to release two VR models this year, both in the $450 to $600 price range, and PICO’s Neo 3Link, released in May, sells for ~$450, while the price of the Sony (SNE) Playstation VR 2 that was announced in February 2021, albeit not a stand-alone device, remains a mystery.
While VR is certainly far from being a consumer ‘must-have’, some CE companies are willing to stake a claim to the space with low-cost headsets that likely generate immediate losses but establish the name of the brand in the VR space. For companies the size of Meta, Sony, and ByteDance the cost of R&D and production/sale losses can be absorbed, while smaller VR brands must still price far above to recover even part of their development and production costs, but the specter of inflation and slower economic growth could put a damper on even the largest companies’ efforts to build a VR name in the near-term as pressure to cover mounting costs pushes up the price of headsets at a time when the industry needs a lower price point to pull in potential buyers. There are still wildcards in the brush, with Apple (AAPL) having the greatest ability to move the needle but we expect Apple will have more sensitivity to creating a profitable overall business that would encompass a premium priced headset and an absolute necessity for concomitant software sales before marching into the VR arena.
Understandably the company has indicated the need for the change in order to compensate for the increased cost of materials, silicon, and logistics, which it has likely been eating for the last few quarters, and with thye macro situation putting pressure on Meta’s base businesses, the word likely came down that it was time to at least catch up to those increases. While it would be difficult for almost any CE brands to generate comparable share to the Quest VR line, there are a number of potential contenders, particularly Chinese brands, that will likely give Meta a run for their money, with Skyworth (751.HK) among the most aggressive as to price and Pico (pvt), owned by Chinese content giant ByteDance (pvt). Skyworth is expected to release two VR models this year, both in the $450 to $600 price range, and PICO’s Neo 3Link, released in May, sells for ~$450, while the price of the Sony (SNE) Playstation VR 2 that was announced in February 2021, albeit not a stand-alone device, remains a mystery.
While VR is certainly far from being a consumer ‘must-have’, some CE companies are willing to stake a claim to the space with low-cost headsets that likely generate immediate losses but establish the name of the brand in the VR space. For companies the size of Meta, Sony, and ByteDance the cost of R&D and production/sale losses can be absorbed, while smaller VR brands must still price far above to recover even part of their development and production costs, but the specter of inflation and slower economic growth could put a damper on even the largest companies’ efforts to build a VR name in the near-term as pressure to cover mounting costs pushes up the price of headsets at a time when the industry needs a lower price point to pull in potential buyers. There are still wildcards in the brush, with Apple (AAPL) having the greatest ability to move the needle but we expect Apple will have more sensitivity to creating a profitable overall business that would encompass a premium priced headset and an absolute necessity for concomitant software sales before marching into the VR arena.
RSS Feed