A Rising Headset Lifts All XR Companies

Meta Welcomes Headset War With Apple
Company executives are optimistic about competition as billions spent have yet to translate into wide consumer adoption

This starts out well enough:

Meta is hoping launch of the Vision Pro can reinvigorate its $50 billion metaverse effort, which consumers have yet to widely embrace.

The social-media company wagered its reputation on the technology in 2021, changing its name to reflect an expansive vision that the future would rest in immersive virtual worlds.

Three years later, Meta's Reality Labs division accounts for less than 1% of overall revenue, and the company has struggled to expand the cache of its Quest devices beyond a niche market. Reality Labs is expected to lose $115 billion between now and 2030, according to FBB Capital Partners.

On the eve of the arrival of Apple’s Vision Pro, which will hit U.S. stores Friday, executives at Meta are optimistic, believing the iPhone maker’s entry into the market will validate Chief Executive Mark Zuckerberg’s gamble and draw more consumers, according to people familiar with their thinking.

Yes, as I've said from the moment the Vision Pro was unveiled last year, this is actually a massive opportunity for Meta. Not only does it validate the market in a way that no company beyond Apple entering your general space can (because they do so very deliberately and methodically, with a proven track record of spurring even moribund markets), Apple has ceded not just the bottom-end of the market to Meta, but every part of the market beyond the upper, upper crust, which the Vision Pro, starting at $3,500, is going after.

That said, Mark Zuckerberg's initial reaction to Apple's announcement was dumb. Too Steve Ballmer-laughing-off-the-iPhone-like. And it was especially dumb since Apple didn't frame the Vision Pro correctly either. Regardless, it's good to see that Meta has clearly come around. Because of course this initial entry and price point is just the start. Apple will figure out ways to release far more affordable Visions Pro. But the chasm between $3,500 and the $500 for the Quest 3 is so wide that there's clearly going to be a massive gap there (and thus, opportunity for Meta) for some time.

Meta employees see the Quest and its software ecosystem emerging as a primary alternative to Apple in the space, filling the role played by Google’s Android in smartphones, the people said.

This is something I would be less optimistic about. I just find it hard to believe the headset space is going to play out like the handset space. The volume is going to be so much lower. And it just doesn't seem like there will be as many OEMs as there are in the Android phone world. Further, Meta makes their own hardware from day one here, unlike Google's early Android strategy. Would Meta ever give their software to other hardware players? Maybe, but probably only if their first party hardware strategy isn't working. Anyway, the analogy itself just doesn't work IMO.

This part is just funny:

“Meta is going to have to step up their game and make sure that whatever they’re making still attracts that core developer,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “This could be the Apple Newton—if you remember that, that was a real flop—or it could be the next iPhone.”

The Newton was a hand-held personal digital assistant released in 1993 that is recognized as one of Apple’s biggest failures for its steep price tag and numerous glitches.

Prediction: the Vision Pro will be neither the next Newton nor the next iPhone. I'm far out on a limb there, I know. Also, I'm assuming something in the quote got lost in translation – or just flat out lost – as this suggests that Meta really has to step up their game to combat Apple since the Vision Pro could be either a huge flop or the best business of all time. Again, it's not going to be the latter, and if it's the former, would Meta really have to do much to ensure they beat it?

Apple’s coming headset—whether it succeeds or not—has influenced Meta’s thinking, the people said. Meta is increasingly focusing on mixed reality, which allows users to see virtual images overlaid on their real-world surroundings. Previously, Meta talked more about the metaverse, an amorphous concept that imagined people working and playing in virtual reality.

In addition, some developers are simplifying their apps and favor Apple’s design that allows wearers to use their eyes and fingers to control or manipulate what they see. Meta’s Quest primarily relies on the use of controllers for games or applications, although it can work with finger gestures.

This is undoubtedly true, even if Meta would never admit to it directly. And I'm certain work on such messaging and smaller roadmap pivots started well before the Vision Pro was announced, as those folks could not only read about what was to come in leaks months in advance from the likes of The Information and Bloomberg, but they undoubtedly have their own, well-placed sources given that they necessarily were operating in at least some of the same supply chains as Apple for this device.

Beyond the XR/VR/AR messaging massaging, the real key will likely be on the input side. That is, by most (early) accounts, Apple has nailed the input mechanism for the Vision Pro with their combination of precise eye-tracking and hand gesture recognition. The Quest still mainly uses hardware controllers as the core input mechanism. Yes, there is some gesture recognition, but it's rudimentary compared to what Apple is about to deliver. Meta is going to be forced to catch up there quickly. And with eye tracking in particular, that's undoubtedly going to be easier said than done. But my bet would be that this is one area where Apple has changed the game and Meta needs to respond. The controllers will remain useful for games (and the Vision Pro has gamepad support for this reason) and keyboards/mice will likely be key for productivity, but for everything else, the eyes and hands are going to rule the day.

Meta released the latest version of its headset, Quest 3, in October and shipped 2 million to 2.7 million devices in the fourth quarter, according to an estimate by IDC. That figure is a significant uptick from the 160,000 Quest 2 units Meta shipped in the fourth quarter of 2022.

In other words, Meta is currently shipping an order of magnitude more devices than Apple in the space out of the gate. Apple will close the gap this year, but what if, say, Meta were to launch a $199 Quest device? There are going to be a lot of people who are intrigued by the Vision Pro and want to try out the general space for less than $3,500 – certainly given it's Apple's first generation of the device. Regardless of how comparable you think the Quest is to the Vision Pro, Meta is sitting pretty here to take advantage of that latent demand. And could be sitting even prettier with a cheaper model, loaded with a more robust ecosystem.