Facebook (NASDAQ: FB) Recently the Oculus Quest 2 was introduced, the third standalone VR (Virtual Reality) headset. Quest 2 costs $ 299, $ 100 less than the original Quest, and will ship in 22 countries starting October 13th.
The Quest 2 has a higher resolution screen, faster processor, and lighter frame than the original. It can play the same games as the original Quest as well as PC games over the Oculus Link cable.
Facebook’s announcement came as no surprise, as a Nikkei report in July claimed the tech giant would increase its Oculus headset production by up to 50% this year, with a goal of 2 million devices. However, the upcoming launch of Quest 2 could significantly extend Facebook’s lead over its competitors in the emerging VR market for three simple reasons.
Image source: Facebook.
1. Facebook enjoys the advantage of being a first mover
Six years ago, Facebook acquired Oculus for $ 2 billion in cash and stock. The acquisition raised eyebrows as Oculus had not yet launched a single commercial product. The high-end headset, the Oculus Rift, was still an expensive device aimed at developers, not consumers.
In 2016, Facebook launched Oculus’ first consumer headset, the Rift CV1. The device cost $ 600 and needed to be connected to a high-end gaming PC. However, Facebook gave Facebook a pioneering advantage in the VR headset market.
Facebook took advantage of this early lead to expand Oculus’ portfolio with the Rift S, the successor to the CV1 last year, and its standalone Go and Quest headsets that didn’t need to be connected to PCs.
According to Trendforce, this expansion enabled Facebook to lead the VR headset market last year with a 35% share. Sony (NYSE: SNE), which ranks second, doesn’t directly compete with Facebook as its VR headsets are tied to its PS4 consoles.
2. Facebook has entered the standalone device market
SuperData estimates that standalone VR headsets represented 49% of all VR headset sales last year. Within the stand-alone market, the Oculus Quest faced few smaller competitors, most of whom were used alphabet‘s (NASDAQ: toget) (NASDAQ: togetL) Daydream VR platform discontinued.
Image source: Facebook.
The search seemed to strike the right balance between phone-based VR headsets, which offered less impressive experiences, and PC-based VR headsets, which required cumbersome cables and high-end hardware. The Oculus Link also enabled gamers to quickly switch between standalone and PC-bound games.
At this rate, it will be difficult for new competitors to enter the stand-alone headset market. According to SuperData, Facebook reportedly shipped 705,000 Quest headsets last year, but the alleged production target of 2 million headsets this year – and the decision to host the entire headset business behind the Quest 2 by adding Go, Rift S, and first- can be set. gen Quest – suggests its shipments could easily double in 2020.
3. Low price and pent-up demand
As early as late April, Facebook CEO Mark Zuckerberg claimed the Quest had “exceeded” the company’s expectations and wished the company could “do more of it faster” during the COVID-19 crisis.
Facebook’s decision to ramp up Oculus production and then bring the price down to $ 299 suggests that it is trying to make up for the lost time. The Quest 2 is still $ 100 more expensive than the weaker standalone Go that lacked six degrees of freedom (6DOF), but customers were clearly willing to pay $ 399 for the better hardware and 6DOF features of the first-generation Quest to pay.
Facebook is likely to lose any Quest 2 headset for two simple reasons. First, it can easily offset those losses by growing its core advertising business. Second, these costs can be recouped by retaining 30% of the VR content sold on the platform. Back in May, Facebook announced that VR content worth over $ 100 million had been sold for the Quest last year. This meant every Quest owner was buying over $ 140 million worth of content for their headsets.
As a result, Facebook is likely to sell the Quest 2 at a loss to pave the way for its VR ecosystem to grow – which could ultimately support Zuckerberg’s long-term goal of making VR a full-fledged computing platform for over a billion users.
The key to take away
Oculus Quest 2 won’t significantly reduce Facebook’s reliance on ads, which still accounted for 98% of sales last quarter.
But it will likely extend Facebook’s lead in the VR headset market and put it in pole position to capitalize on the growth of the VR market – which is still at an average annual growth rate of 21.6 between 20 and 2027, according to 2020 % could grow Grand View Research.
If Facebook continues to refine its headsets and expand its VR platform for games, media, and social experiences, it could significantly expand its reach beyond PCs and mobile devices, expanding its moat against competitors in the tech ecosystem.
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