What a more expensive Quest means for Meta and its VR ambitions
Hello, and welcome to Protocol Entertainment, your guide to the business of the gaming and media industries. This Thursday, we’re exploring what the Quest’s new price tag means for Meta and the VR industry, and why Spotify is getting out of the hardware business. Also: dogs.
VR is getting more expensive
Meta surprised the VR world with the announcement this week that it was going to raise the price of its Quest VR headset by $100, with the entry-level model now costing $400. It’s a big bump that could dampen VR adoption, but it’s also an opportunity for competitors to make inroads against a seemingly invincible market leader.
The price hike is part of a broader trend. A company raising prices on a 2-year-old product may seem unprecedented, but Meta is not alone in reevaluating price points amid continued component cost increases and supply chain shortages.
- Sonos raised prices between $10 and $100 for the majority of its products a year ago.
- Smart TVs have gotten more expensive as well. After declining for decades, the average sale price of TVs increased by 5.7% last year.
- Spotify this week cited increased component costs as a key reason for its decision to abandon its own hardware efforts.
- And there are no signs that component costs will go down anytime soon. If anything, things are about to get a lot worse: The International Energy Agency reported in May that the costs are skyrocketing for minerals needed to build electronics and the batteries that power them.
Another reason for the price hike: perception. Meta has sold its VR hardware at or below cost to grow the ecosystem, and pressure on the ad market is forcing the company to change its ways.
- Raising the price of the Quest 2 ultimately will make a bit of a dent, with CFO David Wehner pointing out during yesterday’s earnings call that the company has already reduced the amount of money it’s been putting aside for future VR losses.
- But even if Meta sells a couple million more Quests this holiday season with the higher price tag, the difference would still be dwarfed by the impact of advertisers slowing down their spending.
Selling hardware at cost gives a company very little wiggle room. Last year, there were virtually no holiday sales for the Quest. With a higher suggested retail price, Meta and its partners can more easily put the device on sale.
- Compared to the prior $300 price tag, a $400 Quest may look expensive. But if Meta discounts the entry-level model for the holidays, stores could display a $349 model next to a $500 top-of-the-line headset — a practice known in the consumer electronics industry as “anchoring.”
- The higher price tag might not look as bad when Meta introduces its high-end Cambria VR headset this fall. Positioned as an enterprise device, Cambria will reportedly sell for more than $800.
The price increase is also good news for competitors.
- One of the companies benefitting will be Sony, which is slated to release its PS VR2 headset sometime over the coming months.
- HTC, whose Vive Flow headset is currently selling for $500, could also see renewed interest.
- The biggest winner could be ByteDance, which has plans to take on Meta’s Quest with its still-unannounced Pico 4 headset.
The big question: Will these competitors catch up fast enough? Increased competition will be good for everyone, VR developers included. But if the price increase leads to a bigger slowdown of VR adoption, it could be detrimental to the entire industry.
— Janko Roettgers
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The FTC wants to stop Meta’s Supernatural acquisition. Meta wants to buy Within, the startup behind VR fitness app Supernatural, for a reported $400 million to $500 million. The FTC believes this would kill competition in the VR workout space, and has asked a federal court for a preliminary injunction to start full administrative proceedings. We interviewed Within CEO Chris Milk about Supernatural before, and also talked to FTC Chair Lina Khan about the agency’s new focus on AR and VR.
Snapchat is getting into AR gaming. Look out, Niantic: Snapchat launched its first AR game today. Ghost Phone is a horror game that incorporates an AR view of the real world into its gameplay, tasking players with solving a supernatural mystery. It’s the very first such AR game on Snapchat, but Snap hopes that AR gaming will catch on and build on prior momentum: Over 300 million people have played games on Snapchat since the app incorporated them in 2019, according to Snap, and over 250 million users engage with the app’s AR filters every day.
Spotify is exiting the hardware business and will not make any additional units of Car Thing, the in-car audio display it debuted last year. CEO Daniel Ek told investors yesterday that Spotify wasn’t able to sell the device at a price point “that would make the current product financially viable.” He also pointed to rising component costs and other supply chain issues as reasons for making hardware an undesirable category for Spotify. The company took a €31 million (about $31.3 million) charge in Q2 to wind down its hardware business.
— Janko Roettgers
In other news
Mark Zuckerberg about competing with Apple in AR. Zuckerberg told employees that Meta is in a “very deep, philosophical competition” with Apple when it comes to the metaverse and the future of immersive computing.
Comcast has eyed Vizio for a possible acquisition. The cable giant has considered buying a smart TV brand to bolster its XClass smart TV platform play.
Meta is tapping Hollywood execs for a new advisory board. The board is supposed to help the company improve relations with celebrities and influencers, and perhaps prevent it from further pissing off Kylie Jenner.
Hulu will allow political ads on abortion, after all. However, the streaming service’s decision to change its ad policy opens a new can of worms.
Meta has looked at buying an eye tracking startup. AdHawk is supposed to help with eye tracking without the need for expensive or overly complex hardware.
A major shift for Grand Theft Auto. A new report from Bloomberg detailed a cultural sea change at developer Rockstar Games to make the studio more inclusive and progressive. As a result, a notable feature of the upcoming GTA VI will be a playable female protagonist.
PlayStation VR2 takes some cues from the Quest. Sony disclosed some new details about its upcoming VR headset this week, including a new see-through mode similar to Meta’s Passthrough feature and the ability to designate a play boundary like the Quest’s Guardian.
The first few times, it was cute. Then we started to make fun of it. Eventually, it became pretty annoying. My family has been watching “Kung Fu” on the CW app, and for a while, every single ad break featured the same flea medicine ad with dogs joyfully jumping up in the air. There was also an always-repeating Target ad and one for some soft drink that I can’t remember. (Showing it to us more often clearly didn’t make it more memorable.)
Turns out I’m not alone being annoyed by this: 73% of respondents told Ipsos in a survey released today that they encounter repetitive ads on streaming services. It’s worth pointing out that the survey was commissioned by Infillion, an ad tech company that claims to have a solution to this problem. However, here’s the thing: The problem itself is not new. A number of companies have over the years pitched their own approaches to frequency capping, as the industry likes to call attempts to not bore you with the same ad over and over again.
And yet, here we are in 2022, and the dogs are still jumping during every single ad break. Maybe it’s just time to make peace with repetition. I, for one, am ready to welcome our new, flea-free overlords.
— Janko Roettgers
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Correction: This story has been updated to correct the price increase of TVs in 2021. This story was updated July 28, 2022.