Meta is opening a store because the sale of VR headphones is getting closer to the mainstream

Katie Contreras and Chris Nguyen, experience experts, stand at the customer boarding station for the Quest Demo space during a tour of the inaugural physical store Meta Platforms Inc. Facebook owner in Burlingame, California, May 4, 2022.

Brittany Hosea-Small Reuters

A good number of teenagers have virtual reality headphones, but have they started using them in a way similar to smartphones? So far the answer is no.

One quarter (26%) of teens say they own virtual reality headsets, which is a higher level of VR ownership than many expected, but only 5% of teens say they use technology regularly, engagement levels still “unconvincing,” according to a recent report. Piper Sandler’s research report, “Control with Teenagers: Spring 2022.”

The use of VR headsets is low due to a number of factors, from costs yet to fall into the range of most consumers, to an insufficient range of applications. But the latter should not pose a problem for the eventual growth of the metaverse with VR, as the metaverse could be the solution to this adoption problem. As for apps, there’s still not that much, certainly nothing that has sparked much interest.

The games, which already have annual revenues of $ 200 billion and are estimated at three billion players globally, are a natural occurrence for Generation Z and the next generation to grow up exclusively in the digital world. It is the target of Meta’s big technology rival Microsoft, which spends close to $ 70 billion on the acquisition of Activision Blizzard. A recent study on Generation Z players conducted by Razorfish and Vice Media Group found that 20% of their entertainment and leisure budgets will be devoted to in-game purchases over the next five years.

But to date, there are only a small number of VR games (only 3% of users on the popular Steam gaming platform have VR headphones).

Concerts and sports also have significant potential, but there is still no real driver for either of them. Even education, where impressive class “trips” to anywhere in the world are part of the collective idea of ​​the benefits of VR, has yet to take significant progress.

The metaverse is certainly the largest space for VR applications on the horizon, so perhaps the “Field of Dreams” approach – if you build it, it will come – may work.

Certainly, Meta Platforms, a parent of Facebook, is betting on it as part of efforts to diversify beyond ad revenue from its Facebook family of apps, including the base app, Instagram and WhatsApp, which accounted for 97.5% of revenue in the last quarter, close to $ 28 billion.

“Everyone is talking about the metaverse,” Nicola Mendolsohn, vice president of Meta’s Global Business, told CNBC from the sidelines of last week’s Milken Institute Global conference.

But the revenue contribution for the Reality Labs division – the part of the company that designs products for the metaverse – was $ 695 million. Reality Labs remains an abyss of money, if a big bet on the future for the company, announcing a loss of $ 2.96 billion in the first quarter, compared to a loss of $ 1.83 billion in the first quarter of 2021. Executives indicated that the cost of time to be a little easier than previous expectations, this unit will continue to be an area of ​​cost growth. The company has dedicated more than $ 10 billion to building a metaverse.

The cycle between investing and “meaningful enough revenue growth” to be profitable will be a long one, according to the company. “I think it’s going to be longer for Reality Labs than for most of the traditional software we’ve created,” Mark Zuckerberg, Meta’s CEO, said in a recent earnings call.

“We are investing heavily to deliver the next platform that I believe will be incredibly important, both for our mission and for a business of comparable and value to the leading mobile platforms today. Now I realize it’s expensive to build this. It’s something that was never built ago.”

Amid high spending, some experts say it is possible that great progress will happen soon.

Significant innovations in VR have already taken place, says Sarah Ostadabbas, an assistant professor of electrical engineering and computer engineering at Northeastern University, so much so that she thinks widespread adoption could be “just one or two deadly applications”.

“With high latency and poor head tracking, the previous VR was basically useless,” she said, adding that Oculus “has already overcome these biggest limiting factors.”

Meta will open its first physical store and showroom for VR headset technology on Monday, where customers will be able to purchase Quest 2 headphones. It is also preparing for premium headphones, currently called Project Cambria, which will be released later this year.

It can be argued that, given these technological advances, the design side is a place where there is room for growth, a territory that is usually owned by Apple (it has long been rumored that it is developing headphones).

“It has been rumored for years that Apple will roll out AR / VR hardware that disrupts the industry,” said David Lasala, team leader, interactive development and XR technology at New York University.

But he says Meta (formerly Oculus) Quest 2 is currently the clear leader among active players. The second would probably be the Valve Index. Other important headphones include Lynx and Pico Neo. Also worth mentioning: Pimax, Varjo, HTC Vive, and there are some more Windows Mixed Reality activities.

But since Meta is not primarily a hardware company, there is significant freedom in the niche to allow the use of the best VR developments.

“I think they want to build a platform (OS),” Ostadabbas said. “Google got scared when Meta and other social networks locked them up, so they jumped on cell phones to avoid being away from these main sources of information. Similarly, Meta found it harder to figure out what smartphone providers can do to harm their business model with one policy change. “

Recent privacy restrictions for targeting ads from Apple and Google smartphones have cost Meta billions in ad revenue. The company’s chief financial officer estimated the changes at Apple could cost $ 10 billion in revenue this year.

There are warning stories about owning hardware, such as Google Glass, which to date has found only limited business and industrial applications, and 3-D TVs.

Zuckerberg said in a recent earnings call that “the best experience will be on virtual and ultimately augmented reality platforms, especially on our platform like Quest,” but added that the company plans to make it easier for people to enter the multiverse platform metaverse, and “even without the need for headphones.”

Whoever wins the hardware battle, if technology works for consumers, there is still the question of what people will actually do in the metaverse, and, in fact, what is the purpose of all this? Skeptics see hype and rebranding, not much more than that. Much of the hype can be cut short by one word: presence.

“Apart from immersiveness, one of the most interesting differences between the metaverse and the Internet is the presence – your avatar,” Ostadabbas said.

While sitting in a meeting in the shape of a purple octopus may seem silly (because it is), there is something that can be said about the underlying concept. “The internet is a source of information and people are researching huge amounts of information without any trace. Until you comment, you are invisible. With a metaverse, your avatar means spending requires presence, and even research is active and interactive,” she said.

With the presence comes Meta’s second promise (withdrawn from the day on Facebook): community, a word to which social media has devalued a lot of meaning, but here too there is a promise within the metaverse in the form of community without any restrictions such as real world geography. Most community building over a lifetime is mostly related to a fairly small range of opportunities (school on the one hand out of thirty, work on the other). “In the best case scenario, someone understands how to recreate this community experience in the metaverse and people’s lives improve through a greater sense of belonging,” Ostadabbas said.

Chris Nguyen, an experience expert, demonstrates Quest Experience during a review of the first physical store Meta Platforms Inc., owned by Facebook, in Burlingame, California, on May 4, 2022.

Brittany Hosea-Small Reuters

Central to Meta’s approach is a social platform called Horizon Worlds, and she says that after building the “experience, the next focus will be on community growth.”

At best, it will allow people to discover themselves more deeply than ever before, according to Lassala – growing and healing, creating art and learning. Larger claims can be made, although they remain dubious. “I think it could slow down the climate crisis if half the world’s population would meet and work in VR in relation to commuting,” he said. “But I haven’t dived deep into the carbon footprint of server farms and silicone production compared to vehicles, so this could only be a wish.”

The worst case is easier to understand. Meta is convinced that today’s business model is a bridge to tomorrow’s business model. “It’s a new paradigm for computing and social connectivity,” Zuckerberg told analysts and Wall Street investors in a recent earnings call. “So, over the next few years, our goal from a financial perspective is to generate enough growth in operating income from the application family to fund growth in investments in Reality Labs, while increasing our overall profitability.”

But the metaverse could just be “cynically capturing money used to track people on an even deeper level, with AR headphones that allow you to build deep social graphs and record interactions in a way that wasn’t possible before,” Ostadabbas said.

Algorithms are spinning, creating an increasingly controversial stratification of people to increase clicks and ad revenue, and if this is a business model that sounds familiar, it should. It’s the internet of Facebook and Alphabets, except this time you’re a purple octopus in Oculus. In fact, as Horizon expands across all platforms, the business will include some shorter cycles “that might look a little more like what we’re used to with apps,” Zuckerberg told Wall Street analysts.

The company recently received a refund from the creators due to plans to charge high fees for virtual asset transactions.

Mendelsohn stressed that the company’s history is rooted in successful transitions.

“I’ve been with the company for almost nine years. We’ve already made some very strong turns,” she said, alluding to the transition from computers to mobile devices and the transition to Instagram Stories.

The fully realized version of the metaspace is, she said, “some free year,” but added that it’s a continuum where the company is today and customers like Wendy’s who already use video and advertising products and launched the world at Horizon Worlds with virtual restaurants last month.

“This lays the groundwork for what I expect to be a very exciting 2030,” Zuckerberg said.

Written by Trevor Laurence Jockims, specifically for CNBC.com

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