Facebook Parent Stands Tall In Small Market For Virtual Reality

[Hamartia Antidote]

Facebook Parent Stands Tall In Small Market For Virtual Reality

Meta says virtual reality headsets are needed to see the metaverse. But VR gear hasn't caught on while augmented reality is catching fire.

www.investors.com

Facebook parent Meta Platforms (FB) has staked its future on the metaverse — and says the best way to experience it is with its Quest virtual reality headsets. But so far, VR gear has been a niche market, and some analysts point to augmented reality catching on with consumers instead.

The metaverse is a next-generation version of the internet where immersive 3D digital worlds replace static 2D websites. To date, only a relatively small percentage of people seem willing to strap on a headset that blocks out the real world. That begs the question: Will virtual reality ever break through to the mainstream?

Probably not, says IDC analyst Jitesh Ubrani. Most major technology companies, including Apple (AAPL) and Microsoft (MSFT), have decided to focus on augmented reality headsets instead, because that's likely a much larger market, he said. He sees the market for virtual reality headsets at tens of millions of units vs. hundreds of millions for augmented reality gear.

"Most of the big tech companies have at least tried their hand at VR," Ubrani said. "But VR ultimately doesn't have the broad appeal that AR does. Today, VR is mostly limited to gaming on the consumer side, with fitness being the next biggest use case. On the commercial side, it is being used for training for both hard and soft skills."

Meta Dominates Virtual Reality Headsets​

In 2021, vendors shipped 10.95 million virtual reality headsets worldwide, with Meta grabbing 80% market share, research firm IDC says. In 2020, virtual reality headset shipments totaled 5.56 million units, with Meta taking 62% share.


IDC is forecasting virtual reality shipments to reach 38.3 million units annually in 2026. Meanwhile, it sees augmented reality headsets reaching 12.2 million shipments in 2026.

"AR is a tiny market today, but we do expect it to ramp up in the outer years," Ubrani said. "For AR, the use cases are broader for both consumer and commercial. Unfortunately, the technology isn't there yet."

While virtual reality headsets immerse wearers in a completely digital world, augmented reality headsets overlay digital information onto a person's field of view.

Apple Prepping Mixed-Reality Gear​

Apple is rumored to be working on a mixed-reality headset that would marry virtual reality and augmented reality technology in a high-end headset. That device is likely to come out in early 2023, Goldman Sachs analyst Rod Hall said in a recent note to clients.

"While VR platform technology is improving, we note that the category has, so far, failed to resonate with a broad base of users," Hall said. "Having said this, our own VR unit forecast for 19.4 million units in 2023 is more bullish than IDC estimates due to our belief that the platform is likely to be seen as an improved way to collaborate remotely."

IDC has forecast sales of 18.9 million in virtual reality headsets in 2023, Hall said.

The holiday quarter was a major driver for Meta's Quest 2 headset sales last year, Ubrani said.

After Meta, the next biggest virtual reality headset makers are China's DPVR and ByteDance, the parent of social media app TikTok. Rounding out the top five are Taiwan-based HTC and China-based iQiyi (IQ).

Meta will face tougher competition when Sony (SONY) launches its PlayStation VR2 headset in late 2022. The PSVR2 will link to the PlayStation 5 console for enhanced gaming experiences.

Meta Looking Beyond VR Headsets​

However, Meta plans to release a new high-end virtual reality headset later this year. It calls the device the Quest Pro.

Meanwhile, Meta is attempting to broaden the applications for its Quest headsets beyond gaming. It is promoting its Horizon Worlds application for socializing in the metaverse. It also has an enterprise version called Horizon Workrooms.

Recognizing that not everyone will want to put on a virtual reality headset to experience the metaverse, Meta is working on a traditional web version of Horizon Worlds. Rival digital worlds such as those from Epic Games, Roblox (RBLX) and Sandbox can be accessed through PCs and mobile devices.

"The biggest mistake that any of these companies could make would be to make a VR headset a requirement to experience the metaverse," Ubrani said.

Adult Content Driving VR Usage​

In addition to gaming, another application that has been successful on virtual reality headsets is pornography. Adult content previously fueled early adoption of such technologies as videocassette recorders and the commercial internet.

A Juniper Research study estimated that sales of X-rated content for virtual reality headsets totaled $716 million in 2021. It predicted that virtual reality **** would grow to $19 billion in revenue by 2026. Most of the virtual reality **** revenue would be from subscription-based services, Juniper said.

"The U.S. will emerge as a key market for VR adult content; accounting for 33% of market spend by 2026," Juniper analyst Scarlett Woodford said in a news release.