Meta's Quest 2 Price Increase Due to Competition by Rec Room & VRChat, Contributes to Slow Install Base Growth

Meta's Q4 2022 earnings report was earlier this week, with revenue from Reality Labs, its XR/metaverse division, bringing in $727 million -- down from $877 million in Q4 2021.

So now it's time to play everyone's favorite guesstimating game: How many Quest 2's were sold, and what's the total install base?

Assuming that $727M is mostly from Quest 2 sales (now at $399), that comes out to about 1,800,000 units. That's the high end. Factoring in revenue from app sales etc., let's call that 1.5 to 1.8 million Quest 2 units sold during the Q4 2022 holiday season. 

That's quite a dip in sales! When it sold at $299 over the 2021 holidays, it sold around 2.9 million units (give or take). I'm not surprised, though; increasing the MSRP on an appliance even though it hasn't fundamentally improved is, well, bonkers.

Now let's look at the total Quest 2 install base:

Last October, the New York Times estimated Quest 2's install base was 15 million. (That's in line with my own estimates earlier in 2022.)

So that brings us to Quest 2 install base of 16.5 million-17.8 million.

Definitely below 18 million, we can safely say. 

The deep irony: Meta raised the price of Quest 2 because (as Carmack openly stated last year), too many Quest 2 users were mostly spending their time in free-to-play metaverse platforms VRChat and Rec Room:

Now of course, price points leads to the point about the Quest 2 price increase, which is obviously super unpopular and there's no question that it's weird to have a headset or have a consumer device go up in price later. But... the dynamics of subsidizing hardware is super common on all the consoles, and it's just kind of the way a lot of these closed ecosystems tend to work... you sell the device at a loss and you make it up on the software that you wind up selling.

But that winds up having a bunch of perverse incentives for general user value. When you have some of the most popular apps on Quest are free apps, VRChat and Rec Room, that we get no revenue from at all, and while they are sitting there at the top of our ranking list in many cases, there's there's not a lot of internal push for that.

In other words, because of heavy competition by metaverse platforms, consumer growth of Meta's VR hardware line is slowing.

Image via Meta.

Comments

[Martin K.]

I believe that Meta sees VR headsets only as stepping stone towards MR headsets with video pass-through, which are only a stepping stone towards AR glasses, which is what Meta is actually interested in. At least, that's what they signal with the lack of long-term support for Oculus Go, Oculus Rift (S), Quest 1, their social apps before Horizon, and Echo VR. All of this is just testing the waters, and Meta is apparently happy to drop any product if they don't see a path to a billion users.

Talking about numbers: for Meta, it doesn't matter whether they've sold 10 million or 20 million Quest 2s. It's far too few in any case. They are probably ready to move on from VR headsets for gaming to MR headsets for non-gaming apps (fitness, productivity, social, etc.). And the lesson learned from Quest 2 might be to focus more on preparing devs and consumers for AR glasses than on growing a market for a device that they are not actually interested in - at least not in the long term.

Which doesn't bode well for the price of the Quest 3. Zuckerberg has already suggested that it will be around 500 USD. I would not be surprised if essential accessories and tax increase it to a price around 700 USD, preparing consumers for AR glasses that will probably be even more expensive.