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By most measures, Oculus Quest 2 is a hit. After pre-launch rumors of a cheaper ‘lite” Quest or a more-loaded “Pro” Quest… we ended up getting the best of both: upgraded hardware with a $100 price dip. Even the famously self-critical John Carmack called it a “close to a pure win.”
One success metric is pro reviews, which are mostly unanimous in their praise of the device. Not to take away from UX execution, one factor at play is Facebook’s long-term VR strategy which lets it sacrifice near-term margins to build a network effect and win early market share.
This loss-leader pricing gives us a device that’s much cheaper than it should be. That’s great for consumers but the dark side of that equation is making the device very hard to compete with — especially for margin-dependent hardware players in Oculus’ competitive field.
“That’s the shocker,” said Tested’s always-insightful Norman Chan, “Quest 2 is not going to be more expensive than Quest 1. [It’s] launching at $300 — a whole $100 less than Quest 1 […] Facebook must be taking a huge loss with this because it’s aggressive, aggressive pricing.”
Clues Emerge
But professional reviews and our analyst speculation admittedly only go so far. The true test will be how the market receives Quest 2. The VR industry has been waiting for its hero device to get over the mainstream adoption hump — wheels that were greased to some degree by Quest 1.
We don’t know enough about Quest 2 sales volume but a few positive signals are materializing. This flows from our ongoing exercise to extrapolate VR unit sales using the marketplace’s known quantities — an exercise that informs the official market sizing of our research arm.
So what are those signals? One emerged during Facebook’s Q3 earnings call in which Mark Zuckerberg reported a 5x delta in pre-orders versus Quest 1. A few clues also emerged through interviews that Protocol held with VR developers and Oculus representatives.
Here are the highlights:
— Rec Room reports that Quest 2’s launch was 250 percent larger than Quest 1’s.
— Quest 2’s launch day also saw more concurrent Quest 2 users in Rec Room than Quest 1 users.
— Rather than a “substitution effect” of Quest 1 users that simply upgrade, there’s evidence that a large share of Quest 2 users are new to VR, which means greater reach for the medium.
— Specifically, 80 to 90 percent of Rec Room users signing in on a Quest 2 didn’t have a Rec Room account previously, indicating that they are entering VR for the first time.
— Cloudhead Games reports that Pistol Whip saw a 10x increase in sales since the Quest 2’s launch.
Developer sentiments are key here because their drive to invest in a platform can initiate a flywheel effect of content -> adoption -> more-content -> more-adoption. Facebook knows that’s the name of the game. And the next inflection could be the holidays, given Quest 2’s gift appeal.
“We are anticipating aggressive growth leading into the holiday and into the new year,” Cloudhead Games’ Chris Unger told Protocol, adding that Quest 2 is “a perfect gift.”
Ready This Time
Another signal that helps us extrapolate Quest 2’s sales volume is less about demand and more about supply. In other words, Facebook got a better sense of market demand with Quest 1, whose perpetual sold-out status throughout 2020 indicates underestimated demand.
In fairness, part of that undersupply was due to unexpected and COVID-inflicted supply-chain impediments. These exacerbated the pre-COVID stock levels which were low or empty throughout most of the holiday 2019 timeframe (partially impacted by China’s early COVID onset).
Regardless of the reason, Oculus gained key insights on market demand, which it now factors in to Quest 2’s supply-chain strategy. It has scaled up to meet greater demand levels, so Quest 2’s penetration — big or small — at least won’t be supply-constrained. And it’s already working.
“We really couldn’t be happier,” Facebook Reality Labs’ Chris Pruett told Protocol in the only vague level of detail that he’s understandably allowed to say publicly. “The device is selling quite well…faster than Quest did…and maybe a little bit beyond what we expected.”
Stay tuned for the latest official VR forecast from AR Insider’s research arm ARtillery Intelligence, which will publish next week. See past editions here.
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