The Virtual Reality Mistakes of Meta: Will Apple Learn From Them?

The iPhone 14 supply chain disruptions and Apple Watch sales sluggishness were the main reasons for Apple's weaker-than-expected earnings report on Feb. 2. Thankfully, services growth helped Apple offset some of those losses.

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The company failed to mention its long-awaited mixed-reality headset during the conference call. Investors anticipate the device will help Apple diversify its revenue away from its iPhones, which accounted for 56% of Apple's sales in its latest quarter, as well as competing with Meta (META 1.97%) in the emerging virtual reality market.

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In the last few years, Meta has taken only a few expensive baby steps into the VR market. Can Apple expand into this market? In this article, we'll take a closer look at Apple's headset and whether it can learn from Meta's mistakes.

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Apple's VR headset: what do we know?

During the past few years, Apple has already released tools for iOS and iPadOS developers that allow them to create augmented reality (AR) and virtual reality (VR) applications. The iPhone and iPad are equipped with depth-sensing cameras and sensors, which allow developers to create AR applications, while the newer RealityKit adds game-specific features (such as input control and multiplayer).

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Apple's brand-new headset - rumored to be called the "Reality Pro" - and new operating system xrOS should provide developers with a more convenient way to create immersive AR apps. With the Reality Pro, users will be able to switch between augmented reality mode, which will digitally augment their surroundings, and full virtual reality mode, which will totally immerse them in a computer-generated environment. Aside from using hand gestures instead of physical controls, it will also be capable of serving as an external display for Macs.

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Thus, Apple's Reality Pro resembles Microsoft's HoloLens (MSFT 2.74%), which is an enterprise-focused headset costing $3,500, as opposed to Meta's consumer-facing Quest headsets, which start at $399 (Quest 2) and sell for $1,500 (Quest Pro). In spite of the fact that Apple's Reality Pro will likely be targeted at mainstream consumers, it is expected to cost $3,000 to $5,000. That would make the Reality Pro nearly as expensive as Apple's top-tier M1 Max MacBook Pro and twice as expensive as its highest-end iPhone 14 Pro.

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Has Meta's mistake taught Apple anything?

It is likely that Apple will follow a different strategy regarding AR and VR than Meta. Horizon Worlds, Meta's metaverse playground, is selling VR headsets at a loss to entice more users. This strategy does not appear to be sustainable, unfortunately.

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Quest 2 headsets have sold nearly 15 million units worldwide, Meta reported in June. According to leaked internal documents obtained by Trade Algo, Horizon Worlds only hosted about 200,000 monthly users last October. While Meta generated $2.2 billion in revenues in 2022, its Reality Labs segment lost $13.7 billion in operating losses.

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Reality Pro is said to cost $3,000, which is easily enough to cover Apple's production and marketing costs. As opposed to Meta, Apple's headset may not burn through billions of dollars recklessly.

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As for Apple's metaverse platform, it is unlikely to be as expansive as Horizon Worlds. Apple is more likely to encourage its developers to build xrOS apps or supplement its existing services with mixed reality features, such as Apple TV+, Apple Music, Apple Arcade, and Apple Fitness+, with ARKit and RealityKit.

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According to Apple, it has 935 million paid subscribers across all of its services, giving it an incredible audience to launch new headset-optimized features. It has yet to figure out how to break down the silos and bring in those social media users to its VR ecosystem, which has 3.74 billion monthly users (Facebook, Messenger, Instagram, and WhatsApp).

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VR and AR markets could be disrupted by Apple

The iPod, iPhone, iPad, and Apple Watch were not Apple's first products, but they disrupted those markets by learning from previous movers' mistakes. VR and augmented reality could eventually be disrupted if it follows a similar strategy as Reality Pro.

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When it comes to building a more sustainable and profitable mixed-reality business, Apple will learn from Meta's mistakes as it tries to conquer those markets first. In that case, Apple would be able to develop a new ecosystem of mixed-reality applications while moving away from the iPhone.