VR Headset Sales Decline in 2022 Marking a Troubling Start for the Metaverse

Mark Zuckerberg's bet on virtual reality is no closer to paying off, over a year after he changed his company's name to Meta and committed to spending billions of dollars on developing the metaverse.

Sales of VR headsets in the U.S. this year have declined by 2% from last year, amounting to $1.1 billion as of early December, according to research firm NPD Group. This is a fraction of Facebook's advertising revenue, which generates that much money every three days.

Zuckerberg has been looking to VR devices and related technology to pull Meta into the future, but data from analyst firm CCS Insight reveals that worldwide shipments of VR headsets as well as augmented reality devices dropped more than 12% year over year to 9.6 million in 2022.

The estimates of VR headset sales and shipments create a problematic picture for Meta, whose stock price has lost about two-thirds of its value this year. Zuckerberg has said he’s playing the long game with the metaverse, expecting it take up to a decade to go mainstream and projecting it will eventually host hundreds of billions of dollars in commerce.

Many venture firms and tech companies have bet big on a future world of virtual work, education, fitness, and sports over the past decade. This includes Meta, which is a company that creates augmented reality products.

Meta's Quest 2 headset is the clear leader in the VR market, according to several analysts. Devices from companies like Valve, HP and Sony make up a small fraction of the market.

Sales of Meta's flagship Quest device declined in 2022, a decline that can be attributed to the device's big year in 2021, said Ben Arnold, NPD's consumer electronics analyst.

"It was a great time to get a VR device last year," Arnold said, referring to various promotions that helped boost sales of the devices at a time when gaming consoles like Sony's PlayStation 5 were in short supply. "VR devices were in high demand and sold very well."

According to NPD, VR headset revenue in the U.S. doubled in 2021 from about $530 million in 2020. This growth is indicative of the increasing popularity of VR technology among American consumers.

There were several factors that led to lower sales and shipments in 2022.

The Quest 2 has been on the market for a few years, and like any other consumer electronics device, it has lost some of its luster as it has aged. However, Meta released a new VR headset in the fall, the Quest Pro, which is geared towards businesses and costs $1,100 more than the Quest 2. This puts it even further out of reach for many VR enthusiasts.

Meta decided over the summer to raise the price of the Quest 2 by $100. The company cited inflationary pressures as the reason for the price increase.

Leo Gebbie, an analyst at CCS Insight, said in an email that Meta's price increase was a surprise. He noted that the company has been willing to sell the headset at a low margin to try and drive uptake of VR and gain a high market share.

Meta declined to comment on sales figures for its VR headset or third-party estimates.

CCS Insight's latest report predicts that the VR market will remain sluggish next year due to weak economic conditions and inflation.

According to Gebbie, consumer budgets are tightening and non-essential purchases like VR headsets are likely to be cut back as a result.

Sony's next-generation VR headset will cost $550 when it debuts in February. However, while the PlayStation VR2 will give the VR market a boost, it is not likely to have as much of an impact as the Quest 2. This is because the PlayStation VR2 requires a PlayStation 5 to power it.

"The total addressable market for the PSVR2 will be PlayStation owners," Arnold said.

One of the big questions for next year is whether Apple will finally unveil its long-rumored VR headset.

Apple could create a compelling VR headset with an accompanying software ecosystem, Arnold said. This would give Apple a major advantage in the VR market, as it would allow them to control both the hardware and software aspects of the experience.

Apple's reputation as a leader in consumer technology could give the VR market a boost, making the technology more attractive to the general public.

Gebbie believes that Apple has the potential to transform the VR market. With a large and loyal customer base who are willing to spend money on new technology, Gebbie believes that an Apple VR headset would be very successful.

According to a recent report, Apple is working on a VR headset that will combine both virtual reality and augmented reality features. The device is expected to be released as early as 2023.

Eric Abbruzzese, a research director at ABI Research, said that Apple could have success launching a VR headset geared toward businesses. This would likely help lure developers to the community. However, the high price of an enterprise VR headset would still make it difficult for Apple to move the needle. Abbruzzese said that such a headset would likely retail for several thousand dollars.

Abbruzzese said that an Apple enterprise VR headset is not likely to ship 5 million units in its first year. However, he noted that it is the first notable product from a huge tech incumbent.

Apple did not respond when asked for a comment.

There is one major thing that the VR world lacks: a breakout hit, or a killer app.

Some games have gained popularity, like the musical rhythm game Beat Saber and VR versions of popular titles like Resident Evil, Abbruzzese said. And some users are showing more interest in using VR for fitness activities.

In the console market, games like FIFA and Call of Duty are shipping hundreds of millions of products, according to EA's CEO. This shows that there is still a large demand for console games, despite the rise of mobile and online gaming.

Meta's Horizon Worlds social VR platform is still in its experimental phase.

Abbruzzese stated that the only metaverse product available is Horizon, but it is not up to par.

Meta has a lot of potential, but it needs to stop making mistakes.