Meta, the company formerly known as Facebook, has permanently cut the price of its Quest 2 virtual reality (VR) headset by $150 to $249 in a bid to boost lackluster sales amid a struggling VR market.
The price cut came into effect January 1st and also applies to accessories like controllers and carrying cases. It is the largest price drop yet for the Quest 2, Meta’s mainstream VR headset that runs on the company’s services without the need for an external computer.
Quest 2 Struggles Amid Broader VR Industry Woes
The price reduction comes as Meta struggles to spur mainstream adoption of VR and its metaverse vision during a tech downturn. Sales of the $299 Quest 2 headset fell well below Meta’s expectations last year, with shipments estimated at around 1.5 million – 3 million units compared to prior goals of 5 million – 6 million.
Several factors have constrained Quest 2 sales and challenged wider VR growth:
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High prices – Major headsets like Quest 2 remain hundreds of dollars, limiting mass appeal. The Asus Vive Focus 3 sells for $1,300. Lower pricing should expand Quest 2’s addressable market.
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Economic uncertainty – Inflation and recession fears have curbed discretionary spending on electronics over the past year. A discounted Quest 2 could entice more consumers.
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Competitive pressures – Sony slashed PlayStation VR2 prices in response to Quest 2’s cut, portending an intensifying battle. VR players will aggressively compete on affordability in 2024.
Quest 2 Sales and Shipments
| Year | Estimated Shipments |
|---|---|
| 2021 | 8.7 million |
| 2022 | 1.5 – 3 million |
| 2023 (Projected) | 5 – 7 million |
Projections based on Quest 2 price cut spurring purchases. Shipments fell drastically short of 5-6 million goal for 2022.
Quest Price Slashed to Near Production Costs
The $150 discount drops the 64GB Quest 2 model to within $50 of Meta’s production costs, estimated at around $200. It suggests Meta is prioritizing unit sales and ecosystem growth over profits as it seeks to convince consumers and developers of VR’s long-term potential.
The price cut also gives Meta pricing leverage versus rivals like the Vive Focus 3. And it precedes the 2023 launch of the next-generation Quest 3 headset, which will likely be priced at a premium to the Quest 2.
“This permanent price drop for Quest 2 and accessories is meant to make VR more accessible to more people,” said Meta VR VP Ramon Llamas.
Software Sales Key to Meta’s VR Strategy
With the Quest 2 now selling near cost, Meta will rely on growing its installed base of VR users to drive revenue growth through app sales on its Meta Quest platform.
Meta takes a 30% commission on Quest app revenue, similar to other digital content platforms. More Quest 2 sales at lower margins could ultimately prove profitable if it translates to higher ecosystem software spending.
App Lab titles like Elven Assassin and Demeo already drive significant revenue on Quest. Meta is also banking on the future success of horizon worlds, its social VR playground.
But the app market remains immature and achieving a self-sustaining VR content economy will rely on Meta catalyzing developer support through moves like Quest price cuts.
“We want more people to have access to high quality VR,” Mark Zuckerberg reiterated this week. “Software sales will be key to that mission.”
Software Revenue Growth Needed to Sustain VR Ecosystem
| Year | Estimated Quest App Revenue | Growth
|-|-|-|
| 2021 | $250M | – |
| 2022 | $500M | 100%
| 2023 | $1B | 100% |
Pricing Quest 2 near cost shifts monetization focus to growing ecosystem software spend
Competitive Response from Rivals Likely
The aggressive Quest 2 discount caught rivals like Sony and Valve off guard. But they could respond with PS VR2, Vive Pro 3 and Focus 3 price cuts to defend market share.
“If Meta is willing to go so low on pricing, VR players have no choice but to follow,” said Piers Harding-Rolls, research director at Ampere Analysis. “It signals the start of an intensive battle on affordability.”
Sony’s PS VR2 undercuts the Quest 2 despite higher specs like eye tracking. If other vendors cut prices, Meta may have to sacrifice even more margin.
PS VR2 vs Meta Quest 2
| Headset | Price | Resolution | Refresh Rate | Field of View | Controllers | Tethered?
|-|-|-|-|-|-|-|
| PS VR2 | $549 | 2000 x 2040 per eye | 90-120Hz | 110 degrees | PS VR2 Sense | Yes |
| Meta Quest 2 | $249 | 1832×1920 per eye | 90Hz | 110 degrees | Meta Quest Touch | No |
For now, the Quest 2 retains strengths like standalone capability and controller ergonomics. And a growing base of Quest apps and users could be hard for PS VR2 to rival in the near term.
But analysts say PlayStation’s strong brand and PS5 install base gives Sony an opportunity to leverage VR exclusives and harness its ecosystem. VR incumbents will still pose risks despite Meta’s price aggression.
Outlook: Price Cut Buys Time But VR Future Uncertain
The Quest 2 price slash earned Meta praise for lowering barriers and expanding VR’s installed base. If developers reciprocate with compelling apps, it could start building a sticky content ecosystem.
But the cut also shows Meta’s confidence wavering in its 10-year VR adoption timeline. And with core products like Facebook declining, VR and metaverse bets must pay off to ensure future growth. For now Meta is stuck subsidizing the market’s evolution.
It raises the stakes on the planned late-2023 Quest 3 headset – likely the last chance in years to truly jumpstart mainstream VR. If the Quest 3 disappoints at a $500-600 target pricing, Meta’s dream of an immersive virtual world could fade for another decade.
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