3 Reasons Facebook Inc.'s Oculus Rift Could Be a Failure

Facebook's (META 2.98%) virtual reality headset, the Oculus Rift, will make its formal debut in March. But if you haven't already placed an order, you probably won't be getting one -- at least not anytime soon. Orders placed today aren't expected to ship until June. But that doesn't mean the Rift is poised for mainstream success: Oculus head Palmer Luckey has characterized early demand as better than expected, but has yet to offer up any hard numbers. The apparent shortage could be more an issue of supply rather than demand.

The Oculus Rift is among Facebook's more interesting products, and could have a significant effect on related companies, most notably graphics giant NVIDIA (NVDA 3.65%). Still, the device faces a number of hurdles, and its success is far from guaranteed. Let's take a look.

Source: oculus.com

1. It's too expensive
Perhaps the Oculus Rift's biggest sticking point is its price tag; at $600, it's expensive, particularly for a gaming device. Over the long arc of time, virtual reality headsets could have a wide variety of uses, extending far beyond video gaming, but at least for the foreseeable future, the Oculus Rift will cater primarily to gamers.

Dedicated video gaming consoles priced above $400 have never succeed. Microsoft initially launched the Xbox One at $500 in 2013, but was forced to change its strategy and slash its price only a few months later. The PlayStation 4's predecessor, the PlayStation 3, suffered a similar fate when it launched at an astounding $500 in 2006. Sony (SONY 0.31%) eventually redesigned the console and cut its price, but it took nearly a decade for it to reach sales parity with the Xbox 360, despite the strength of the PlayStation brand.

Luckey once disparaged the $600 price point in an interview with AllThingsD back in 2013. "Gamers are not known to be the most affluent population of people," he said. "If something's even $600, it doesn't matter how good it is, how great of an experience it is -- if they just can't afford it, then it really might as well not exist."

The Oculus Rift is arguably in an even more precarious position given that it isn't a self-contained unit. Video game consoles require an HDTV to function, but most households own at least one. Facebook's headset, on the other hand, requires a powerful PC, something the overwhelming majority of consumers lack. Those who wish to use the Oculus Rift will need, at the very least, a PC powered by NVIDIA's GTX 970. That graphics card alone retails for upward of $300, assuming you have a PC that's even capable of using it. Most laptop owners will be out of luck, not to mention the growing number of consumers who are choosing to forgo traditional PCs altogether in favor of mobile devices.

Last month, NVIDIA estimated that just 13 million PCs in use this year -- less than 1% of the total PC market -- will be capable of powering the Oculus Rift. NVIDIA stands to benefit from the device, as more consumers could be tempted to purchase its more expensive cards, but it isn't expecting a windfall, at lease not so far. "I think it's prudent to wait and see," said CEO Jen-Hsun Huang on the company's most recent call with analysts.

For most consumers, the real cost of ownership will not be $600, but almost three times as much. PC makers, including Dell, plan to sell bundles that include both the Oculus Rift and a PC capable of powering it, but those bundles start at around $1,500.

2. It faces tough competition
The Oculus Rift isn't the only virtual reality headset that will go on sale in 2016. HTC's Vive will arrive in April, and Sony's PlayStationVR is slated to arrive sometime this year. Neither device has received a firm price tag, but both could prove to be tough competition for the Rift.

Rather than require a high-powered PC, the PlayStation VR needs only a PlayStation 4 to function. Nearly 36 million of those have been sold worldwide, and at around $350, they're far more affordable. The PlayStation 4 isn't as powerful as a gaming PC, but could offer an experience that many find adequate. Moreover, Sony owns several gaming studios of its own, and can ensure that PlayStation VR buyers have plenty of games to choose from. Last month, Sony announced more than a dozen titles for its upcoming headset.

The HTC Vive is more like the Oculus Rift, in that it requires a similarly powerful PC to function. But it notably has the backing of PC gaming giant Valve, and offers a few features the Oculus Rift lacks. Gaming-focused publication GameSpot recently compared the two devices and ultimately concluded that the Vive was the more compelling of the two. "I have to applaud HTC for what they're doing -- that is the one I'm most excited about," said GameSpot's Peter Brown.

3. Consumers may not be interested
But the biggest hurdle may simply be consumer indifference. When questioned about the Rift's competitors by the IB Times, Luckey downplayed the competition, arguing that the real challenge would be convincing the public that virtual reality was worth experiencing.

"Well the real battle here at this point isn't us against them. It's us versus the public and trying to convince them that VR is worth adopting. That it's worth wearing something on your head to use virtual reality. That's the real fight, and I think we're all fighting that together," he said.

Google Glass failed to gain traction as consumers resisted the prospect of a head-mounted device. Other visual innovations, including 3D televisions, have also failed to attract much interest.

It's unfair to dismiss the Oculus Rift as another Google Glass or 3D television, but it may be fighting an uphill battle with the general public.