It's fair to say that thus far, augmented reality (AR) and virtual reality (VR) adoption has been a bit underwhelming. There were a grand total of 2.3 million AR/VR units shipped in the first quarter, according to IDC. Of that total, approximately 99,300 were sold by Facebook (NASDAQ:FB) subsidiary Oculus VR. It's worth pointing out that the dominant headset is Samsung's Gear VR, which is an accessory for its smartphones that Oculus helped develop, so Oculus gets a little bit of credit there, too.
"The VR market is still very young and consumers seem to be taking a cautious approach," says IDC analyst Jitesh UBrani. "With plenty of headset options already in the market and even more coming soon, hardware isn't the issue. The bigger challenge is the slow growth in content that appeals to a mass audience, combined with the confusion associated with a lack of cross-platform support."
A universal truth in tech is that new technologies are always expensive, but costs inevitably come down over time as supply chains mature and production efficiencies kick in. And falling prices always bode well for consumer adoption. That's why it's meaningful that Oculus has just announced a summer promotion that drops the bundled price of Rift and Touch by $200 to just $399.
The chicken and the egg
At $399, this is the lowest price yet that one can buy a Rift and Touch, and the temporary discount follows a separate permanent $200 price reduction from March, which brought the bundled price down to roughly $600. The sale runs for another six weeks, and Oculus VP of content Jason Rubin makes it clear to The Verge that the promotion is intended to convince people who "may have been sitting on the sideline because of price" to make the plunge.
More specifically, Rubin notes that the biggest hurdles to adoption right now are the price point and availability of compelling VR content; the hardware is just fine and is expected to remain relevant for "many years."
Note that you still need a gaming PC that meets Oculus' minimum specifications, and those start at around $650, so you're still talking about over $1,000 to buy in if you don't already have a gaming PC. Dedicated VR headsets like Rift and Touch have taken a back seat to smartphone VR accessories (i.e., strapping a phone to your face) to date, in part because VR accessories are much more affordable (Gear VR costs just $130 for the headset and controller).
Like any new platform, Oculus faces a chicken-and-egg problem. People only buy hardware if there is sufficient content to enjoy; developers only create said content if there is a sufficient installed base to appeal to. Facebook is tackling both, committing $500 million to fund third-party content, while aggressively pursuing cost reductions -- and that's where discounts like this one come into play.
Evan Niu, CFA owns shares of Facebook. Evan Niu, CFA has the following options: long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.