Facebook (NASDAQ:FB) CEO Mark Zuckerberg admitted during the company's third-quarter 2019 conference call that its virtual reality (VR) ambitions haven't lived up to expectations. VR is barely a blip in Facebook's finances, and fewer than 3 million Oculus-branded headsets have reached customers, according to Superdata.
But Zuckerberg still thinks VR has a bright future within Facebook. If that's true, there are a few things the company needs to improve to make this a truly impactful product before another tech company does.
No one knows what VR is
There isn't great data on how many people in the U.S. or the world have tried high-end VR, but it's a very small fraction of the population. Consider that, according to Superdata, 8.2 million high-end headsets have been sold worldwide since the current generation of equipment was introduced more than three years ago. That compares to 900 million iPhones being used today. The amount of people who have even tried out a high-end VR is likely only a single-digit percentage of the worldwide population.
One of the biggest problems is that VR is difficult to explain to consumers without letting them try it. And trying VR is best done in a dedicated facility, like a VR arcade. However, there are only a few hundred VR arcades in the U.S., and at most a few thousand worldwide. Worse yet for Oculus, VR arcades primarily use the HTC Vive's (OTC:HTCCY) competing technology because it's built for enterprise.
Oculus sells devices primarily through its own website, retailers like Best Buy and Amazon. Best Buy is one of only a few places that will offer a demo, and there are limited headsets and demo time available. In other words, most Oculus headsets are purchased without the customer ever trying the technology, which seems crazy for such a unique experience.
Oculus needs to find a better answer to how to introduce VR to consumers if it's going to sell a billion devices, a goal Zuckerberg previously set. The current model just isn't going to get Oculus there.
VR has yet to find its killer app that will attract a new generation of consumers. Beat Saber is still a hit, and there are periodically interesting releases like Dead and Buried or Space Junkies that get a lot of press -- but nothing has broken through to mainstream consumers.
Developing and marketing VR experiences isn't easy, but too often Oculus promotes VR experiences like rollercoasters that are prone to making people sick. If Oculus is going to expand the VR market beyond hardcore gamers, it will need to need to develop experiences that broaden the market.
VR is social, but not a social network
One challenge to Facebook owning a virtual reality platform is that the company's instinct is always to jam its social network onto devices. The latest effort is Facebook Horizon, a large social arena with activities and places "where everyone feels safe and welcome."
However, if you look at the most popular experiences in VR -- Beat Saber, Job Simulator, and Superhot -- they're not social at all: They're individual, an escape from the limits of reality. Social networking may eventually work in VR, but using VR to build a social networking app is unlikely to forge a path to a bigger market. We've seen industry giants of the past show a lack of creativity and foresight when business models change, like Microsoft trying to put Windows on mobile devices or Blockbuster trying to get into streaming, and it typically doesn't work out well. Putting a social media app in a VR headset may end the same way.
The heat is on
We know that competition is coming for Oculus in VR, so the company needs to figure out how to grow the market quickly. HTC's Vive brand continues to make inroads in the enterprise market. More concerning, Apple (NASDAQ:AAPL) is getting set to launch augmented reality glasses as early as 2020, according to several reports. If that happens, it's probably only a matter of time before Apple gets into VR. By then, Oculus could be behind the curve.