Apple (AAPL -0.57%) is the creator of the iPhone, iPad, and Mac line of computers and notebooks, to name just a few of its iconic products. But in June, it revealed its first new platform since 2014 -- the Vision Pro virtual reality (VR) headset -- or "spatial computer" -- as Apple is calling it.
It enters an arena dominated by Meta Platforms (META 1.54%), which became synonymous with virtual reality when the company changed its name from Facebook in 2021. The social media giant has been focused heavily on developing virtual worlds, often referred to as metaverses.
But it hasn't been smooth sailing -- Meta has burned tens of billions of dollars on the project, much to the disappointment of investors, and it hasn't exactly paid off for the company. Will Apple's Vision Pro run into the same challenges? It's too early to know, but here's what the company can learn from Meta Platforms' journey so far.
1. Prepare to lose money
Meta has always been a software company, but it acquired virtual reality headset maker Oculus in 2014, which it used as the base for its own hardware. But that initial $2 billion acquisition was just the tip of a gigantic iceberg.
Meta houses all of its metaverse hardware and software development under its Reality Labs division, and it started disclosing standalone financials for the segment in 2019. Since then, Reality Labs has generated a mind-boggling $39 billion in operating losses.
The bigger problem is that Reality Labs has only delivered $6.4 billion in revenue for that investment, which signals there isn't a great deal of interest among consumers. Apple hasn't yet disclosed the size of its development costs for the Vision Pro, but we do know the unit is priced at $3,499. That is seven times higher than Meta's new Quest 3, which will sell for $499 upon release later this year.
That might be an indication of how much money Apple needs to recoup.
2. Consumers aren't yet convinced
The metaverse has become a relatively loose term to describe immersive virtual experiences, even if they're not running on a VR headset. The online game Roblox, for example, is considered to be a metaverse -- its users create an avatar and can roam freely through an enormous virtual world.
Meta Platforms and its CEO, Mark Zuckerberg, believe the metaverse is the future of social and professional networking. Rather than viewing someone's profile on Facebook using a smartphone, people will be able to enter virtual reality to interact with each other as avatars of themselves. They'll have the ability to meet, play games, and even go shopping for digital goods and services.
But consumers haven't responded well to Meta's early efforts. Last year, Zuckerberg said he believed 1 billion people would eventually use his company's metaverse, which isn't that farfetched given that it has 3.8 billion users across all of its social media platforms today. But Meta set a modest target to attract 500,000 users to its Horizon Worlds metaverse by the end of 2022, yet it fell way short, only managing to reach 200,000.
More broadly speaking, one recent survey pointed out that only 48% of Americans currently use a metaverse in some form, and more than half of them said they spend less than five hours per month in those virtual worlds.
Since the average smartphone user spends more than three hours per day looking at their device, the metaverse's share of screen time is tiny right now -- is this really a market that needs its own hardware? Are virtual reality headsets even necessary?
Apple is pitching the Vision Pro as an entertainment platform where the user can watch movies and browse the internet. In other words, it could occupy some of the time that would otherwise be spent on smartphones. That's something to fall back on, but it does come with a hefty price tag, as I mentioned earlier.
3. A closed ecosystem probably won't work
Interoperability is expected to be a huge part of the metaverse. In other words, there's an expectation that all virtual worlds will plug into one another to form one giant virtual universe. Theoretically, this will encourage more developers to participate, because they'll immediately be part of an ecosystem with millions (or billions) of potential users crawling their creation.
But Apple has built its empire on closed ecosystems. From its iOS operating system to its App Store, the company has always prioritized maintaining full control over the products and services it allows on its devices. Moreover, when it comes to mobile applications, it has charged developers 30% of their revenue for the privilege of operating in the Apple ecosystem.
The company can adopt that same model for its VR headset, but at a price point of $3,499, it shouldn't be surprised when consumers opt for a more open, customizable platform. As a result, the question is whether developers will want to invest in building applications for Apple's Vision Pro.
Most consumers would consider a VR headset to be a luxury item. On the other hand, 85% of Americans own a smartphone; it's considered a necessity because it functions as more than a source of entertainment. Apple's iPhone is a great product in an industry with enormous penetration, whereas virtual reality is very much a niche segment.
Meta is already an advocate of the interoperable approach, and since its flagship VR headset is so much cheaper, it could experience far more uptake in the long run -- and, in turn, become the platform of choice for developers.
If Apple wants the Vision Pro to be successful, it might have to approach this new industry with a more open mind. But before that even matters, the industry itself still has to prove its own staying power.
