During Facebook’s Q4 2020 earnings call, CEO Mark Zuckerberg said Quest 2 was “on track to become the first mainstream virtual reality headset,” noting that the device generated an increase of 156 % of the company’s non-advertising revenue.
In the past, Zuckerberg has generally downplayed the company’s XR business as a forward-looking investment that shouldn’t pay off for years. His tone changed notably during the company’s last earnings call, where he told investors that Facebook’s XR activity was “one of the areas where I’m most excited about our progress going into 2021. “.
Although Facebook has not confirmed the number of Quest 2 units sold so far, Zuckerberg was optimistic about the headset’s sales performance, saying it was “on track to be the first large virtual reality headset. public”.
What he means by “general public” is not entirely clear, although we have a good guess. At Oculus Connect 5 in 2018, the company’s annual XR developer conference, Zuckerberg explained that he believes 10 million VR users is a big step for the company to take in order to create a sustainable ecosystem for virtual reality developers.
Image courtesy Oculus
The big question is, what will it take for all developers to be profitable to develop these big efforts for VR? To get to that level, we think we need around 10 million people on any given platform. This is the threshold where the number of people using and purchasing VR content makes it sustainable and profitable for all types of developers. And once we cross that threshold, we think the content and the ecosystem will just explode. Importantly, that threshold is not 10 million people in all types of VR. Because if you make a game for Rift, it doesn’t necessarily work on Go or PlayStation VR. So we need 10 million people on [one] Platform.
So, while Quest and Quest 2 probably haven’t sold 10 million units yet, Zuckerberg’s confidence that Quest 2 could become the “first mainstream virtual reality headset” suggests that the 10 million unit threshold can appear at hand.
“Over the past quarters I’ve spoken about our long-term future goals for VR,” Zuckerberg told investors, “but I think the results for this quarter show that future is here.” He added that “over 60 Oculus developers are generating millions in revenue, and that’s more than double what it was a few months ago.”
Zuckerberg also said Quest 2 was “one of the most popular giveaways of this year” and was a major driver of the company’s $ 885 million non-advertising revenue in the fourth quarter. Facebook COO Sheryl Sandberg said on the call that it was a 156% year-over-year increase, and specifically noted that it was “due to strong sales of Holiday Quest 2 ”.
Image courtesy Facebook
Simple math calculations can give us a rough estimate of Quest 2 unit sales in the fourth quarter. The company made $ 855 million in non-advertising revenue, which includes both Oculus and Portal products. With Sandberg naming Quest 2 as a major driver of growth without mentioning Portal, we can probably think that at least 50% of the revenue came from Oculus headsets.
From there, we would think that 75% of the headsets sold are Quest 2, with the soon-to-be-discontinued Rift S making up the remaining 25%. Likewise, we believe that 75% of Quest 2 units sold are the 64GB model, while 25% are the 256GB model.
Plugging in those assumptions results in 1,000,000 Quest 2 units, although that would have to be recomposed by one party to account for revenue from Facebook’s reduction in sales of first-party content and props.
Looking ahead, Zuckerberg confirmed that the successor to Quest 2 is already in development.
“We continue to work on new [VR] hardware too. The new hardware will adapt to the same platform, so content that works on Quest 2 should be forward compatible. [with the new hardware], so that we can build a larger installation base around the virtual reality headsets we have available. “
While this should come as no surprise to anyone who has paid attention, it stands in stark contrast to Sony – whose PSVR has long held the lead in VR headset sales – but has refrained from indicating any plans to build one. next. headset gen.
Facebook has also made no secrets about its plans to build an AR headset; the company shared a preview of a first prototype last year. During the call, Zuckerberg confirmed his intention to start with smart glasses first, before launching full-fledged AR glasses in the future. He also called Apple as a likely competitor in the AR landscape.
“[…] longer term, as we move towards building the next computing platform, I think we would expect to see [Apple] like no longer a competitor [in AR] as well as.”
However, it’s not clear if Facebook has inside information about Apple’s XR plans, or if Zuckerberg is referring to recent reports suggesting Apple will launch its own headset next year.
