During Facebook’s fourth quarter 2020 earnings conference call, CEO Mark Zuckerberg said Quest 2 is “on track to be the first conventional virtual reality headset”, noting that the device generated a 156% increase in the company’s non-advertising revenue.
In previous calls, Zuckerberg generally downplayed the company’s XR business as a forward-looking investment that should not pay off for years. His tone changed noticeably on the company’s latest earnings conference call, where he told investors that Facebook’s XR business was “one of the areas where I am most excited about our progress towards 2021.”
Although Facebook has not confirmed how many Quest 2 units have been sold so far, Zuckerberg was optimistic about the headset’s sales performance, saying he believes it is “on track to be the first traditional virtual reality headset” .
It is not entirely clear what he means by “mainstream”, although we have a good guess. At Oculus Connect 5 in 2018, the company’s annual XR developer conference, Zuckerberg explained that he believed that 10 million VR users were an important milestone for the company to achieve in order to create a sustainable ecosystem for VR developers.
Image courtesy of Oculus
The big question is what will it take for all developers to build these great VR efforts to be profitable. To reach that level, we think that we need about 10 million people on a given platform. This is the limit where the number of people who use and buy VR content makes it sustainable and profitable for all types of developers. And as soon as we exceed that limit, we think that the content and the ecosystem will explode. It is important to note that this limit is not 10 million people in all different types of VR. Because if you build a game for Rift, it won’t necessarily work on Go or PlayStation VR. We need 10 million people in [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 popular virtual reality headset” suggests that the 10 million limit units may be in range.
“In previous quarters, I talked about our long-term future goals with regard to virtual reality,” said Zuckerberg to investors, “but I think the results for this quarter show that that future is here.” He further shared that “more than 60 Oculus developers are generating revenue in the millions, and that is more than double a few months ago”.
Zuckerberg also said that Quest 2 was “one of the best Christmas gifts this year” and was a major contributor to the fourth quarter’s $ 885 million non-advertising revenue. Facebook’s chief operating officer, Sheryl Sandberg, said in the call that this was a 156% year-over-year increase and specifically noted that it was “due to Quest 2’s strong Christmas sales”.
Image courtesy of Facebook
Some incomplete calculations can give us a rough estimate for Quest 2 unit sales in the fourth quarter. The company earned $ 855 million in non-advertising revenue, which includes Oculus products and Portal products. With Sandberg pointing to Quest 2 as the main driver of growth without mentioning the Portal, we can probably safely calculate that at least 50% of the revenue came from Oculus headphones.
From there, we can discover that 75% of the headphones sold are Quest 2, with the Rift S, which will soon be discontinued, representing the other 25%. Likewise, we estimate that 75% of Quest 2 units sold are 64 GB models, while 25% are 256 GB models.
Connecting these assumptions results in 1,000,000 units of Quest 2, although this needs to be reduced in part to account for Facebook’s cut revenue in sales of original content and accessories.
Looking to the future, 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 fit on the same platform, so the content that works on Quest 2 must be compatible with future versions [with the new hardware], so that we can build a larger installation base around the virtual reality headsets we have. “
While this comes as no surprise to anyone paying attention, it contrasts sharply with Sony – whose PSVR has long held the lead in sales of VR headset units – but refrained from indicating any plans to build a next headset. of ear gen.
Facebook also did not hide its plans to build an AR headset; the company shared a look at an early prototype from last year. On the call, Zuckerberg stated his plans to start with smartglasses first, before launching even more complete AR glasses in the future. He also pointed to Apple as a likely competitor in the AR landscape.
“[…] in the long run, as we move towards building the next computing platform, I think we would expect to see [Apple] more like a competitor [in AR] also.”
It is unclear, however, whether Facebook has any internal information about Apple’s XR plans, or whether Zuckerberg is referring to recent reports suggesting that Apple will launch its own headset next year.
