Powerful new consoles from Microsoft and Sony have become once-a-decade type events for investors. The new models this fall have attracted lots of attentionincluding in this magazineand theyre sold out across the country.
But one new console launch, the Quest 2 from Facebooks (ticker: FB) virtual reality unit, has been overlooked, despite receiving more critical acclaim than Sonys (ticker: SNE) PlayStation 5 or Microsofts (MSFT) new Xbox.
Its no secret why. Weve been talking about virtual reality for decades, but its gone pretty much nowhere. Despite all of our advances in tech, VR hasnt been able to bridge the physical and digital realms in any substantial way.
Its not for lack of trying. In 2014, Facebook paid $2 billion for Oculus VR, the maker of a promising headset that revived hopes around a virtual future.
Facebooks VR efforts look trivial compared with its $82 billion in projected advertising sales this year, and its easy to dismiss Oculus as an interesting but unimportant side project. Doing so misses the point.
Facebook isnt a diverse business, and its hardware endeavors are one of the ways the company seeks to break new ground and step outside the ad business its so good at.
Facebook CFO Dave Wehner has said that sales from the Quest and Quest 2 have contributed materially to the revenue bucket theyre assigned to. Thats the aptly named Other segment, and it isnt a particularly high bar. Other made up exactly 1.5% of Facebooks revenue last year.
Outside of the spotlight, though, Facebooks VR efforts are actually making progress. Facebooks latest Quest 2 headset, which sells for $299, is a generational leap over competing VR systems that are more expensive and lack its elegance and simplicity.
Most importantly, the Quest 2 is a stand-alone unit that doesnt need to be tethered to a pricey gaming PC, like Oculus initial products.
The Quest 2 gives players a full range of motion without requiring sensors to be mounted around the room. The latest model can also track hand movements without the need for hand-held controllers. VR still has a way to go, but the Quest 2 is the most accessible device yet.
As always, though, hardware only goes so far, and VR content is still early in its development. Chris Pruett, who runs the content ecosystem for Oculus, says a common language is just now forming around the platform. For now, Pruett says, VR game developers are still figuring out the formula for success.
Three or four years ago, we would not have told you that our prediction for the popular software in VR is going to be a music game about cutting blocks, he told me this past week, referring to Beat Saber, a VR title for Oculus that feels like a more immersive version of Guitar Hero, which took the gaming world by storm 15 years ago.
Beat Saber is fun but it didnt keep my attention for more than a few minutes. I asked Pruett what kind of game could eventually help VR break through to the masses.
My guess would be something that is highly immersive, that involves active motion of your body, and I would add a third piece, he says. Its probably going to be something that you either play with other people or is shareable with other people.
His last point aligns with Facebooks build community mission. The good news for Oculus is that Facebook already has billions of potential users. For VR developers, thats a wide-open market.
Pruett says Facebook is focused on helping those developers make money and is defining Oculus success on that metricfor now. I need this to be an ecosystem that can produce a platform for stable businesses, he says. From that perspective, VR is still small, but were growing it very quickly.
As consumers and reviewers debate their preference for the PlayStation 5 or Xbox Series X, investors have been spared the choice. We argued that new consoles would be a bullish event for the videogame publishers, who create titles for both platforms.
The argument is taking some time to play out. Shares of Take-Two Interactive Software (TTWO), Activision Blizzard (ATVI), Electronic Arts (EA), and Ubisoft (UBI.France) have all trailed the market since our early-October story.
Now the good news is starting to arrive. Gamers are motivated by new consolesand by being stuck at home.
This past week, Ubisoft said its Assassins Creed Valhalla game sold more units in its first week than any prior entry in the Assassin Creed franchise. ACV is delivering on its promise to make the most of the new hardware, the company said in a press release.
Ubisofts Paris-listed shares rose 2.3% on the news. That reaction could be a preview of things to come for the other videogame publishers as they announce their own game sales and their next round of quarterly results.
Clearly, this speaks to the quality of the game and franchise momentum the past few iterations, KeyBanc Capital Markets analyst Tyler Parker wrote this past week. But we also view this as a positive read-through on the underlying strength of the premium gaming market into the holidays.
Its going to be a difficult December for much of the country, but gamersand investorswill have at least one way to escape.
Write to Max A. Cherney at [email protected]