The Economist - UK (2022-04-09)

56 Business TheEconomistApril9th 2022

that  arwould  be  a  “major  area  of  invest­

ment  for  us”.  Venture­capital  funds

pumped nearly $2bn into extended reality

in the last quarter of 2021, a record, accord­

ing to Crunchbase, a data company.

Some  90%  of  headsets  sold  today  are

vr. Since buying Oculus, a headset­maker,

for  $2bn  in  2014,  Meta  has  captured  the

market, with 80% of vr sales by volume in

2021. The Quest 2, which offers a convinc­
ing (if mildly nauseating) experience with
no  need  for  an  accompanying  computer,
has  been  a  hit  since  its  launch  in  2020,
helped by lockdowns and a $299 loss­lead­
er price. Last Christmas the Quest’s smart­
phone  app  was  the  most­downloaded  in
America. Smaller rivals like htc, a Taiwan­
ese electronics firm, and Valve, an Ameri­
can games developer, which make vr gear
for  gaming,  are  being  squeezed.  Pico,  a
headset­maker  owned  by  ByteDance,  Tik­
Tok’s  Chinese  owner,  is  doing  well  in  its
home market, where Meta is banned.
Meta’s vr strategy still revolves around
ads. It is selling headsets as fast as it can in
order to build an audience for advertisers,
says  George  Jijiashvili  of  Omdia,  a  firm  of
analysts.  Horizon  Worlds  and  Venues,  its
virtual  spaces  for  hanging  out,  claim
300,000 monthly visitors. To the irritation
of some of them, Meta has already experi­
mented with running ads there. The Cam­
bria,  a  more  expensive  “pass­through”
headset  that  combines  a  vr­like  screen
with  front­mounted  cameras  to  display
footage  of  the  world  outside,  will  train
cameras  on  users’  faces.  That  will  enable
the capture of facial expressions in virtual
form—as well as the monitoring of which
ads eyeballs linger on.
Meta  is  also  monetising  its  app  store.
From  next  year  the  market  for  vr content
will surpass that for vr hardware, reckons
Omdia. One of Mr Zuckerberg’s motives for
pushing  the  new  platform  is  to  liberate
Meta  from  dependence  on  phonemakers
for  the  distribution  of  its  apps.  The  firm
has  become  a  digital  landlord  itself,  with
the power to tax Quest­store purchases in
the same way that Apple and Google take a
cut of smartphone app sales (Meta declines
to say how much it charges).
While  Meta  ramps  up  its  efforts  in  vr,
others are experimenting with the knottier
technology  of  ar.  Unlike  vr,  which  takes
you to another place, ar is “anchored in the
world around you”, says Evan Spiegel, boss
of  Snap.  His  Snapchat  social­media  app
has long provided ar filters for phones, al­
lowing  users  to  turn  themselves  into  car­
toon characters or virtually try on products
like clothes and make­up with the help of
their  device’s  camera.  Snap  is  now  toying
with hardware, building a prototype set of
ar Spectacles,  which  have  gone  out  to  a
few hundred software developers.
Your correspondent wandered through
a  floating  solar  system  and  was  chased

around Snap’s London offices by holo­

graphiczombiesashetriedouttheSpecs,

which at 134 gramslookandfeellike a

chunkypairofsunglasses.Thedownside

oftheirslenderstylingisa batterylifeof 30

minutesanda tendencytooverheat.Lim­

itsinopticaltechnologyrestrictthefieldof

viewtoa squareinthemiddleofthelens,

meaningthatoverlaidgraphicsareseenas

ifthrougha letterbox.Snap’smainreason

formakingthedeviceistodiscoveruse

casesforarheadsetswhentheybecome

widelyadopted, says MrSpiegel. In the

hardwaremarket,“Wehavea shot.Butour

goalisstillreallyonthearplatformitself.”

Fornow,arglassesarea nichewithina

niche.Highcostandwobblyperformance

limit their appeal. idc expectsindustry

shipmentsof1.4munitsthisyear.Thetop

sellerin 2021 wasMicrosoft’sHoloLens2,a

$3,500deviceusedbybigclientsincluding

America’sarmedforces(whoseorderfor

100,000pairsprovokedcomplaintsfrom

Microsoftstaffthatthey“didnotsignupto

developweapons”).MagicLeap,a startup

inFlorida,willlaunchthesecondgenera­

tionofitsarglasses,witha widerfieldof

view,inSeptember.Itistargetingindus­

trieslikehealthcareandmanufacturing,

ratherthanconsumers.

Despitevr’sdominanceoftheheadset

space,arsparksmoreexcitementabout

massadoption.EvenwithMeta’srelentless

promotionofvirtualconcerts,officemeet­

ingsandmore,fewpeopleusevrforany­

thingotherthangaming:90%ofthe$2bn

spent on vr content lastyear went on

games, according to Omdia. Tim Cook,

Apple’sboss,hascriticisedvr’stendency

to “isolate” the user. “There are clearly

somecoolnichethingsforvr. Butit’snot

profoundinmyview,”MrCookhassaid.

“arisprofound.”Applehasshownnotably

littleinterestintheimmersivemetaverse

thatexcitesMrZuckerberg.

Apple’supcomingpass­throughhead­

setwillgivea tasteofthearexperience.A

pairoftruearglassesarestillinearlyde­

velopment.Thesefirstproductsaresaidto

beaimedatdesignersandothercreative

professionals, rather like its high­end

Macintoshcomputers.Still,thefirm’sen­

tryintotheindustrycouldprovetobea wa­

tershed.“Apple’sabilitytodriveadoption

isprobablyunparalleled inthemarket,”

saysMarkShmulikofBernstein,a broker.

ItwillhopetodobriskbusinessinChina,

givingitanedgeoverMeta.idcpredicts

thatin2026,20mpairsofarglassescould

beshippedworldwide,makingthemabout

twiceaspopularasvrgogglesaretoday.

Argumentedrealities

Thebigquestioniswhetherheadsetscan

gobeyondgamersandprofessionals,and

becomeatruetechplatformratherthan

justanaccessory.Today’sarandvrgearis

goodatsolving“veryspecificpain­points”,

saysTonyFadell,a formerAppleexecutive

whohelpeddeveloptheiPhone.A general­

isable platformsuchasaniPhone “isa

wholedifferentstory”,hesays.“AndI don’t

believeit,”headds,atleastforthenextfive

years.Intheforeseeablefuture,MrFadell

thinks,headsetswillbeabitlikesmart

watches,popularbutnotrevolutionaryin

thewaythesmartphonehasbeen.

MrSpiegelagreesthatheadsetswillnot

fullyreplacephones,justasphoneshave

notdoneawaywithdesktopcomputers.

But,hepointsout,“oneoverarchingnarra­

tive isthat computinghas become way

more personal.” It has moved fromthe

mainframe,tothedesktop,tothepalmof

thehand.Thenextstep,hebelieves,isfor

computingto be“overlaidontheworld

aroundyou” by ar. Desktopcomputing

wasmainlyaboutinformationprocessing,

andsmartphonesweremainlyaboutcom­

munication.Thenexteraofcomputing,he

suggests,willbe“experiential”.

Inthisscenarioheadsetscouldbepart

ofa broaderecosystemofwearabletech­

nologythatdrawsconsumers’attention—

and spending power—away from the

smartphonesthathavehypnotisedthem

forthepastdecadeanda half.Withsmart

watches, smart earphones and, soon,

smartspectacles,thephonecouldbecome

personal computing’s back office rather

thanitsprimaryinterface.Gadgetsonyour

eyeswouldcomplementthe“thingsonour

wrists,thingsonourearsandthingsinour

pockets”,thinksMrShmulik.Oneday,he

speculates, “you might even forgetthat

you’vegotyourphone.”n

Head space

Sources:IDC;Omdia *Cumulative

15

12

9

6

3

0

202017 26

Worldwideconsumervirtual-reality market

Worldwide augmented- and virtual-reality

headset shipments, m

Value,$bn

Content

Hardware

F’CAST 80

60

40

20

0

202017 26

Installed headsets*, m

F’CAST

50

40

30

20

10

0

26252423222021

Commercial

Consumer

FORECAST