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Meta and Apple Can Will AR Into Reality
Apple, Meta , Themes
Meta announced their latest headset which is scheduled to be released this fall. Quest 3 is priced at $500, a $100 increase from Quest 2’s previous price. Most importantly, Quest 3 is a mixed reality headset compared to Quest 2 which is a VR headset. Both Meta and Apple will likely have MR headsets out by the end of the year with Quest 3 targeting consumers and Apple’s wearable targeting developers (likely $3,000 price). As a result, the probability that the AR/MR/metaverse themes shift from concept to reality increases given the depth of R&D spending these two companies will commit in the decade ahead. In the end, MR is important given it's the stepping stone to AR.

Key Takeaways

Meta jumps in front of Apple’s expected MR headset announcement next week, setting the companies up for years of hardware competition.
Quest 3 is an MR device with 40% slimmer dimensions and 200% better graphics.
Quest 3 builds on Quest 2, which means it has a head start over an Apple wearable.

The competition in mixed reality is heating up

As investors focus on the prospects of AI, it’s important not to overlook the upcoming computing shift to mixed reality. Meta and Apple are investing heavily in that future, and it’s likely the two companies will be competing head-to-head in this space by year-end. Next week Apple is expected to announce their plans for an MR headset which explains the timing of Meta’s third-generation headset, Quest 3, announcement, a device that adds MR functions to the Quest lineup. The key selling point of Quest 3 is the $500 price, which makes it the most affordable MR headset, a fraction of the expected $3,000 Apple headset price.

The dramatic gap in pricing highlights the companies’ vastly different go-to-market approaches. Taking a step back, the MR theme has a chicken and egg dilemma. Meta appears to be taking the consumer-first approach: sell as many lower-priced devices (5-10m in the first year) as possible to grow a user base for developers to go after. Apple is likely going to take the developer-first approach: sell a smaller number of higher-priced, more advanced devices in the first year (< 1m) to developers that in turn build compelling apps to win over consumers for a more affordable second generation device down the road.

Either approach lands the two companies in head-to-head competition.


Quest 3 is a measurable step forward

What jumped out to me about Quest 3 was its MR functionality. Currently, Meta sells an MR device, Quest Pro, which is priced at $1000, down from its $1,500 intro price last fall. The catch is Meta has been slow to promote Quest Pro’s MR functionality, likely because the hardware lacks compelling MR apps. Regardless of the reason, the entry-level price of MR just got reduced by 50% with Quest 3, a price point that is above mainstream adoption today. Five years from now I believe there is a mainstream market for a $500 wearable, once the utility of the device becomes more compelling to consumers.

On top of the MR functionality, Quest 3 is 40% slimmer than Quest 2 which means it is more comfortable. Comfort has been a hurdle, second to utility, in headset adoption. Even with the streamlined form factor, there is room to improve and reduce the size of headsets.

Lastly, Quest 3 has 200% better graphics which makes the experience more realistic and immersive. That said, the graphics must continue to improve in order for adoption to scale, which will happen over time.


Quest 3 builds on Quest 2

Meta announced that apps and games from Quest 2 will be compatible with Quest 3. Meta has previously stated that they want to do a better job at increasing customer staying power, and I believe this is a step in that direction. Meta has sold an estimated 20 million Quest devices since launching in May 2019 and has had trouble keeping these customers engaged with the device. I believe about 1 in 4 Quest headsets are used at least once a month. The decision to carry over 500 games and apps from Quest 2 is a competitive advantage over Apple’s headset launch given consumers will likely get more out of Quest 3 on day one with Meta’s app store head start.

Separately, allowing Quest 2 apps to run on Quest 3 will likely kick start sales of the new device given Quest 2 owners will be more open to buying Quest 3 since their investment in apps will carry over to the new hardware.




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