Meta Unveils Quest 3 Pre-orders, Release Date, Specs & More

Marc Zuckerberg in June 2022 during a company meeting that was leaked by the Verge:

We basically deliver our devices at cost or at a slight subsidy, or slightly more than cost in some cases. But the bottom line is our business is not primarily taking a premium on the devices.

At that time they only sold the Quest 2, which had been at USD 299 for the 64/128GB and USD 399 for the 256GB version since launch in December 2020. The difference in production costs between those should have been less than USD 20 for the extra flash memory. Let’s ignore the “in some cases” and pretend that there were as many sold with profit as with loss. With some devices sold below, some above cost, this would mean the 64GB/128GB would be sold slightly at a loss and the 256GB one slightly with profit.

Still assuming that the difference is USD 20, you end up with USD 339 production costs for the smaller and USD 359 for the larger version, meaning Meta lost USD 40 on every sold base model and gained USD 40 on the larger one. In reality this would be less, as USD 299/399 was the retail price, not the price at which Meta sold the Quest to retailers, so we are probably talking more around USD 25- 30 loss/profit per sale.

A few day after that company meeting in June 2022, the price for the Quest 2 was then raised by USD 100, which Meta explained in a blog post with

[T]he costs to make and ship our products have been on the rise, […] By adjusting the price of Quest 2, we can continue to grow our investment in groundbreaking research and new product development that pushes the VR industry to new heights.

Which was rather strange, as at that time the component prices had begun falling again, that statement would have made a lot more sense a year earlier. So it looked like Meta had been selling at an increasing loss for the last two years, as component prices had gone up due to shortages, instead of down as they normally do and which was most likely part of their initial product plans, and they were now raising the price mostly to make either the 2022 Quest Pro at USD 1499 or the 2023 Quest 3 at USD 499 look less expensive.

The loss/profit calculation above is course based only on the production costs, it doesn’t include research, development, salaries etc. “At cost” means you don’t make or lose money from selling more, it is not the same as “breaking even”, which would require to make back the money you invested on top of the production costs. There is obviously no way in hell that Meta broke even with them currently spending about US 10bn every year at MRL. A lot of that is for future products, but they said that about 10% of the 2022 MRL budget was for Horizon Worlds/Workrooms, a software product released for Quest 2/Quest Pro.

They so far sold around 20mn Quest 2. To actually make money, they’d have to at least recover some of their Quest 2 development costs, and most likely also previous development costs for the Rift etc., which only sold in small numbers. But let’s ignore that and only try to distribute the costs for 2022 Horizon World/Workrooms software development over all Quest 2 sold since 2020. You’d have to add USD 50 for each headset just to pay for that. If after ten years Meta wanted to finally recoup the cost for acquiring Oculus in 2014, that’s another USD 100 on top of each Quest 2 at retail. And if the Quest 2 sales over two years would actually have to cover for the full MRL costs in those two years, like in a regular company where research is payed for with the margin from sold products, the Quest 64GB/128GB now ends up with a retail price of USD 1399, or USD 1100 more than they charged.

So yeah, Meta is losing money when selling HMDs. And they are okay with this, because this is a 10-20 year play, and they are willing to do a lot and pay a lot to make sure that Meta and nobody else will dominate XR. With the production costs being only a small part of their total costs, the main reason why they even bother avoiding selling everything below production costs, and instead keep things close to “at cost”, is most likely that the FTC would rip them a new one for using their money to unfairly dump competitors out of the market by massively subsidizing. So they sell at the lowest point that will not get them into (more) trouble, but do that by completely absorbing multiple times that amount for everything not directly related to production. Which makes it legal, as in theory their competitors could produce at a similar price and try to make some money. But of course they are subsidizing the hell out of VR by not even trying to make any of their other costs back, something that competitors like HTC simply cannot afford.

And that is the big difference to other companies “subsidizing” hardware to make the money back with software. If Sony or Microsoft sell their consoles at close to production costs, their business plan is to make back the money by selling software for exactly these consoles, and that plan has to work within the seven year console cycle. Meta never had a chance/plan to make their money back with the Quest 1/2/3/4, their XR department will be in the red for at least a decade and most likely much longer. That’s something very few companies can afford, and Meta is always dangerously close to this being interpreted as anticompetitive behavior of a market leader, which could lead to Meta being forcefully broken up.

And for the who copies who: Pico was founded out of Goertek, who build the Quest 1/2/3 and pretty much all other Meta headsets and many others too, including all reference headsets for Qualcomm, who offer the SoC and a customized Android version and a software stack that can do pretty much the same things as the Oculus Mobile SDK, e.g. do all the tracking. So the partnership between Qualcomm and Goertek provides sort of a boutique service where companies can now basically buy all the hardware and software needed to release their own HMDs. And there are a number of HMDs looking very similar to the Quest 2/Pico 4 available in China. Meta is also partnered with Qualcomm to develop future mobile SoCs for XR, the results of which will be available to other companies too. Meta will probably get first pick for a lot of things, but Goertek themselves have a huge XR research department and for example offered pancake lens modules as early as 2021, which is probably how they ended up in the Pico 4. So Pico often doesn’t even have to copy Meta, because they buy their stuff from the same guys as Meta does.