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Will Facebook's Quest Headset Boost Virtual Reality Adoption?

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Facebook (FB - Free Report) unveiled its new virtual reality (VR) headset — Quest — on Sep 26 at fifth Oculus Connect developer conference in San Jose, CA. The stand-alone device, which is third from the Oculus family, won’t require a Smartphone or desktop support. It is expected to be available in spring 2019 for $399.

Facebook’s Quest features two hand controllers, four wide-angle cameras and in-built sensors that enable “six degrees of freedom.” This means Quest not only allows a person’s head to look up and down, and turn left and right, but also to move back and forward as well as higher or lower.

Per Quartz, the term “degrees of freedom” means how much a person can physically move within the VR world. The six degrees of freedom also enhances capabilities like “lean over ledges or crouch behind objects”, particularly while gaming.

Further, according to Oculus VR head Hugo Barra, Quest features an “arena-scale” tracking technology that supports at least 4,000 square feet of space. The headset also has built-in audio.

Moreover, per The Verge, the device is expected to launch with 50 game titles, including climbing simulator, The Climb, and adventure-puzzle game, Moss. Oculus also announced that Star War series Vader Immortal will be available exclusively with the new Quest headset.

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Slowing VR Adoption Doesn’t Bode Well for Facebook

Despite attracting significant investment from tech giants like Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) , Sony, Samsung, Apple (AAPL - Free Report) and Facebook, VR technology has failed to gain mass adoption in recent years.

This is primarily due to not-so-easy to use, high-priced bulky headsets that require PC support. Moreover, the technology has been primarily used in gaming that significantly limits its scope for mainstream adoption compared with Augmented Reality (AR).

Facebook CEO Mark Zuckerberg, at the Oculus Connect developer conference, admitted that VR adoption has been slower than estimated. The company’s Oculus products are yet to penetrate 1% of an estimated 1 billion people who are expected to eventually use VR technology.

In fact, the slowing momentum is evident from the latest IDC report. Worldwide shipments of VR headsets were down 33.7% year over year in second-quarter 2018.

Can Quest Resurrect Facebook’s VR Ambitions?

Although shipments of screen viewers (headsets bundle with smartphone) and tethered (PC supported) devices declined significantly, the same for stand-alone VR devices surged a massive 417.7% in the quarter, per IDC.

This was driven by the availability of Oculus Go and Xiaomi’s Mi VR. Facebook, which bought Oculus in 2014 for $3 billion, had released the Oculus Go VR headset earlier in May for $199.

The strong shipment reflects solid demand for stand-alone devices, which is beneficial for Quest. Moreover, an anticipated increase in the usage of VR technology, from a commercial perspective, is expected to drive growth for Facebook.

However, intensifying competition from Xiaomi is a concern for Facebook’s Oculus platform. Also, lack of use case for the VR technology is a headwind.

AR use case is now rapidly expanding into industries like retail, banking, manufacturing, education and healthcare. Aggressive investments from the likes of Microsoft, Alphabet, Snap and Apple in the AR technology are attracting developers. This doesn’t bode well for Facebook, which currently has a Zacks Rank #4 (Sell).

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