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Has Facebook’s Oculus gamble already lost the VR war?

Facebook’s Mark Zuckerberg was an early believer in the prospect of virtual reality (VR) revolutionizing the way consumers interactive with content and one another. But that foresight hasn’t been enough to keep Facebook-owned Oculus Rift ahead of its competitors. Now that the field of VR platforms and headsets has widened considerably, Oculus is yielding significant market share over to the less expensive, and less expansive, competitors.

Headset shipments are still pretty small but show signs of ramping up. An IDC report released in June estimates some 2.3 million units of VR and augmented reality (AR) headsets were shipped during the first quarter of 2017, but expects to see triple-digit growth in shipped units during the second half of the quarter, when more products are expected to hit the market. That could be further bad news for Oculus.

According to IDC, Oculus Rift currently controls just 4.4% of the VR market, and has shipped a mere 99,300 headsets as of Q1 2017. That puts Oculus well behind the two big players in the space that are wrestling for market leadership. Samsung’s GearVR headset, which has shipped 485,000 of its headsets, accounts for 21.5% of the market; while Sony has shipped 429,000 of its PlayStation VR headsets as of Q1 2017, and accounts for 18.8% of the market.

Samsung’s VR headset is only $130, plus the $700 smartphone that powers it; Sony’s VR headset comes in at $400, plus the $400 for the PlayStation 4 needed to use the headset. Sony has said at the start of the year that it’s sold 915,000 headsets in its first four months of availability.

Oculus has responded by periodically cutting the price of its headset. What started out as a $600 headset is now down to $400, the second price cut in a year. The high price point of the headset has undoubtedly contributed to its sluggish sales, as has the requisite high end and expensive PC needed to power the headset. But it’s clear the price points aren’t the only thing working against Oculus. HTC’s Vive VR headset sells for a whopping $800 – on top of the $1,000 or more PC needed to power the headset – and yet somehow HTC has been able to sell more headsets than Oculus and now has double the market. A report from SuperData Research released at the beginning of 2017 estimated Oculus had sold 243,000 headsets, but HTC VIVE had sold 420,000.

Zuckerberg had hoped to temper expectations for VR by saying he expects it won’t take off for another 10 years. That might be true for the social applications of VR – which Zuckerberg himself seems the most concerned with, and which naturally aligns more closely with Facebook. But while he waits for social VR apps to come to fruition, Oculus is being left in the dust by competitors.

There are other indications of Oculus’s poor performance. Earlier this year, Oculus announced it was closing nearly half of its Best Buy store demonstration booths, once interest in the headsets dropped and the booths were going days without any demonstrations.

So what’s holding it back? And can Oculus regain that market share? Oculus has suffered a series of setbacks since launch. Early on in Oculus’s release, supply chain issues introduced a few hiccups into shipments in 2016 – but those issues have since been resolved.

Oculus then received a dose of backlash after it was revealed that one of its founders, Lucky Palmer, was funding a group in support of Donald Trump. Oculus has also faced litigation from the developer ZeniMax Media, delivering another black eye to the platform.

And the company has had some trouble keeping up with its main competitor, HTC Vive. The world of VR is very clearly bifurcated between serious gaming applications, the kind that need high-powered PCs to run on, and casual gaming and novelty applications, the type that consumers are running on their smartphones. Oculus Rift sits squarely on the high end side of the VR spectrum, which means it competes more with PlayStation and Vive than Samsung and Google.

HTC Vive debuted with full-room VR capabilities, meaning users could outfit a living room with sensors and “walk around” in the virtual world. While the feature impressed early reviewers, consensus was that walking around tethered to a PC wasn’t exactly the best user experience. Still, it was the best lead HTC Vive had against Oculus in terms of technology, and it was no surprise that Oculus immediately began working on bringing the feature to its own platform. The problem is that by the time Oculus released the new feature on its platform, HTC had already leap-frogged Oculus by announcing a wireless version.

And that brings us to the latest challenge for Oculus to overcome: the VR app store wars. Facebook and popular gaming distributor Valve are fighting proxy wars in their respective app stores, Oculus Home and Steam. The app store is where the real money is to be made, and Facebook has poured millions into VR game development to flesh out its burgeoning Oculus ecosystem. These game exclusives should draw more gamers into the Oculus ecosystem, but haven’t. So what gives?

While Oculus Rift has received consistently positive reviews as a platform, it’s seen by many gamers as a closed platform, while HTC Vive and its Steam store are considered open platforms. Regardless of the truth in that assumption, conventional gamer wisdom dictates it makes more sense to drop big bucks on HTC Vive instead of Oculus Rift. The sales numbers show it’s been just enough to tip the scales out of Oculus’s favor.

To be fair, it’s still early days for VR headsets. Mainstream use cases for the technology remain extremely limited, and while some content companies are still convinced consumers will don VR headsets to watch movies, it’s unclear and increasingly unlikely that VR entertainment will extend beyond video game-type applications. Until more cross-platform support for exclusive games comes to fruition, it looks like Oculus has a huge set of obstacles to overcome, at least as far as entertainment and gaming are concerned.

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