Zuckerberg’s first store is a smart but expensive bet on the metaverse

Bloomberg Opinion — Mark Zuckerberg gave his social media giant Facebook a mountain to climb when he shifted focus to the metaverse, an abstract concept in which his future customers must open their wallets for relatively experimental technology.

His strategy so far: Heavily subsidize the cost of his Oculus Quest VR headset. But $300 is still a lot for a type of device most consumers have never used. So Meta Platforms Inc. (FB) is following the lead of Apple Inc. (AAPL), Samsung Electronics Co. Ltd. (005930) and other tech companies that have tried to reach the masses through point of sale. It’s a smart but risky move.

Meta said Monday that its first physical retail space will open on May 9 in Burlingame, California. The store will be in Meta’s Reality Labs complex, the office where its engineers work on technologies like virtual and augmented reality.

Overlooking the San Francisco bay and airport, it’s about a 20-30 minute walk from Burlingame’s main shopping district, suggesting that Meta wants its first store to be more of an attraction that people make a point of visiting. Over the weekend, Zuckerberg posted a photo of himself trying out the Oculus in the store, and what users see is reflected in a giant curved screen.

Although Meta will sell its Portal video chat device and Ray-Ban Stories glasses, most of the store’s space will be dedicated to displaying Oculus headsets, according to a Meta spokesperson. This makes sense, as Zuckerberg has been obsessively focused on the metaverse of late.

Big tech companies have a checkered history when it comes to retail. Despite Apple’s prominence, with more than 500 stores worldwide, Microsoft Corp. (MSFT) closed its outlets in 2020 to focus on online sales, while Sony Group Corp. (SONY) closed the most of its outlets in the United States several years earlier.

Meta also struggled to sell the Oculus headset at Best Buy Co. Inc. (BBY) outlets, which closed many of the demo stations in 2017. The Oculus had a prime spot on aisle endcaps. of Best Buy stores, but analysts say the stations were often unstaffed and customers were likely uneasy at the prospect of getting lost in a virtual reality headset in the middle of a big store.

A Best Buy spokesperson said some Oculus demos were still happening at its stores in 2018, but all were closed during the pandemic.

Meta’s plans to jump into retail make sense. Twenty years ago, Zuckerberg rode on the unstoppable viral growth of the Facebook website, fueled by how easy it was for its users to attract their friends to the free social network with just a link.

Now he’s faced with a completely different task: growing a metaverse business. Theoretical promises about the metaverse are a much harder sell. To convince consumers to buy an Oculus, Meta needs them to try it out, as nothing conveys the VR experience like actually using the headset (not even Zuckerberg’s weird and colorful hour-long pitch video). about the metaverse last year).

As someone who has not only used an Oculus Quest, but seen two different people try it out and decide to buy their own device on the spot, I know there is an undeniable “wow” moment for the uninitiated. The Quest’s “First Steps” app, for example, shows the user how to use their virtual hands to pick up a paper plane and launch it, or dance with a robot. It’s an extraordinary experience, but it would also be hard to convince people to try it in a public place, like a Best Buy store full of strangers.

That’s why it’s smart for Meta to control the environment where it can most directly encourage consumers to try its technology. If you can create a destination where tourists and locals alike come for a fun experience (such as stores like M&M’s World or The LEGO Store), that could help spark enthusiasm for your headphones.

Wagner James Au, author of “The Making of Second Life”, who writes regularly on his blog about metaverse platforms, states that Meta cannot underestimate the psychological barriers to introducing people to VR. “I’ve worked for metaverse platforms and you really have to put your arms around someone and move their head and face while you put this visor on them.”

Zuckerberg is under increasing pressure for consumers to adopt his metaverse view. Meta shares are down 40% since February, when Facebook revealed that its daily active user numbers stopped growing for the first time.

Meta sold 8.7 million Oculus units worldwide in 2021, more than double the previous year, and has an 80% share of the VR market, according to IDC. But it also faces competition from companies with more hardware experience. Sony is preparing to launch its PlayStation VR 2 headset, which will have unique features like eye-tracking and haptic feedback in the viewfinder, while Apple is also working on its own virtual reality headset.

Fortunately for Meta, both Sony and Apple probably won’t release their products until 2023, thanks in part to supply chain delays. But the dominance of virtual reality may also change rapidly because the market is still so small. Just a few years ago, for example, Sony was the market share leader with its PS VR headset, and Meta was nowhere to be found.

Meta's share of the global VR headset market has been rising steadily, but that could change with new entrants Apple and Sony in 2023.

And on the horizon is another fast-moving competitor. ByteDance Ltd., which owns TikTok, also runs China’s most popular VR headset seller, Pico Interactive. That unit sold 500,000 headphones in mainland China last year. It’s still a fraction of what Meta sold, but ByteDance could also heavily market its products on TikTok to help build the business.

Marketing and distribution will be a critical but expensive step in helping Zuckerberg make his big turnaround a success. His unit Reality Labs lost $6.6bn in 2020 and another $10.2bn last year chasing the metaverse business. Meta has said that he expects to spend even more “over the next few years.”

If Meta replicates this first store worldwide, shareholders should brace for more money going into commercial real estate, where prices have soared in the past year.

Retailing is an expensive move for Zuckerberg, but probably a necessary one given how much he has staked on the metaverse. Given the current lack of alternatives from Sony or Apple, you need to move quickly to experiment with your new format (one you have no experience with) to get your Oculus to as many curious heads as you can and spread the word.

The bigger question is whether mainstream consumers, and not just gamers, will think the fun experience is worth it when fear of the cost-of-living crisis is in the air and when socializing in the metaverse is complicated and awkward. . In that sense, there is still a lot of room for skepticism.

This note does not necessarily reflect the opinion of the editorial board or of Bloomberg LP and its owners.

This article was translated by Estefanía Salinas Concha.

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Zuckerberg’s first store is a smart but expensive bet on the metaverse