Apple's Not-So-Secret VR Product

Jan 21, 2022

It's not really a secret that Apple is working on some form of virtual reality (VR) device--mostly likely a pair of glasses or goggles. Bloomberg's Mark Gurman recently reported that a product could arrive towards the end of 2022, or sometime early in 2023.

Meta's VR Headset, the Oculus Quest (Credit: Shutterstock)

Exactly what Apple will introduce is hard to say at this point. Some analysts point to a VR headset similar to the Oculus Quest, which is made by Facebook, now known as Meta.

The Quest is by far the most popular VR device you can buy, but it's still a relatively niche product. For Facebook, however, it's an important piece of a strategy laid out by its CEO, Mark Zuckerberg, who believes that there will soon be a day when we'll all have a VR headset strapped to our face most of the time.

There's no question that the two companies have very different ideas of why people might want to buy a VR headset. Apple isn't likely to be motivated to make any product that would play into Facebook's strategy. Gurman previously reported that even the word 'metaverse' was verboten at Apple.

In fact, Apple is eventually expected to launch a set of augmented reality (AR) glasses that allow for a full view of the physical world around you, while adding in a sort of digital overlay to provide information. That's probably still a few years away, with the first version focused on things like gaming, fitness, and shared experiences like FaceTime or SharePlay.

I'm not entirely sure the details matter at this point. Far more interesting to me is the idea that once Apple enters the game, it could be the end of Facebook--or at least its metaverse ambitions.

That's because Apple has three things that put it in a unique position to not only compete with Facebook but also to pose an existential threat to its plan to dominate the metaverse:

Technology

I've written before that the biggest problem facing Facebook's vision of the metaverse is that it's just not very good at building the things it will need to make it happen. Apple, on the other hand, is very good at building software and hardware.

It's also usually pretty good about not releasing something until it feels like it can do something that isn't already being done--or when it thinks it can do it significantly better. Part of that is Apple's ability to sense the way people will want to use technology and build that into its products.

Any headset from Apple is also likely to be more expensive than the Oculus Quest, by far the most popular VR device you can buy today. I'm not sure that will be a problem. The iPhone is a premium product in a category that has basically become a commodity.

Platform

Facebook, the app, has a huge platform. So do Instagram and WhatsApp. Meta, the company that owns those three apps, is banking on the idea that it has a huge audience of users who it can move from devices where it has to play both other company's rules, to a platform it controls.

Do you know who else has a massive audience of users? Apple. There are some 1.5 billion iOS devices (iPhones and iPads) in use today. That may be only half the 3 billion active users on Facebook's platform, but in terms of the scale needed to push adoption, I suspect Apple will be just fine.

The other piece of the platform is the fact that Apple already has software that makes sense for a VR platform. While Facebook has been busy trying to buy up any VR software company with a pulse, Apple already has Apple Arcade and Fitness+. While neither of those is exactly a major hit on its own, they certainly are a decent start.

Trust

Finally, and most importantly, there's a huge trust gap between the two companies. The reality is, people just don't trust Facebook. In a recent survey by The Verge, 56 percent of people said they don't trust Facebook with their personal information. Only 36 percent thought the company has an overall positive impact on society. For Apple, that number is 61 percent.

That's a big gap, and it could be the difference in whether people are willing to get on board Facebook's vision of a more immersive internet where you spend most of your time wearing a Facebook headset, using Facebook software, on a platform controlled by, well, Facebook. I've said many times that trust is any brand's most valuable asset and it's an area Facebook is severely lacking.

All of this matters because Apple, it turns out, doesn't need an AR/VR headset to survive. Facebook, on the other hand, has bet everything on the idea that people will wear headsets all day for everything from entertainment, to work, to school, to communicating with the people we love.

Maybe AR headsets will someday replace the iPhone. If that's the case, Apple's plan is to be the one selling it to you. If it's successful, it doesn't seem likely that there will be room for Facebook's version at all.

Speaking of Apple Hardware

Why Apple Should Buy Peloton

Peloton is having a very bad week. On Thursday, CNBC reported that the company is putting the brakes on the production of its products for at least the next two months. It's as clear a sign as there is that the company's high-end fitness gear is piling up in warehouses. That comes after Insider previously reported the company was preparing for a large number of layoffs.

It's quite the change for a company that was riding high as its sales exploded during the early months of the pandemic. The company's stock price went from $19 on March 13, 2020, to a high of more than $160 by the end of December 2020. Its revenue went from $915 million in the fiscal year that ended in June of 2019, to more than $4 billion two years later.

By the end of 2021, however, that growth had slowed. Now, it appears there are fewer people than Peloton expected who are willing to spend $2,000 or more on a bike or treadmill that also requires a pricey monthly subscription. Peloton's shares fell 24 percent on the news.

After the markets closed, Peloton's CEO, John Foley issued a statement saying that rumors the company was completely halting production are false:

We've found ourselves in the middle of a once-in-a-hundred year event with the COVID-19 pandemic, and what we anticipated would happen over the course of three years happened in months during 2020, and into 2021.

We worked quickly and diligently to meet the demand head-on at a time when the world really needed us, in large part thanks to how hard you worked every day. We feel good about right-sizing our production, and, as we evolve to more seasonal demand curves, we are resetting our production levels for sustainable growth.

Foley doesn't say what he means by "right-sizing our production," or "resetting our production levels." He also doesn't deny that the company is stopping production, just that it isn't "halting all production of bikes and Treads." That certainly sounds like there's a lot more supply than demand right now.

If that's the case, it's a sign that the company, which couldn't make enough bikes to keep up with demand a year ago, now can't sell the ones it has already made. That reality comes as it has tried to juice revenue by increasing the cost of its bikes by as much as $350 by charging for delivery and setup.

Peloton said in a statement that it would have more to say when it announces earnings next month. In the meantime, the thing that makes the most sense is for the company's CEO to get on the phone and call Apple's CEO, Tim Cook, and make a deal.

First, Apple could easily afford to buy Peloton, whose market cap was just under $8 billion at the time the market closed on Thursday. Apple, by comparison, is worth around $2.7 trillion.

Let's assume Apple would pay a premium over the current price--say $11 billion. With Apple's pile of cash, which even after a spree of buying its own stock, sits around $60 billion, Tim Cook could pretty much just put it on his AppleCard. Does Peloton take ApplePay?

Second, there isn't a better company on earth when it comes to forecasting customer demand and managing the supply chain than Apple. Cook is famously an operations guy, something Peloton desperately needs right now. Apple could easily trim back expenses, increase production efficiency, and leverage what Peloton does best--recurring subscription revenue.

More importantly, however, Apple has made no secret of the fact that fitness is one of its core growth areas. It has a service of its own, called Fitness+, of course. What it doesn't have is any compelling first-party hardware, other than the AppleWatch. For that matter, there isn't really much in the way of a third-party ecosystem taking advantage of GymKit, Apple's framework that allows manufacturers to integrate with its products.

That's a shame when you consider the Apple Watch might be one of the two most important fitness devices of the past 10 years. I think you could argue Peloton's signature stationary bike is the other. Sure, there are far more reasonably-priced competitors, but it was Peloton that redefined a category by pairing its connected equipment with subscription-based live classes.

As a result, Peloton has cultivated an incredibly loyal following of users and established itself as the standard for in-home fitness equipment. Sure, a lot of that is due to savvy branding. There are a lot of alternatives that work just as well, and cost far less. For Peloton, however, the formula seemed to work. Until now.

There's an irony that the Apple Watch and Peloton's bikes don't play all that nice together. Sure, you can connect your Watch to the more expensive version, but it's definitely not the kind of integrated experience you might expect from Apple.

If Apple were to buy Peloton, however, it's not hard to imagine that everything would "just work." Apple would also inherit a very good product with a loyal user base. Even better, those users are essentially locked into a $30 a month subscription. That's exactly the kind of business Apple loves, and it's why I wouldn't be surprised if Peloton becomes the missing piece in Apple's fitness puzzle.

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Both of these stories were originally published at Inc.com

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