Death, and rebirth, of virtual reality

Apple's Vision Pro cannot succeed using its competitor's vocabulary

Jan 12, 2024

The SuperJoost Playlist is a weekly take on gaming, tech, and entertainment by business professor and author, Joost van Dreunen.

The first week of the year thinks it gets to set the tone for the whole year.

It doesn’t.

Yes, it is true that I’ve already spent more time in bed in 2024 than I have in all of December due to some military-grade flu (not COVID) the two-year-old probably brought home.

But doing so has also provided some key insight.

After two days of playing The Finals, I’ve reached the sobering conclusion that my multiplayer days are well behind me. My god, I’ve never been so bad at anything. I cannot express the relief I felt after deciding that in 2024, I’ll mostly be playing single-player titles. Back to Tears of the Kingdom, I go.

On a more serious note, the news of rampant layoffs at Unity, Twitch, Discord, and the closure of Double Loop Games doesn’t bode well. It serves as a reminder that despite the lofty 2024 predictions for the video game industry, the risk profile of working in this business remains as high as ever.

A rough start is a call for change.

On to this week’s update.

NEWS

Apple to bring about the death, and rebirth, of virtual reality

You can often tell how serious a firm is by paying close attention to its marketing. Apple has made it clear that it plans to enter the new product category as a dominant player. But to succeed, the Apple Vision Pro cannot build on a vocabulary defined by its competitors. Breaking with the language adopted by competitors like Meta, Sony, and Pico, Apple insists that its third-party content creators refrain from using any reference to virtual reality or related terms. (“Refer to your app as a spatial computing app. Don’t describe your app experience as augmented reality (AR), virtual reality (VR), extended reality (XR), or mixed reality (MR).” h/t Matt Ball)

To illustrate how powerful Apple is in terms of defining an industry standard, several third-party device makers have already adopted the new lingo. XREAL, which recently released an updated version of its glasses that compete directly with the Meta/RayBay collaboration, encouraged everyone at CES to “go spatial now.” By overriding the existing marketing vocabulary, Apple does what it does well: present itself as an innovative leader.

A full decade since Facebook’s $2 billion acquisition of Oculus in 2014, virtual reality has so far amounted to a modest install base at best. With the announcements over the past months, Apple has renewed everyone’s hope. But it’s unclear if a metal and glass $3,499 headset with a 2-hour battery life is what we need. Most likely, the Vision Pro will sell 350,000 units in its first year, purchased largely by affluent Apple die-hards and creatives.

Zuckerberg’s populist ambitions to make an affordable device that caters to mainstream consumers are fading, too. A growing number of expansions and accessories is necessary to get the full benefit from the latest iterations. That increases its price tag and makes it an experiential luxury device, a category that Apple understands very well indeed.

FTC updating policy for children online

The growing popularity of interactive entertainment has garnered broader attention from regulators the world over. The current frontline in several major markets is minors.

In the United States, on the one hand, the Federal Trade Commission (FTC) issued a request on how to update and improve the existing Children’s Online Privacy Protection Rule, COPPA.

It does so regularly, but its most recent amendments were in 2013. It’s safe to say a few things have changed since then. Considering the focus of much of online gaming on younger audiences, COPPA sits at the center of a necessary industry debate and is an often overlooked strategic component. Succinctly, the COPPA Rule

“imposes certain requirements on operators of websites or online services directed to children under 13 years of age, and on operators of websites or online services that have actual knowledge that they are collecting personal information online from a child under 13 years of age.”

The continued popularity of Roblox and Fortnite means some of the biggest firms in gaming have to comply with whatever amendment comes next.

It presents a rather stark contrast with elsewhere. In China, on the other hand, the government recently fired a prominent official, Feng Shixin. Specifically, the head of the publication bureau of the Communist Party’s propaganda department (not making this up) lost his job. Shixin had failed to incorporate the opinions of top game makers and his supervisors before circulating a draft.

The problem, as Chinese game makers see it, is that they

“were told before that most of regulation would be focused on minors. However, many of the strict measures in the final draft turned out to control all users, making us really nervous.”

Such measures, or lack thereof, directly impact game makers’ bottom line. That makes regulation a strategic challenge. Interactive entertainment deserves to be scrutinized. But how we go about that deserves some attention, too.

Job cuts continue at the start of 2024

On Monday, Unity announced it is letting go of 1,800 people, representing 25 percent of its total workforce.

Following a rough 2023, the firm continues to struggle. It has difficulty monetizing the many creators that use its game engine software suite and in changing its fee structure last year managed to squander the trust of both content creators and investors. It nevertheless remains a dominant provider of the software necessary to make anything from mobile games to immersive virtual environments and virtual reality applications. According to its 2022 Gaming Report, 230,000 developers operate 750,000 games using Unity’s platform.

When John Riccitiello left the firm last October, I speculated that in addition to layoffs and restructuring, Apple would be a possible candidate to scoop up Unity. The firm indeed reduced its headcount and spun off Weta Digital, which it had purchased two years earlier for $1.65 billion, to focus on its core activity of game-making. After running the scenario, I no longer believe that Apple will buy Unity outright, but it still may buy a minority share to have better control over what it does next.

Several of Unity’s largest shareholders, including BlackRock, State Street, ARK Investment, and Sumitomo Mitsui Trust Bank have recently increased their holdings. Its drastic headcount reduction has, unsurprisingly, improved its financials and its market position remains promising. And, following the news of this week’s layoffs, several Wall Street analysts have raised Unity’s price target to $50/share, up from $37 today.

Then on Wednesday Twitch axed 500 jobs, too.

The case of Twitch tells you two things. First, as a division within Amazon, Twitch is running its own P&L and is tasked to be financially sustainable on its own. Amazon is not subsidizing the effort. You’d imagine a closer tie-in with e-commerce, but I suppose it would be too obvious. Large corporations prefer to do the non-obvious.

Second, Twitch isn’t going to just cut jobs. We can expect entry barriers to slowly creep higher and, ultimately, render the platform less accessible to small fries and newcomers. That’s okay: Twitch hosts millions of streamers, which is a massive undertaking. But it only makes money on a small subset. Seeing how poorly esports has performed over the past year, there will likely be more curation, a degradation of entry-level services, and a heavier emphasis on those channels and streamers that do well. The long-tail economy never existed, in case you were wondering.

The continued bloodletting across the industry will likely impact game development for years to come.

PLAY/PASS

Pass. Kim Kardashian: Hollywood will be shut down and de-listed from mobile stores in April.

Play. Sony showed off its collaboration with Honda at CES 2024 this week by driving an electric vehicle on-stage using a PS5 controller. Want.