Apple's Vision Pro: Is the $3,500 price tag justified?

Apple’s coming augmented reality headset, the Vision Pro, comes with a hefty price tag, but it is expected to stir things up in the industry, which has been stagnating for a while, according to analysts.

Starting from $3,499, Vision Pro will go on sale in the US on February 2 (with orders starting on January 19) and is expected to grow consumer interest, analysts said.

The product is more than about three weeks’ pay for the average American, based on data from the US Bureau of Labour Statistics.

“Apple’s highly anticipated entry into the XR [extended reality] space has long been expected to mark a watershed moment for the industry,” Harmeet Singh Walia, senior analyst at Counterpoint Research, said.

“The consumer interest that Apple’s entry into the space is generating will benefit market incumbents offering competitively priced headsets, towards which many enthusiasts who wish to try the technology without incurring Apple’s hefty price tag would gravitate, boosting the global XR market.”

Worldwide shipments of augmented reality and virtual reality (AR-VR) headsets are expected to decline 8.3 per cent annually to 8.1 million units for 2023, despite the launch of new headsets during the year, according to Massachusetts-based researcher International Data Corporation.

However, Hong Kong-based Counterpoint disputes this, forecasting that AR-VR headset shipments are projected to increase by a record 3.9 million units this year, an annual increase of almost 50 per cent.

“There will be tremendous excitement because it’s a new Apple product and innovation. But keep in mind, this is a first-generation device,” Rolf Illenberger, founder and managing director of software development company VRdirect, told The National.

Apple’s chief executive Tim Cook has described Vision Pro, which is the company's first major product launch since the Apple Watch in 2015, as a new “era of spatial computing”.

“The post-holiday timing of such a release is aimed at the company’s early adopters and most individuals don’t have a spare over $3,000 to buy a luxury item in the first quarter.”

“That said, if the reviews are overwhelmingly positive, it could spark a new wave of momentum in the entire industry … and not just with Apple, but with Meta and other devices on the market as well,” Mr Illenberger said.

Munich-based VRdirect is at the forefront of utilising VR for enterprise applications, including partnerships with industry giants such as Siemens, Nestle and Porsche.

Apple’s Vision Pro is “incredibly expensive for an average consumer”, but it offers great value and experiences that are unique when compared to other headsets in the market, Jitesh Ubrani, research manager at IDC, told The National.

Apple’s installed base of existing devices and services, and a “very affluent loyal fan base” can fuel the initial sales.

“We anticipate many enterprise buyers and software developers to be first in line to purchase the Vision Pro rather than regular consumers … only a small portion of initial sales will be from consumers,” Mr Ubrani said.

Announced at the company’s Worldwide Developers Conference in June, Vision Pro will be controlled by the user’s eyes, hands and voice. It intends to blend digital content with the physical world while using spatial experiences in a visionOS operating system.

With Vision Pro, Mr Cook is following the same strategy as Apple did with the iPhone launch in June 2007, where instead of trying to compete on the same grounds as its peers, he has backed that users would happily pay for the best-in-breed VR set, Thomas Monteiro, senior analyst at Investing.com, told The National.

His trade tactic with the iPhone launch had paid well as the company sold more than 1.4 million iPhones in the first year of its launch, generating about $630 million in sales.

“No one can ever argue with Apple's ability to drive interest and desire across different levels of social spending, so we do not consider pricing a top-level issue at first,” Mr Monteiro said.

“I wouldn't be surprised by a higher-than-expected demand right from the get-go. It's clear that Vision Pro does have what it takes to take this market by storm, especially given the current level of competition and the space to grow in the industry.”

Will Vision Pro add to Apple’s profits?

From a business perspective, it is unlikely that Vision Pro will turn Apple's profitability back to the same level of growth seen in the past decade, Mr Monteiro said.

“Even considering the expected annual growth rate for the VR industry, along with Apple's growing market share in the segment, calculations are that the numbers will hardly make up for the hole left by the softening Chinese economy in the iPhone market,” he said.

Apple’s revenue in its 2023 fiscal fourth quarter dropped almost 1 per cent on an annual basis to about $89.49 billion. Its total sales in the Greater China market (China, Hong Kong and Taiwan) dropped 2.5 per cent annually to $15.08 billion in the September quarter.

“Thanks to the demand from Apple’s core fans and heavy users, the Vision Pro is expected to sell out soon, resulting in a longer shipping time,” Ming-Chi Kuo, an analyst at TF International Securities, said.

“If not, Vision Pro may take longer to become a success, which would be detrimental to the short-term stock price performance of Apple and its supply chain.”

Apple’s stock, which closed 0.23 per cent lower at $185.14 a share on Tuesday, has jumped about 41 per cent in the past year. The company’s market capitalisation stood at $2.88 trillion.

Will Apple announce a cheaper version?

The lower-priced and second-generation versions that many investors have been waiting for are “yet to be officially kicked off and are unlikely to be a trading theme shortly,” Mr Kuo said.

“However, the market’s feedback on the Vision Pro should help Apple decide quickly on the following models to come, which is something to watch for this year,” he added.

The first iteration of the Vision Pro headset will primarily attract dedicated Apple fans, developers, early adopters and enterprise users, Mr Walia said.

“A more optimistic scenario could unfold if Apple successfully boosts the supply of key components for the headset and experiences higher-than-expected interest from the end market.”

How many Vision Pro shipments are expected?

Counterpoint expects Apple to sell about half a million units of Vision Pro in 2024 while IDC predicts fewer than 200,000 units this year. Earlier, KGI Securities analyst Christine Wang also said she expected shipments of 200,000 in the first year.

In contrast, Meta has already shipped more than 10 times Apple's expected volume in the first three quarters of last year, according to IDC calculations.

Credit Suisse predicted Apple could ship more than a million in the first year.

What is AR-VR headset?

While AR enriches the real world with digital overlays, VR takes users on immersive journeys to computer-generated realms.

These experiences are enabled through VR headsets, equipped with display screens, motion sensors and audio systems, all working in concert to deliver interactive user experiences.

The global AR and VR headsets market is expected to reach $142.5 billion by 2032, from $6.8 billion in 2022, according to market researcher Precedence Research in Ottawa.

North America is expected to hold the largest market share worldwide. In the US, the AR-VR headset market revenue is expected to hit $1.88 billion last year, from $1.84 billion in 2022, Statista said.

What options are on the market?

Meta, which released its latest VR headset Quest 3 (for $499) in September, occupies more than half of the AR-VR headset market. It claimed a 55.2 per cent market share during the third quarter, followed by Sony and ByteDance.

On Monday, at the CES show in Las Vegas, Sony previewed its latest “spatial content creation” system aimed at enabling users to edit and mould 3D models while using a VR headset. Created in collaboration with Siemens, the headset targets a distinct audience – engineers who might also be contemplating the Vision Pro.

Launched in February, the Japanese firm’s PlayStation VR 2 is a cabled headset that needs to be plugged into a PS5 to work. The headset alone starts at $550. Users have to spend $500 to purchase the PS5 console.

ByteDance’s Pico 4 headset comes with motion-sensing technology. It tracks eye movement and translates it into insights that can be used for various applications. The product could not become mainstream as it is not available in the US, the biggest AR-VR headset market.