Wagner James Au / New World Notes

Robert Scoble has co-authored four books on technology, the latest of which, “The Infinite Retina” lays out why Spatial Computing will reshape seven industries. He grew up in Silicon Valley and has had a front-row seat on the technology industry since he toured Apple Computer back in 1977. Here he takes some time away from his Summer vacation to give us some insights into why Facebook is forcing its users to use their real identities on its VR headsets sold under the Oculus brand name.

I’ve been watching the past few days as the VR industry has been outraged by a Facebook decision to force all its users on its VR headsets to sign up for a Facebook user account. When I worked at Microsoft we called this kind of decision to serve a business purpose, and not immediately improve customers’ lives, “a strategy tax.” This probably is the biggest strategy tax of all time.

I get the outrage, but the industry will get over it quickly. Here’s why.

In my experience consumers won’t pay hundreds of dollars more for competing devices that do less.

In a few weeks I hear Facebook will announce a new device (and maybe more) that will be lower in price than the current Oculus Quest (which is a standalone device that costs $400). There are really no good competitors for a standalone device. The ones that exist cost more and do less (and that gap will get more stark over time due to the billions in R&D Facebook is spending).

What the industry also isn’t getting is that this isn’t really about devices that are out today or coming tomorrow, but are about products that are being developed for 2022-2025 launches. Namely XR glasses that do some combination of augmented and virtual reality.

There are two fronts for why Facebook needs to tie users to real Facebook identities:

1. A pricing war with Apple.
2. A war over social functionality that soon will come.

All of these are about XR glasses. Let’s dig into each.

APPLE PRICE WAR COMING

Apple has a HUGE advantage over Facebook, Magic Leap, Microsoft, and most others. What is it? The phone. See, Apple can split functionality up between glasses and phone. The 5G radio, GPU, CPU, a big battery, and controller surface is all in the phone.

The thing is every Apple customer knows they need to buy a new phone every two to four years. They have already bought that in their heads. My brother, for instance, already is planning on buying the 5G iPhone. Probably so are you if you are an Apple fan. My current iPhone cost almost $1,500 (the ultimate high-end iPhone). I know I will buy another one in October. So, too, will you if you want the ultimate.

But here’s the rub. If Apple comes out with XR glasses that cost $500, what will the perceived price of the glasses be? $1,500 to $2,000 because a new phone will be required, or only $500? I’ve been doing a lot of research on this question and NO ONE perceives the true cost to be $1,500 or more. Everyone says “they are $500.”

Now, compare to if Facebook comes out with glasses (or, Microsoft HoloLens, or Magic Leap, or someone else other than a Google Android partner like Samsung)? Facebook or Microsoft has to fit the cost of the 5G radio, the CPU, the AI chips that soon will come, the battery, and a controller under $500. Why? Because the customer will say “Apple’s glasses are $500, so why should I pay more for a Facebook or Microsoft one?”

The truth is, if Facebook and Apple both had a pair of glasses on the market for $500, no one would buy Facebook’s. Why? Apple is perceived as a safer, more privacy-focused, and more luxury and service-focused brand (rightfully so, by the way).

So, my research is finding that Facebook will not be able to sell for the same price Apple is but must price its products for far less, say, $300.

So, now, Apple will have a dramatic pricing advantage and profit advantage over Facebook because it can split the cost over an ecosystem that consumers will pay $1,500 to $2,000 for, while Facebook has to come to market with products that are $300.

How will anyone survive this price war? Only a few companies that can afford to subsidize products with other revenue streams can. Facebook has a huge revenue stream from its advertising engines. Google has an even bigger one. Amazon could subsidize glasses with its e-commerce profits. There are very few others who have revenue streams that will be able to subsidize businesses this way.

HTC? Nope. Valve? Nope. Huawei? Nope. Magic Leap? Nope.

This is one reason why Apple is being so harsh with Epic, the video game producer behind Fortnite. Apple kicked Epic off its app store for refusing to live with its rules about revenue sharing. Apple is doing that because it can see Facebook and Google coming at it and Apple needs to put a wall around its business (and its customer’s privacy) to hold off those who have advertising-based revenue streams. Apple knows that it will need to reduce the price of its devices over the next decade due to the onslaught of devices that are coming that will be advertising supported. That means Apple must build service revenues and protect those revenues at all costs.

So, back to Facebook. The only way it can compete in this market is to include the equivalent of a thousand dollars of R&D with each of its future glasses. The only way to get that back is to make sure customers are hooked into its advertising engine. That requires you to use the same account on your VR headset or XR glasses to come that you use everywhere. Why? Because that’s how its advertising system works (and is how it will deliver huge new feature sets for consumers).

SOCIAL FUNCTIONALITY

What kind of feature sets?

A source tells me Facebook’s strategy for 2025 lays out a bunch of new social features that require users wearing its XR glasses to have their real identities. This strategy lays out a variety of new use cases for using glasses. Two that caught my attention are e-commerce and social street games.

Apple is setting up the e-commerce one. Soon you will be able to go into Walmart, pick products off of the shelf, and walk out of the store without visiting a checkout counter. How? Your glasses will watch every item you put into your shopping cart and will charge you on the way out of the store. Facebook is planning on doing the same when it comes to the market with its glasses. Both Walmart and Amazon have this stuff working at some level in its R&D labs, or early stores (Amazon Go stores already do this).

To enable these kinds of e-commerce, along with shopping at home features that soon will see next-level stuff coming, the glasses will need your real identity. Apple already has this with Apple Pay but the glasses will take these things to another level with lasers that look inside your eyes, along with other multi-factor identity. The glasses will know you by your heart rate, your voice, your finger prints, your face, your skeletal/vascular systems (my friend Robert Adams, founder of Global E-dentity, invented that system and explained to me how multi-factor identification will be used in these future devices to enable everything from ride-share systems to factory security).

For Facebook, though, they are working on new kinds of social things, from new forms of business cards, to new kinds of virtual games you will play in the park with your friends. All of these require having everyone using real-world identity. After all, if I want to call my son on his glasses by the name I gave him “Hey Facebook call Ryan Scoble” or the gamer name he is using today (which is something like Yeetman, but he changes it so often I don’t even know, and even if I did, voice response systems are far better at recognizing real names. Some of my son’s friends are named things like LOLbit or 0000000y). The social graph you have on Facebook (or its other properties like Whatsapp, Instagram, Messenger, etc) are hugely important, and will be more so by 2025 as XR glasses come along, enabling new ways to work together and play.

It is these new use cases that soon will come that will excite consumers and Facebook’s devices will both bring many new capabilities that others can’t and be cheaper to boot.

Translation: the gnashing of teeth I’m witnessing this week won’t last long and those who bet against Facebook will find themselves on the outside of ecosystems that most of their friends and family will join, whether or not they build games or content for Facebook’s system. 

Mark Zuckerberg knows he can withstand these kinds of social panics. A million people protested when Facebook turned on the news feed. Zuckerberg refused to bend then and went on to become a billionaire.

Even people like me, who are huge Apple fanboys, in good part because of how Apple treats its customers and protects their privacy, can see that Facebook’s use of advertising revenues is the only choice it has to compete with Apple. This is why Facebook changed course and saw that it needed to force its users to use their real identities.

This strategy tax, or something that wasn’t done for immediate customer benefit, but rather to serve a business purpose, will likely be the biggest strategy tax of all time. I can’t think of one that will have a bigger impact on all of our lives.

Read more on Scobleizer and follow him on Twitter @Scobleizer.