Sixteen years ago today, Steve Jobs stood before a Macworld Expo crowd in San Francisco and declared that “Apple is going to reinvent the phone.”
Apple and Jobs did just that with the iPhone, unveiled on Jan. 9, 2007. But in hindsight, it’s easy to forget that the iPhone wasn’t quite a smash hit from the start.
Apple’s iPhone sales totaled a relatively paltry $123 million in the product’s first three months on the market. The following year, iPhone sales rose to $1.8 billion, or roughly 5% of Apple’s total revenue. (For context, iPhone sales hit $205 billion in fiscal 2022, accounting for slightly more than half of Apple’s revenue.)
It’s a data point worth keeping in mind as news emerges of Apple’s imminent plans to unveil its most ambitious piece of hardware since the iPhone: a mixed-reality headset.
Parallel reports from TF International analyst Ming-Chi Kuo and Bloomberg reporter Mark Gurman—two of the world’s leading authorities on Apple—suggest Tim Cook is on track to debut the still-unnamed headset sometime this spring and send it to market this fall. The headset, which might be called Reality Pro, has been under development for several years and hit multiple production snags, but Kuo and Gurman suggested Apple engineers are finally in the home stretch.
Given Apple’s track record, the headset figures to herald another major leap in the nascent augmented and virtual reality spaces. Gurman has previously reported that Apple’s device will feature enhanced versions of its primary functions, apps produced by third-party developers, and possibly a metaverse-type environment for collaboration.
Yet, for all the excitement over Apple’s arrival to the AR/VR game, a confluence of consumer and economic trends likely will hamper the device’s immediate popularity.
In theory, VR headset adoption should be on a steady rise, powered by the buzz over an exciting new technology and a marketing blitz from the sector’s far-and-away current leader, Meta. But CNBC, citing data shared by market research firm NPD Group, reported in late December that VR headset sales actually declined 2% year over year in 2022. What’s more, analysts at research firm CCS Insight said shipments for the broader category of augmented and virtual reality headset fell 12% year over year.
CCS Insight officials attributed some of the AR/VR headset slump to weak global economic conditions, which have depressed consumer electronics sales. Meta’s Quest 2 headset runs $400, while its newly released Quest Pro starts at a hefty $1,500.
“High inflation has hit consumer budgets in many major markets this year, and some people, who in better circumstances would have treated themselves to a virtual reality headset [in 2022], have postponed their purchase,” said CCS Insight’s vice president of forecasting, Marina Koytcheva.
Apple’s headset, in turn, seems even worse-positioned to weather the current economic downturn and a possible recession in 2023.
While the company hasn’t announced the cost of its upcoming headset, Gurman has reported that it’s expected to reach $2,000 to 3,000. That price tag would put the product out of reach for many everyday consumers.
Of course, Apple executives are acutely aware of the economics at play. And for a road map to long-term success, the crew in Cupertino can look to its history.
When the first-generation iPhone arrived in 2007, critics also grumbled about its starting cost ($500 for a 4-gigabyte device; $600 for an 8-gigabyte upgrade). Wired writer Scott Gilbertson concluded that you’re “better off with something else for half the price,” while RealNetworks CEO Rob Glaser declared “those are not high-volume prices.”
Early iPhone detractors might have been right about the initial value proposition. But Apple’s ultimate success came from iteratively building on its revolutionary—if commercially underwhelming—first-generation platform.
“After today, I don’t think anyone is going to look at these phones in the same way,” Jobs told the Macworld Expo crowd.
When Cook ultimately reveals Apple’s first mixed-reality headset, he’ll have to hope a similar pattern plays out in 2023 and beyond.
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Jacob Carpenter
