Defying Reality

by David M. Ewalt

  Other consumers—many of them young gamers who don’t have much cash, or adults who have more financial sense than I do—weren’t so excited when they saw the news. “Hype train just derailed and fell down a cliff,” said the top-voted comment in a discussion about the Rift’s price on Reddit. “This is what billions in funding from Facebook gets you? Unreasonably high consumer launch price?” wondered another. The anger poured out in comment after comment, from “they gotta be kidding” to “dreams shattered.”

  Many overseas customers balked at their even higher prices. “The actual price with shipping is €742,” one European user pointed out—an amount equivalent to more than eight hundred US dollars. “Are you fucking kidding me, 43 [euros] for shipping. Better be delivered by Palmer Luckey himself.”

  If you judged by the comments, it was all adding up to disaster. “Honestly I think this is yet another death blow to VR,” wrote another user. “At these prices VR will never achieve mainstream approval . . . and will remain little more than an expensive novelty.”

  Later in the day Luckey logged on to the site and tried to put out the fires. “I share your concerns,” he wrote. “Believe me, I want nothing more than for VR to succeed in the long run . . . The unfortunate reality we discovered is that making a VR product good enough to deliver presence and eliminate discomfort was not really feasible [at] lower prices.

  “To be perfectly clear, we don’t make money on the Rift,” he continued. “The core technology in the Rift is the main driver [of cost]—two built-for-VR OLED displays with very high refresh rate and pixel density, a very precise tracking system, mechanical adjustment systems that must be lightweight, durable, and precise, and cutting-edge optics that are more complex to manufacture than many high end [digital camera] lenses. It is expensive, but for the $599 you spend, you get a lot more than spending $599 on pretty much any other consumer electronics device.”

  The $350 “ballpark” figure, Lucky said, was a miscommunication based on earlier statements that a Rift and a PC fast enough to run it would cost around $1,500. “As an explanation, not an excuse: during that time, many outlets were repeating the ‘Rift is $1500!’ line, and I was frustrated by how many people thought that was the price of the headset itself. My answer was ill-prepared, and mentally, I was contrasting $349 with $1500, not our internal estimate that hovered close to $599 . . . that is why I said it was in roughly the same ballpark.”

  The explanation seemed to help calm the critics—and from all indications, their cries of doom were wrong anyway, as Oculus was selling Rift headsets faster than they could make them. When I submitted my order a few minutes after eight, the confirmation said my Rift would ship in March 2016; customers checking out just a few minutes later received estimates in April. All day long, the estimated shipping date for new orders kept slipping further into the future—a strong indicator that the Rift had sold out of its initial stock, and that demand exceeded Oculus’s manufacturing capacity. By the end of the day, new orders had a ship date in July. Oculus wouldn’t say how many sales it made, but several analysts I talked to came up with a consensus estimate of around 70,000 units that first day, and ultimately, more than 400,000 preorders before the March 28 release date.

  * * *

  —

  Maybe the critics were right and a $600 price tag would scare off consumers. But it didn’t look like that was happening on the CES exhibit floor, where Oculus VR’s booth was surrounded by a line of people waiting more than an hour to see the Rift for themselves.

  It was a very different scene from Oculus’s first appearance at CES. When the company made its inaugural visit in 2013, only a few months had passed since the conclusion of the Rift’s Kickstarter campaign, and a small team of employees worked out of a suite at the Venetian hotel, running demos on two pre-DK1 prototype units. The modest effort was still enough to land the Rift on several “Best of CES” lists: The Verge wrote that “the Oculus Rift is the most revolutionary gaming experience we’ve seen in years” and Wired said that it was “the coolest thing we’ve ever put on our face.” In 2014, Oculus made its official debut at the show, though its space consisted of private meeting rooms in the ballroom of a hotel north of the convention center, well outside the main action. Still, new demos won more best-of-show recognition. In 2015, the company arrived in the main convention center with a big booth that was open to the public. As the tech officially crossed from underground sensation to mainstream must-see, the “Crescent Bay” prototype earned Oculus even more “Best of CES” honors.

  This year, Oculus’s booth was one of the biggest at the show—less a booth, really, than a two-level building housing a dozen Rift demo rooms and a lounge space where attendees could sit and play with the Gear VR. Another auxiliary space next door included more demo bays and a few meeting rooms.

  I found Palmer Luckey inside and we headed to a conference room to chat. He karate-kicked the door open with a sandaled foot and jumped into a chair.

  “You seem pretty energetic,” I said. “I thought you might need to recover from arguing with your critics on the Internet.”

  “I don’t need any recovery.” He laughed, leaning back on the chair’s rear legs. “I’m used to far worse—I used to run a web forum. I’m not gonna claim I’m any kind of Internet master, but I think that most people, in corporate settings particularly, don’t understand how to interact with an audience like that. And that’s not because I have special training. It’s just when you’re naturally part of that group, it’s a lot easier.”

  “I talk to a lot of executives who didn’t grow up on the Internet; it’s sort of an alien thing to them,” I said. “They look at people in web forums as the rabble with pitchforks.”

  Luckey nodded. “It’s hard to be angry about something you don’t care about. It doesn’t make sense to treat people like a mob, when in reality they’re a big chunk of your customer base.”

  I asked him how he felt about the preorder announcement and launch.

  “Well, preorders are going really, really well, better than expected,” he said.

  “Above your projections?”

  “We’re really happy with how it’s going, yeah.”

  “What about the people who say $600 is too much money?”

  “The fact is, that’s just what this technology costs right now,” Luckey said. “I can see where it’s too expensive for some people, but at the same time, it’s not outside the realm of lots of other mainstream consumer products.” The same people complaining about a $600 VR headset might have a $600 monitor or television in their living room, he argued, but only the headset seems expensive, because VR is a new product.

  “When high-definition TVs came out, they cost thousands of dollars,” Luckey explained. “People didn’t bat an eye, and that’s because they understood that of course the prices would dip down over time. There was an expectation there, because TVs had always been expensive when new technology shipped. But people don’t have that same expectation with VR. The only thing that sets expectations so far is Google Cardboard, Gear VR, and our two dev kits, which were way less complex. So when the Rift comes out, we’re kind of setting a new understanding.”

  “You’re not just establishing the price of a product,” I offered, “you’re establishing the value of this medium.”

  “Right,” Luckey said. “And it’s not like anyone’s going to come out with something that’s drastically better and undercuts us.”

  So why choose to make the Rift a high-end product? I wondered. Oculus could have worked on making the Rift cheaper and, as a result, put VR into more people’s hands; instead, the company made a specific decision to sell a more expensive device to a much smaller group of people.

  “We want everyone who tries it to say that it’s awesome,” Luckey said. “Even if it’s not something that they want yet, or if they’re waiting for more content, or they’re waiting to get a bette
r PC, or they’re waiting for the cost to go down. That’s a lot better than people trying VR—on any headset—and saying, ‘Oh, I tried it, it isn’t very good, I’m not interested.’ We kind of have an unprecedented wave of hype right now, and I want to make something that capitalizes on that and puts good VR in the eyes of as many people as possible.”

  Still, I argued, doesn’t a high base price raise the risk that you won’t reach enough people? And isn’t that an even bigger problem outside of the United States, because of international shipping costs?

  Luckey thought for a moment. “Shipping globally is really hard,” he said. “We’re shipping in about twenty countries right now. We’re working to expand that, but all these countries have different regulations and different certification processes. It’s really easy to be mad about high prices and say, ‘Oh, they must just hate my country.’ But it’s just really hard to ship all around the world.”

  “So your message is, ‘We don’t hate you, Australia, it’s just really hard to get stuff to you,’” I joked.

  “Australia is a relatively small market for us,” Luckey said. “There is a cost to setting up distribution and shipping and doing it to a relatively small number of people. We don’t want to abandon Australia or any other country. But we also can’t afford to just say, ‘Oh, it’s really expensive to be in this country? Well, we’ll just charge you the same amount.’ Apple does that in some countries, but they have a lot of profit margin to spend on making sure their products ship around the world, and they can make different amounts of money in different countries to try to keep things fairly even. But when you sell hardware at cost, you don’t have that luxury. When it costs more to ship something, that cost is directly reflected to the consumer, because there’s no margin that you can use to absorb it.”

  As he spoke, Luckey got more animated, the way I’d seen him perk up in the past when talking about a new engineering challenge. “I’m surprised to see you so excited about shipping logistics.” I laughed. “It’s like this is a puzzle that you have to figure out.”

  “I am excited,” Luckey agreed. “But it’s less like a puzzle and more like . . . I guess to use a school example, it’s less like a test, and it’s more like homework. It’s about doing the right paperwork, waiting for the deadlines, filling out more paperwork, meeting with the right people, turning things in, getting things back. It isn’t like you just go, ‘Bam! We’ve got it, we’re all set to go in twenty countries.’”

  “Is there any part of your job or the product launch process that you’re not excited about?” I asked. “Something you’re happy to give to somebody else?”

  “I try to stay involved in pretty much everything,” Luckey said. “I can’t imagine wanting to hand off anything entirely.”

  “Are you still involved in engineering work?”

  “Yeah, but I split it between a lot of things,” he said. “Right now, this week, there’s no engineering; it’s all business meetings and press meetings. But that’s what happens as you get closer to shipping a product. You aren’t doing novel engineering for the headset. You’re working on things like improving manufacturing, getting units off the line faster. There are people working on next-generation stuff in research, but generally speaking, most of us are focused on getting the product out the door.”

  “Do you get to work with Michael Abrash or John Carmack anymore?”

  “Oh yeah,” Luckey said. “I was just visiting Carmack in Dallas two weeks ago.”

  “What did you see there?”

  “Whataburger is really good. I was like, ‘Wow, Texas knows how to do burgers.’”

  I laughed. “You’re from California, you’ve got In-N-Out Burger. That’s one of my big regrets about living on the East Coast, we’re never gonna get In-N-Out.”

  Luckey leaned forward in his chair and pointed at me with his index finger. “You guys have Smashburger. You have Five Guys.”

  “Have you tried Shake Shack?” I asked.

  “Oh my god, Shake Shack is so good. I love the Shake Shack in D.C., that’s the only place I’ll eat in D.C. I get the Shack Stack, the patty and portobello mushroom with cheese.”

  “I’d be embarrassed to admit this to other people,” I told him, “but I know you’ll understand—one of the factors I considered when deciding to move into my current apartment was that there’s a Shake Shack two blocks away.”

  “Oh, that’s great.”

  “I didn’t tell my wife that was one of the factors, but it definitely was.” I paused, looked down at my notebook, and flipped through a few pages. “What was the next question I was gonna ask? Now all I can think about is burgers.”

  Luckey laughed. “That’s how it gets at conventions, man. Nothing but dry sandwiches in these parts.”

  Completely distracted by my stomach, I resorted to asking a cliché question directly out of my notes. “So, can you give me an example of something you were surprised to learn about running a business in the last couple of months?”

  Luckey hesitated, and just for a moment, his usual high energy and enthusiasm dipped. I might have even detected some fatigue—a perfectly reasonable though uncharacteristic result of years of hard work getting the Rift to this point. “I don’t know.” He sighed. “Let’s wait till we ship, and then I’ll talk about the lessons I’ve learned. We’re still in the middle of trying to get this thing out there. It’s easy to promise; it’s hard to deliver.”

  “You’re real heads-down right now,” I said. “Not much time for reflection.”

  “When you take orders, that’s when you really have committed,” Luckey said. “We’ve given a date, March twenty-eighth. That’s when we are going to ship these things. The period between when you make that promise and when you deliver is the toughest, ’cause you can’t stumble.”

  “So what happens on March twenty-ninth?” I asked. “Do you get to take a vacation?”

  He smiled, energized again. “I’m not taking a vacation, because that would mean not working on VR.”

  * * *

  —

  After I finished talking to Luckey, I decided to check out some of the other VR start-ups with booths on the CES floor. The Gaming and Virtual Reality Marketplace took up only a tiny portion of the convention’s 2.47 million square feet of exhibit space—something the size of a supermarket inside an area bigger than 43 football fields (American football, specifically—equivalent to 32 standard FIFA football pitches, 11 Australian rules football grounds, or 308,750 foosball tables)—but it was packed with more people than any other section of the show. VR was new and exciting, and there was something new around every corner.

  Across an aisle from the Oculus booth, a long line of people waited up to three hours for a five-minute demo of the Virtuix Omni, a $699 high-tech treadmill billed as “the first virtual reality interface for moving freely and naturally in your favorite game.” The base of the Omni was a five-foot-wide shallow bowl made of low-friction plastic, so if you walked on it while wearing special slippery shoes, your feet slid up and down the sides in a near approximation of natural gait. Motion sensors tracked the action and allowed you to control a video game character by walking or running in place. Add the VR headset of your choice, and the movement helped convince your brain you’re striding through virtual worlds, not moonwalking on an oversize dinner plate.

  Just like the Oculus Rift, the Omni was initially funded by a crowd of gamers who didn’t mind paying in advance for a chance to try it out. Mechanical engineer Jan Goetgeluk started working on the device as a hobby project while he was employed as an investment banker at JPMorgan; after two years of tinkering he quit his job, founded Virtuix, and in June 2013, launched a Kickstarter campaign in order to raise funds to bring the product to market. The campaign passed its initial $150,000 funding goal in just over three hours, and in six weeks raised more than $1.1 million from 3,249 backers. In December, Goetgeluk app
eared on the reality television series Shark Tank to ask the program’s celebrity investors for $2 million in exchange for 10 percent of the company. The sharks didn’t bite, but after Facebook shelled out $3 billion for Oculus VR a few months later, billionaire panelist Mark Cuban changed his mind and joined ten other individual and institutional investors to contribute $3 million in funding. Now Virtuix was at CES to show off the Omni’s final production model, which it said would start shipping in the third quarter of 2016, about nine months later.

  A few feet away, the “Chinese Oculus” was showing off its newest hardware. ANTVR, a start-up born out of a Beijing technology incubator, earned the nickname after it raised more than $260,000 in a June 2014 Kickstarter, but its reputation soured after it shipped its first headset six months later. The All-In-One Universal Virtual Reality Kit could connect to computers, game consoles, or Android devices, but it was poorly constructed, made of cheap materials, and panned by VR enthusiasts. After that the company pivoted to manufacturing low-end Google Cardboard alternatives like the $25 ANTVR TAW, a simple plastic frame for a cell phone connected to an elastic strap.

  But ANTVR hadn’t given up on high-end virtual reality. Most of the company’s booth was roped off with retractable belt barriers, and behind them, a young man wearing a bulky black headset walked an erratic path around the pen, like a hallucinating drunk trying to navigate imagined obstacles. I stood and watched awhile, thinking about how VR turns its viewers into a sight to be viewed, before a staffer came over and explained the man was wearing ANTVR’s next-generation Cyclop prototype. Like the Vive, the Cyclop had a built-in camera on the front of the headset, but ANTVR used it to constantly scan a three-foot area around the user’s feet, looking for reflective stickers laid out in a grid on the floor. It was a clever way to track a user’s movement and deliver room-scale VR without the use of external sensors, though I doubted whether consumers would be willing to stick so much junk to their floors.