The strategy behind the Apple Vision Pro

If you haven’t noticed already, a white ship has just docked from Cupertino. Ticket prices are $3,499 per pop, and come with a pair of what looks like fancy ski goggles. The talk of the port town is the high entry price - but I am more interested in how else the ship will monetise its seafaring passengers.

Currently, spatial computing has two ideological approaches: fully enclosed; and a blend of realities. The former focuses on a completely immersive virtual world, designed for new types of gameplay and connectively in an enclosed space. Meta, Pico, Varjo and HTC would fall into the category; even if several applications have passthrough capabilities, these headsets have largely been enclosed devices. The latter brings reality with virtual spaces, offering a more “human” kind of computing. Apple falls into this category, as would Niantic through its vision of the “real-world metaverse.”

After years of R&D and acquisitions, Apple announced its spatial computer - the Apple Vision Pro. The Cupertino company is not positioning it as a device that encloses people in virtual worlds - it is a part of work and life, where people can converse with you while working. It’s a different philosophical approach compared to competitors.

It is also one that Tim Cook hinted at in the past. Tom Emrich pointed out that, during Tim Cook’s unveiling of the Apple Watch line-up in 2014, his commentary matches closely with Apple’s VR/AR vision: “We love to make great products that really enrich people’s lives. We love to integrate hardware, software and services seamlessly. We love to make technology more personal and allow our users to do things that they could never have imagined.”

A mightily expensive approach, too. But don’t dismiss it yet. Apple is not seeking to build a wide XR ecosystem with a cheaper device, like Meta with the Quest line-up. The company instead seeks to monetise an already-lucrative subsection of its audience with high-margin subscriptions and software, accessible at a $3,499 price tag. Let’s discuss why.

Executive summary:

• Stop focusing on the price: Yes, the Vision Pro is expensive. But Apple’s strategy is more focused on monetising a higher-income audience, not bringing in a wave of new people.

• A lucrative audience: The customer lifetime value (CLV) of the Vision Pro purchasers is likely high, as affluent customers will use the product. Luxury brands or premier services may benefit the most.

• Human touch: Apple is more focused on the human side of technology compared to Meta and Pico - but perhaps it does not go far enough.

• Don’t tread on toes: My worry is that developers would not be able to compete with Apple’s package of services, such as fitness if it decides to unveil it for the headset. One example is wellness, as it may be an uphill battle if Apple announces a mindfulness integration with its Watch series.

• Blending with the ecosystem: The Vision Pro does not complement the wider Apple ecosystem; it steps on the toes of the Mac ever so slightly. I argue that is not as much of a problem.

• A legitimising force: Whatever the quality of Apple’s new headset, it will bring a newfound trust in immersive technologies - whether it is warranted at this stage or not. Brand trust is so high for Apple.

• “Where you look stays private”: Perhaps the most important quote of the announcement, as Apple enforces its messaging on privacy.

How the Vision Pro lightly treads into parts of the Apple ecosystem

We know that Apple’s empire was first built on world-leading hardware design, and fortified by a self-sustaining and thriving software ecosystem. The Vision Pro fits into the ecosystem, but I would argue it’s not the key feature of the device. If anything, it acts as a solo version which blends with the capabilities of others in the ecosystem.

First, let’s briefly touch on why the Apple ecosystem is important. The company pioneered products that directly addressed what users wanted and built interfaces that made hardware interactions as frictionless as possible. The iPhone dominated the mobile ecosystem by offering a product that was years ahead of the competition, removing a pain point (physical buttons and clunky interfaces), while providing an all-in-one package for web surfing and media browsing. The iPhone is now used by over a billion people globally.

Apple then leveraged the power of the iPhone to build on its dominant position with the App Store, offering a closed system designed to protect users while taking a chunk of revenue. The ecosystem itself was valuable, as millions of people pay good money for the apps and services on the platform. The strategy also generated a virtuous cycle as its network effects grew stronger. Apple’s ecosystem brought in new people, which made it more desirable, which led to more people joining, and so on. Likewise, developers sought to deliver apps to the growing ecosystem. Companies judging whether to develop for iOS or Android typically choose the former, which is delivered to a thriving cohort of fat-wallet consumers.

The tight ecosystem also allows for more product categories to connect together. The Apple Watch, AirPods, iPhone and Mac all weave together, driving more value out of all products when together. Each part fills a role for someone, in a modular way. The AirPods provide decent-quality audio that can switch easily between devices. The iPhone is a slick communications device, pairing with a Mac as someone logs in from home. The Watch tracks health data which is checkable across multiple devices when required.

The Vision Pro treads on the toes of other ecosystem partners. The headset can be used for work - like the Macbook Air. It can be used for video calls - like the iPhone. It can be used for breathing exercises - like the Watch. Instead of filling a new area for home use, it creeps into a variety of other devices like weeds in its own garden. However, some people may like the interoperability across their suite of devices at home.

How much does that matter? Will it snap up the sales of its own products, or will it offer something substantially different for people who want a more blended experience? Perhaps so; the iPad was initially panned because it seemed like a large iPhone, but it self-demonstrated its value with time.

My suspicion is that it will carve a niche of its own. Granted, I understand why we focus on the ecosystem effect for Apple. The company boasts the most successful version in the history of technology, drawing great margins and revenue across its portfolio. But for me, the ecosystem play is not the most interesting area. I suspect it will be in the lifetime value of people who are either within Apple’s world or are new to it.

The high value of Apple Vision Pro users

The Vision Pro is expensive. At $3,499, it trounces competitors’ line-up of XR-related hardware. The Pico 4 Enterprise - one of the most expensive headsets from the Bytedance-owned company - is €899. The price even outstrips the $1,500 Meta Quest Pro, which is more for businesses. If we step away from businesses and more towards intended customers (consumers), the gulf is even more stark.

Analysts are tempted to say that the cost is too high. How can it bring more users into Apple’s world when it costs so much? Can it ever achieve success when it’s at such a high price?

I say we need to look at it differently. Instead of looking at the number of users the Vision Pro will have, we should look at the value of Vision Pro users as a whole.

Take Apple’s typical customers. iOS users tend to spend more than Android users. One study found that iPhone users typically earn between $50k to $85k on average, while Android users earn $35k to $60k. Android phones service lower-income users better than the iPhone, with devices that can sell for $150 if you know where to look. Compare that to iPhone, whose iPhone SE - the value-led one of the bunch - can be bought for $429. The customer lifetime value (CLV) of an iPhone user is higher because the monetary barrier is higher.

Subscription-based services may see a boon here, too. One report found that iOS users spend more than double on subscriptions than Android users. The same logic holds here - if a user is willing to spend $3,499 on a hardware device, then they must be more likely to splash out on subscription services such as, say, FitXR.

The logic naturally extends here, and Vision Pro customers may be particularly affluent. Some companies offer a razor and blades business model; subsidise a good-value razor, then make a decent profit from consistently selling blades for a long time. For Apple, it may be like selling the world’s most expensive razor, but knowing that its customers are willing to spend $50 on pristine blades at ludicrously high margins.

Benefitting Apple’s subscription services over other types of apps?

So what services will perform well on Vision Pro? Apple is focusing on connecting people together, watching TV, business collaboration and an everyday type of productivity. Many of these services directly tie into Apple’s own services, such as watching Apple TV or playing Arcade games.

The company knows that it needs more apps. Apple is using WWDC to bring more developers into the fold, to help bring more apps to the system. The company announced its collaboration with Unity so that more apps can be transferred more easily to the headset, and unveiled Reality Composer Pro to help build the right experiences for the headset. The better supported the software, the more users will jump on the white silicon ship.

I was surprised by the lack of fitness-related demos at WWDC. All the experiences were sedentary, or required little movement. Fitness is one of the most popular types of apps in the Quest line, and the most profitable too. Few other categories have users who regularly use the headset and pay a subscription service, making users highly monetisable in the long run. Perhaps the headset is not designed with sweat in mind, or Apple wanted to present a more serene use of the Vision Pro - who knows?

Still, I worry about developers creating apps that would directly cut into Apple’s services. Wellness is a particular example; I heavily suspect that Apple’s entrenched position would make it more difficult for wellness-related companies to make a dent in the ecosystem. But if you have a new and innovative type of game that brings people into the headset regularly, then you may have a big opportunity here.

A more human touch, but not quite enough

Perhaps the best applications will take advantage of Apple’s vision for blended spatial computing. People can come up to users and break the virtual barrier, having a conversation and passing objects to them. It is not an enclosed and private space; it is a slick and more personal way to chat with people.

That personal touch bleeds into how it can capture 3D photographs, which I love. The idea that we can capture 3D versions of particular moments is great, and I am curious to try it out.

But I do not think it is good enough. Apple is pioneering a more human and authentic approach to spatial computing, but it trips slightly into the uncanny valley. Take the example of the pictures again. Who would take a parent figure seriously if they took pictures from behind a headset? Or take the eyes that peek out of the virtual world, behind a haze of pixels. That’s not authenticity - it’s a veil in front of the eyes.

Leo Gebbie, Principal Analyst for Connected Devices at CCS Insight, agrees with the sentiment: “The Vision Pro has a luxurious build, as would be expected with its premium price tag, and its 3D-formed laminated glass and aluminium chassis is certainly eye-catching. It will be fascinating to see if Apple can succeed where other companies have failed and turn its headset into a desirable product to be seen with, rather than a geeky gadget.”

Apple creates great products that fit into the home, such as the colourful iMac series or the demure Macbook series. I do not think people will be willing to have a conversation with someone who peeks at them with pixellated pupils, which can then glaze over at any point. If the eyes are clearer, then I can see it working better.

Will the Apple Vision Pro succeed?

I think it has potential. Matthew Ball argued that we need a “minimum viable product” version of a headset for better penetration. The Vision Pro is close to reaching the viable product needed for success, but with a hefty price tag attached to it.

Subscription-based services have an edge here. Free-to-play apps work better for mobile phones, but less so for a headset that already has such a high batter to entry. Premier services with additional add-ons will see more use than the next edition of Angry Birds. Within the headset, I can see productivity apps doing well; Adobe should be looking closely at the Vision Pro, and I wouldn't be surprised if Microsoft announces a tighter partnership in the months to come.

The problem is that we have seen highly speculative videos up to now. I applaud Apple for showing the headset in the best light possible, with a first-person perspective that masterfully blends the virtual and real together. But it is all highly choreographed, and it is difficult to know how good it is right now. Disney showed a flashy trailer with speculative uses - followed by a brief comment that Disney+ is coming to the headset. (Ironically, the headset has a two-hour battery life - not long enough to watch The Last Jedi while commuting). We need to see more concrete details.

Field-of-view (FOV) is a critical question, for example. If the FOV is too low, then it will be like looking through postage stamps. If it’s wide enough for browsing around with human eyes, then it becomes a stronger product - but we just don’t know it yet.

The same goes for latency. Apple claims that its R1 chip effectively eliminates lag, and will process images eight times faster than the blink of an eye. That sounds great, though we need to demo it to find out if it addresses motion sickness.

(As a fun side-note, Rony Abovitz - the previous CEO of Magic Leap - comments that the Vision Pro draws strong parallels with Magic Leap):

Whatever its quality when it releases, Apple provides a legitimising quality to immersive headsets which will bring people more into the fold. In 2021, Morning Brew polled US consumers on who they would trust to buy an immersive tech headset. Apple was number one - despite the fact that the company had not released any headset up to then. Meta trailed behind, even though the company had released multiple versions. Brand trust trumped expertise, in the US at least.

If I were a smaller developer, I would be investigating to see if I can put more luxury titles into the Vision Pro. It is a good fit considering the type of people who may use the device, and a fit for the wider space. The appetite may grow over the next few months - so let’s keep a close eye on it.

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