Meta’s Horizon OS And Horizon Store Reforms Reaffirm XR Leadership

By Anshel Sag, Patrick Moorhead - June 14, 2024
Meta Horizon OS can be used for third-party headsets
Meta

Meta recently announced crucial changes to its XR ecosystem, launching the Meta Horizon OS and making important amendments to the way its Horizon Store for XR apps works. These aren’t the kinds of announcements that will draw major headlines and consumer attention like the launch of a new flagship headset would, but in many ways they are just as important for what they say about Meta’s strategy in XR, and for the ripple effects they will have with Meta’s partners and competitors in the space.

Before we get into the specifics, it’s useful to set some context. Meta has without a doubt spent the most time and money of any XR provider in building its Quest ecosystem of hardware and software. Meta just reported earnings for Q1, with the Reality Labs unit reporting $440 million in revenue and a $3.85 billion loss. This is a major reduction in both revenue and losses compared to Q4 2023, when the company reported more than $1 billion in revenue for Reality Labs for the first time ever—but also recorded $5 billion in losses on it. Many of its investments have been in the creation of the operating system that its Quest headsets run on and the content that developers have created for it—the most comprehensive in the industry.

What’s interesting is that investors are no longer shaming Mark Zuckerberg for the massive losses by Reality Labs because it now has a competitor in Apple that has validated Meta’s colossal spending. I believe that for as long as Meta’s overall profitability as a company continues to grow, its investors will look the other way when it comes to profitability for Reality Labs. Apple’s entry into the market also gives Meta’s Horizon OS and Horizon Store more credibility and value because Apple’s XR efforts are nowhere near that level of maturity.

The Strategy Behind Horizon OS

Meta is branding its newly announced Android-based mixed reality operating system as Horizon OS. Meta says that it has spent a decade developing this operating system for its own headsets and is now opening it to third parties. According to the company, it all began with standalone VR headsets including the Quest, but the development history also includes the Oculus Go, which was the first standalone VR headset from Meta with limited three-degrees-of-freedom and single-controller capabilities. The benefit of Meta opening up the OS for the Quest ecosystem is clear: hardware partners won’t need to spend as much time and effort developing an operating system and managing developers. This is much like what Google has done for the smartphone with Android and Google Play.

Ultimately, Meta’s long-term plan was always to become the default marketplace for XR apps and to earn most of the money in this segment from app (and in-app) purchases, rather than from the hardware itself. Much like with Google’s Pixel line of products, I believe that Meta wants to keep making hardware, but only to enable the future of its software platform. A big component of this strategy is to drive the industry forward with new research and new features from Meta—but without having to take on as much of the burden of manufacturing at scale.

This strategy is why I believe that Meta is more than happy to work with ASUS ROG to build a new all-performance headset for gaming. Republic of Gamers, or ROG as it is commonly known, is ASUS’s long-running gaming-centric brand. By contrast, Lenovo’s role appears to be focused more on productivity, learning and entertainment, which is still possible thanks to Meta’s diverse ecosystem of apps. Lenovo is also an interesting player because the company already has its own enterprise VR and AR products, the ThinkReality VR-X and A3. It will be interesting to see how Lenovo decides to move forward with these enterprise products and whether Lenovo can help Meta gain enterprise credibility.

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Finally, Meta has also announced a partnership with Xbox to offer a limited-edition Meta Quest “inspired by Xbox,” which many people take to mean a special color scheme bundled with a controller. I believe Meta’s efforts are just beginning and, if things go well with the first few headsets, we could see a deluge of other partners getting onboard. The only player I wouldn’t expect to participate is Samsung, and that’s only because it is joined at the hip with Google.

Qualcomm Wins Again

One of the biggest things to draw from the Horizon OS announcement is that it reaffirms Qualcomm’s dominance of the non-Apple spatial computing space. While Qualcomm is still searching for a replacement to succeed its former head of XR, Hugo Swart, the company is poised to continue to dominate the XR industry with Meta’s help. So much so that Meta even gave Qualcomm a shout-out in the announcement, saying that Qualcomm’s Snapdragon processors are tightly integrated with Meta’s hardware and software stacks.

This is indirectly saying that if a company wants to work with Meta and use Horizon OS, it better be using Qualcomm Snapdragon. This also means that not only is Qualcomm’s latest chip inside of whatever Samsung and Google ship together, but that it is also inside anything that Meta and its partners ship as well. That’s why in some ways the spatial computing battles are a chip war between Apple and Qualcomm as much as a product fight between Apple and Meta or Apple and Google. Qualcomm’s silicon powers all of Apple’s competitors, much like it has in the smartphone world.

Meta Horizon Store Reforms

In addition to making its operating system more accessible to third parties, Meta also announced that it will be reforming the way the Meta Horizon Store operates. Currently, the store has a convoluted and arguably anti-developer approval process that has angered many developers, some of whom have left for Apple. As part of the new reforms, Meta will incorporate the App Lab into the Horizon Store. The original concept of the App Lab was to provide an outside marketplace for new developers to prove out their ideas and gain enough traction to eventually make it into the main Horizon Store. In practice, though, the App Lab has often been where independent and smaller developers have been left to languish. This has also spawned third-party stores such as SideQuest, which Meta has started to acknowledge as a place where developers on Quest could also see success.

By making App Lab apps accessible in the main Horizon Store, Meta will give more developers with new ideas access to the full Meta Horizon ecosystem of Quest 2 and Quest 3 users. Additionally, Meta says that it will only enforce certain minimum technical and content requirements for developers to be eligible for the Horizon Store. I believe that this will significantly improve the uptake of new ideas and applications, considering the size of the Quest install base and how powerful that group of users can be for a developer with a good new idea.

In addition to making App Lab more accessible, Meta is also developing a new spatial app framework specifically aimed at helping mobile developers create mixed-reality experiences. Meta wants to make it even easier to port existing mobile apps, but also to create new mixed-reality versions of those apps for the Meta Horizon OS and Store.

What’s Next?

Ultimately, Meta’s moves to open its store and operating system clearly indicate that the company wants to beat Google in scaling the XR market for non-Apple users. There have been rumors for many months now that Google is partnering with Samsung to build an XR operating system for Samsung’s new mixed-reality headset designed to compete with Apple. Google’s efforts to gain traction for this operating system have only become more difficult with Meta’s Horizon OS announcement. This is mostly because Meta has built multiple generations of XR hardware and spent countless millions on building up a content library that is the envy of Google—and Apple.

Many people believe that these new moves from Meta will slow its ability to iterate the Horizon OS. While I do agree with that, Meta has also proven that it is able to iterate faster than almost any of its competitors, so slowing down a bit might not be the end of the world. I believe that Meta opening Horizon OS and the Horizon Store will ultimately result in better financial outcomes for the Reality Labs division and a realization of its long-term vision to create the spatial app store for non-Apple users.

 

Anshel Sag
VP & Principal Analyst | Website

Anshel Sag is Moor Insights & Strategy’s in-house millennial with over 15 years of experience in the IT industry. Anshel has had extensive experience working with consumers and enterprises while interfacing with both B2B and B2C relationships, gaining empathy and understanding of what users really want. Some of his earliest experience goes back as far as his childhood when he started PC gaming at the ripe of old age of 5 while building his first PC at 11 and learning his first programming languages at 13.

Patrick Moorhead

Patrick founded the firm based on his real-world world technology experiences with the understanding of what he wasn’t getting from analysts and consultants. Ten years later, Patrick is ranked #1 among technology industry analysts in terms of “power” (ARInsights)  in “press citations” (Apollo Research). Moorhead is a contributor at Forbes and frequently appears on CNBC. He is a broad-based analyst covering a wide variety of topics including the cloud, enterprise SaaS, collaboration, client computing, and semiconductors. He has 30 years of experience including 15 years of executive experience at high tech companies (NCR, AT&T, Compaq, now HP, and AMD) leading strategy, product management, product marketing, and corporate marketing, including three industry board appointments.