Editor’s Note: This article was originally published on July 14th, 2017 and has been republished to coincide with recent news of the Oculus sale extension and our previous Community Download discussion topic.

Since the bombshell price drop earlier this week by Facebook’s Oculus, a number of theories have emerged regarding the Rift’s temporary $400 price tag.

Is Oculus preparing a second generation and hoping to clear stock? Is Oculus struggling so much that Facebook is dropping the price of the Rift in a last ditch effort to save it? Is Facebook under pressure to move units fast because they are concerned about a ZeniMax injunction after the $500 million judgment earlier this year, as China’s regional President of Vive suggested in this tweet:

Or could it be that a zenimax injunction is coming… ? — Alvin Wang Graylin (@AGraylin) July 12, 2017

I don’t think there’s any cause for the price drop other than competitive aggression at a smart time and the fulfillment of a promise by Oculus’ earliest team members to lower the price of quality VR hardware as much as possible. With the reveal Oculus is working on a low-cost standalone headset, we’ve also heard the company isn’t releasing new hardware this year — so clearing stock to make room for a new device isn’t true. In addition, the company has now confirmed after the sale is over Rift will carry a price of $500 for the Rift and Touch package.

Then Oculus CEO Brendan Iribe said in 2013 they’d love to give away the Rift for free:

We’d love it to be free one day, so how do we get it as close to free as possible? Obviously it won’t be that in the beginning. We’re targeting the $300 price point right now but there’s the potential that it could get much less expensive with a few different relationships and strategies.

It is easy to forget that many of Oculus’ earliest employees were big fans of Ready Player One by Ernest Cline. In the novel, kids in the future are given free VR headsets to attend school in a virtual world while more expensive equipment can be purchased for specific use cases like full body immersion. Here’s a video Oculus posted about Cline’s visit to Oculus which describes how some of the earliest team members joined the company because of the book:

So it shouldn’t be a surprise that Oculus got the Rift to $400 and $500. It’s actually a surprise the price drop didn’t happen sooner. Before his departure, co-founder Palmer Luckey took an incredible amount of grief for his messaging of a “ballpark” price for the Rift only to have it arrive at a surprisingly high $600 minus motion controllers. He expressed a bit of vindication this week for that “ballpark” number:

Rift+Touch is now $399. How about that ballpark? https://t.co/4ZcJbjOfl4 — Palmer Luckey (@PalmerLuckey) July 10, 2017

To be fair, early adopters were further shocked when the HTC Vive revealed its price at $800, though Vive included more freedom to move around the room in VR and motion controllers for a more immersive experience. For much of last year this difference in price complicated efforts to explain which headset to buy. You could get a Rift with access to content on both Steam and Oculus but decreased freedom of movement and no hand controls, or you could get a Vive with more freedom but access to content only from Steam.

By the end of 2016 Oculus finally released its superior Touch controllers and started to expand tracking to three sensors, bringing the systems closer in price and capability. Now in 2017 with hardware parity in hand, Facebook is accelerating its efforts tremendously.

In March, the company packed the Touch together with Rift at $600. With a third sensor costing around $60, Rift was more than $100 cheaper than Vive for similar capabilities and more content. Oculus also continued to fund major content initiatives — Lone Echo and its multiplayer counterpart is about to release and Oculus is hinting at another major content reveal soon.

At $400 or $500, though, the difference between Rift and Vive becomes stark. For buyers this is the choice:

Option 1: For around $460 plus tax ($560 after the sale ends) get a room-scale Rift with hand controls and access to content on both Steam and Oculus.

Option 2: At $800 ($900 with integrated audio solution like Rift) you get room-scale Vive with access to content on Steam. Use a hack to access content on Oculus.

Vive’s Only Advantage Right Now

The only advantage HTC Vive has at this point is a tracking system that doesn’t require it be physically connected to a PC. This is very convenient because as I type this I’m staring at a USB cord snaking across my ceiling connecting the third Oculus sensor for my Rift setup. It is ugly as hell. But is the convenience of erasing that cord and making my room look prettier worth $350? For some it might be, but for the majority cost is key.

“Less expensive hardware means more people have more money to spend on content and more people in general come in,” said Jason Rubin, the company’s head of VR content, in an interview with UploadVR for the March price cut. “This is 101 for expanding your ecosystem.”

Which brings us to Microsoft. The $400 price cut brings the Rift headset directly in line with Microsoft headsets which aim to offer a bundle at this same price heading into the holidays for an Acer headset and motion controllers.

Frankly, this sets up the holiday 2017 PC VR market as being a battle between Facebook and Microsoft. Where Vive sits in this battle is unclear at best. At worst, it might be pushed into a corner of the market reserved for arcades and niche setups.

HTC Vive’s Difficult Position

I adore the HTC Vive and the innovative tracking system it uses developed by Valve. The headset brought greater freedom and hand controls to early VR adopters long before Rift ever did — and inspired a whole generation of VR content.

That said, it is now in a difficult position where its price and other factors might relegate the system to a small subset of the PC VR market or worse.

The most exciting thing about the Vive right now is the ecosystem of tracked peripherals the company is building with developers. A whole series of accessories is on the way that attach to a small tracking device allowing the accessory to be precisely located throughout a room — bringing guns, cameras and extra players into VR.

But there remain lasting questions regarding this peripheral and how it fits into a hardware ecosystem driven by its partner Valve Software.

All the critical technology that drives the HTC Vive is owned by Valve, the company behind SteamVR, the Steam store and a well-loved set of games including Dota 2, Team Fortress 2, Half Life 2 and the Portal series. Valve’s tracking technology is approaching its second generation later this year. This new generation will offer base stations for tracking headsets, controllers and accessories that are lower cost and better than the current generation in almost every respect. The new units are even planned to include technology allowing them to expand to warehouse-scale installations. This could allow the base stations to take over the tracking equipment used by location-based VR startups like Disney-backed The VOID.

It is unclear if, how, or when HTC plans to support this next generation low-cost hardware. In short, this means the future of HTC Vive for home use is totally unclear.

What’s next for Vive?

I believe HTC Vive needs a major price cut to stay competitive.

After the Rift price cut in March Vive stayed firm at $800, though some temporary sales since then have seen price cuts by $50 or $100. But with Rift committing to a $500 price tag, and the option of the $400 sale returning in time for the holidays, Vive cannot compete at $800, or $900 with audio strap.

Personally, I want to see Vive dropping to at least $600 this year taking advantage of the new 2.0 base station technology from Valve. Ideally, HTC would roll out out Vive Trackers to consumers at the same time with a host of profit-driving accessories.

But what if HTC isn’t ready to upgrade? It is certainly plausible the company would need to stay with the first generation lighthouses for longer than expected because it doesn’t have the money to redo the manufacturing line just yet. What’s more, what if HTC wants to get the Trackers to market to differentiate itself from Oculus and ships them in a way such that they are only compatible with the first generation lighthouses? That could be disastrous.

The core of the concern here is that Valve and HTC are different companies with different goals and internal dynamics. HTC is out to make a profit on hardware while Valve is making money from the sale of software. Valve is a private company with a flat management structure and individual employees who pursue projects that personally interest them while HTC is a public company with a team distributed over the globe and shareholders to please. Valve is only partially invested in VR while HTC may see it as the company’s saving grace.

“We’re optimistic. We think VR is going great. It’s going in a way that’s consistent with our expectations,” Valve’s leader Gabe Newell told Polygon earlier this year. “We’re also pretty comfortable with the idea that it will turn out to be a complete failure.”

The bottom line is that these very different companies need to stay aligned going forward or innovation with both Valve’s SteamVR Tracking technology and HTC’s Vive Trackers could stall or get delayed. If second generation base stations emerge from Valve and they aren’t compatible with Vive Trackers, why would anyone buy either piece of hardware? We’ve reached out to HTC to ask whether the Vive Trackers will be compatible with the new 2.0 SteamVR Tracking technology when they’re available for consumers.

Regardless of what happens with the tracking technology underlying Vive, any kind of a price decrease for the headset might be small because HTC has so little hope of making a profit from software alone. Meanwhile, Facebook can sell Rift at a loss in hopes of making money from the sale of software and maybe eventually other services. HTC needs to make a healthy margin on hardware to profit and stay in business. Valve isn’t going to help in this regard because Steam is totally compatible with the Rift, too. As might be suggested by Newell’s quote above, Valve isn’t hurt at all if HTC Vive fails as Rift prices it out of the market.

HTC needs to get aggressive, too.