Why Facebook thinks Oculus is worth $2 billion

Analysts may call Facebook’s $2 billion Oculus VR purchase a headscratcher, but CEO Mark Zuckerberg is convinced that the future belongs to a virtual-reality headset.

Facebook’s Oculus VR buy, announced on Tuesday, is about a lot more than gaming. Zuckerbeg, the social network’s founder and CEO sees virtual reality as one of — if not the — next major computing platform, he said, one that will be a vehicle for communication, shopping, education and more.

oculus rfit sdk2

Oculus unveiled the latest version of its virtual reality glasses at last week’s Game Developers Conference.

For sure, Oculus is focused on gaming today. The company is developing a headset, still not on sale to the public, that’s designed to immerse people in the world of gaming, tricking their audio and visual senses into believing they’re in another place.

Facebook will help Oculus to get its Oculus Rift gaming system to market quickly and to sign partnerships to build more games, Zuckerberg said on a conference call. But that will be just the start.

“Imagine enjoying a courtside seat at a game, studying in a classroom of students and teachers all over the world, consulting with a doctor face to face, or going shopping in a virtual store where you can explore and touch the products you’re interested in, just by putting on goggles in your own home,” Zuckerberg said.

He also sees virtual reality as the foundation for “a new social platform.”

“By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures,” Zuckerberg said.

He’s not alone in seeing virtual reality as the future. IDC analyst Scott Strawn sees it as the next major platform after mobile, even if mass deployment is still several years away. “It’s not at all surprising that Facebook is getting involved now,” he said. “Google, their primary competitor, has been working on virtual-reality technology for years.”

Still, Lewis Ward, research director of gaming at IDC called the deal a “headscratcher” and currently a mismatch between Facebook—a company that has more to do with casual gaming—and Oculus, with its cutting edge gaming technology.

Ward said the acquisition is a long-term strategic move for Facebook and where the company wants to be in five years. As for Oculus, Ward said it will benefit from greater resources to develop hardware and software, specifically multi-player gaming.
oculus rift fb

Facebook doesn’t plan to make money selling VR headsets. “We’re clearly not a hardware vendor,” Zuckerberg said. “We’re not going to try to make a profit selling the devices, long-term. We view this as a software and services thing.”

Facebook isn’t saying just how exactly it plans to make money from Oculus — the deal won’t close until next quarter — but Zuckerberg mentioned communications services, commerce and “maybe advertising” as potential revenue streams.

History shows that “whoever builds and defines” the next computing platform not only shapes the experiences it’s used for but also “benefits financially and strategically,” Zuckerberg said.

Facebook won’t have the market to itself. Sony is pushing its Morpheus virtual-reality platform and Microsoft is rumored to be planning moves in the space. And while Google doesn’t have a virtual-reality headset like the Oculus Rift, it does have Google Glass, and a more immersive experience might not be far behind.

Still, the companies are all gambling on a market that doesn’t yet exist, as Zuckerberg made clear. “Today’s acquisition is a long-term bet on the future of computing,” he said, referring several times to a “five- to 10-year timeframe.”

And the enthusiasm he feels for being strapped into a headset that makes you believe you’re somewhere else—“it’s like teleporting,” he enthused, “you actually believe you are there”—might not be shared by everyone.

Nor does Oculus have a product that consumers can buy today, though Facebook claims the Rift has received 75,000 orders from developers. Zuckerberg wouldn’t be drawn on when the device will be made widely available. “We don’t have anything to say on that today,” he said. “There are developer kits; you can order them, they’re good.”

Virtual reality is taking off now because the components needed to build the systems, particularly the graphics chips, are widely used in smartphones, he said. That has helped to make the parts cheap enough for other mass consumer uses.

“Virtual reality certainly sounds like something out of science fiction,” Oculus CEO Brendan Iribe said on the call. “But science fiction has a habit of becoming fact.”

Melissa Aparicio of IDG News Service contributed to this report.

Subscribe to the Now Playing Newsletter

Comments