What The $2Bn Oculus Deal Means For Facebook?

by CXOtoday News Desk    Mar 26, 2014

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Facebook is acquiring Oculus VR, the maker of the Oculus Rift virtual-reality headset, for $2 billion in stock and cash. Analysts believe it’s a huge deal — in a way a potentially a bigger one than its $19 billion acquisition of WhatsApp announced last month, in every aspect of course except the money involved.

A TIME magazine report states that Oculus is building something that feels potentially as transformative as the graphical user interface, the mouse, the touchscreen, speech recognition or any of the other elements that have changed the way we interact with technology in the past. What it gives you — a 3D world you can explore by looking up, down and all around you — will be spectacular for games. But it’s not hard to imagine future versions of the technology being applied to other sorts of activities we perform using computing devices. Such as — just to pick an example at random — social networking.

The recent acquisition marks a big bet by Facebook to anticipate the next shift in an evolving technology industry, at a time when consumers are increasingly abandoning their PCs for smartphones.

In other words, analysts are hinting that with its first-ever hardware deal, Facebook is venturing into fast-growing wearable devices space.

However, Facebook CEO Mark Zuckerberg made his stance clear to investors: “We’re clearly not a hardware company. We’re not going to try to make a profit off of the hardware long-term…but if we can make this a network where people are communicating, and buying virtual goods, and there might be ads down the line…that’s where the business could come from.”

For now, Facebook will let Oculus operate independently with a focus on gaming. And to some, that makes the acquisition seem out of sync with Facebook’s mission to make the world more open and connected.

Many in the industry believe that wearable devices could represent the next big platform shift. Google Inc has been testing Google Glass, a stamp-sized electronic screen mounted to a pair of eyeglasses for several years. Last week, it introduced an effort to develop computerized wristwatches.

Read: Smart wearable devices to become an enterprise reality

Zuckerberg said at a conference call on the acquisition that virtual-reality technology could emerge as the next social and communications platform. “We’re making a long-term bet that immersive, virtual and augmented reality will become a part of people’s daily life,” he said.

While Oculus will operate as an independent company, Zuckerberg stressed that Facebook’s plans for Oculus extended well beyond games. Oculus has reportedly garnered some interest from developers keen on creating apps in areas like architecture, automobiles, marketing and education, said the company.

According to analysts, the acquisition makes Oculus VR one of the most successful companies or projects to emerge from the fledgling Kickstarter program, which has helped attract small investments from the public for everything from the Pebble smartwatch to the recent “Veronica Mars” movie, says TOI report. The deal, which Facebook said is expected to close in the second quarter, marks the company’s second multi-billion dollar acquisition since mid-February.

Finance Chief David Ebersman said in the report that the price of the deal was based primarily on the gaming business, but that Facebook believed the technology could be worth “multiples” of the purchase price if Facebook succeeds in extending it into other areas such as entertainment and communications.

Other analysts also echo similar views. As Arvind Rawat, Engagement Manager, Zinnov notes Facebook’s acquisition of Oculus VR is a long-term bet on the future of computing. “With mobile being a dominant platform today, Facebook is keen on keeping itself from missing the next big thing in this space. It is therefore putting its weight behind the possible emergence of virtual reality as the dominant social and communications platform,” he says.

Currently Facebook is cash-strong and in a position to bet for future proofing the company. However, Rawat believes it has to refrain from overspending on technologies that might not be mainstream.