Facebook In $2bn Oculus Virtual Reality Deal

Facebook is making a $2bn bet that virtual reality headsets will be the next big social platform after computers and smartphones, with the sudden acquisition of Oculus VR.

The deal marks an unexpected move by the world’s largest social network into the hardware business, at a time when arch-rival Google is investing in robots, its own Google Glass headset and other long-term ventures.

Founded by 21-year-old Palmer Luckey in 2012, Oculus has not yet released a final version of its virtual-reality headset to consumers but has sold 75,000 devices to games developers.

While donning a VR headset is largely a solitary experience today, Facebook hopes to make it a more social experience, extending its applications beyond its current niche in gaming to replacing real-life visits to the doctors, sports games and retail stores.

“Virtual reality definitely sounds like something out of science fiction but science fiction has a habit of becoming fact,” said Oculus’ chief executive, Brendan Iribe.

Only last week, Oculus showcased its latest prototype as Sony unveiled a competing virtual reality device, Project Morpheus, for its PlayStation 4 console.

However, some games developers reacted angrily to Oculus’ sale, with several protesting on the company’s blog. Markus Persson, the creator of Minecraft, said he had cancelled plans to bring the wildly popular virtual world game to Oculus. “Facebook creeps me out,” he said in a tweet.

Nonetheless, Facebook believes that virtual reality’s applications could extend beyond gaming into entertainment and education.

“Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow,” said Mark Zuckerberg, Facebook’s chief executive, in a statement. “Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.”

The acquisition marks an early payday for Oculus’ venture-capital backers, including Andreessen Horowitz, which led a $75m investment as recently as December.

The deal is comprised of $400m in cash and 23.1m Facebook shares, plus a further $300m if certain performance criteria are met.

Oculus got its start through the crowdfunding site Kickstarter, where it raised $2.4m in September 2012.

“I don’t think anyone saw this coming,” said one person close to Oculus. “It was done very, very quickly.” Several companies had expressed interest in buying the company, this person added.

The move is Facebook’s second unexpected acquisition this year, after it spent $19bn on chat app WhatsApp. The company is using its shares – which have risen by more than 150 per cent in 12 months – to acquire companies it thinks will help it maintain its dominance as the world’s largest social network.

As with Instagram and WhatsApp, Facebook plans to operate Oculus as an independent entity. It will remain based in Irvine, California.

Mr Zuckerberg said the recent rate of acquisitions “will certainly not continue”.

With more than 1.2bn users, Facebook has the potential to popularise virtual reality which has until now been seen as too clunky and geeky for the general user.

Mr Zuckerberg said he felt Facebook was ready to move on from its focus in mobile to the next platforms which will enable “even more useful, entertaining and personal experiences”.

In a call with analysts, he played down Facebook’s entry into consumer devices. “We are clearly not a hardware company. We do this as a software and services thing,” he said, suggesting that Facebook could show advertising in Oculus’ virtual worlds.

Oculus complements Facebook’s long-term plan to build out the “knowledge economy” into new technology platforms, he said, putting it alongside other 10-year ventures such as Internet.org, for bringing connectivity to remote parts of the world, and its research into artificial intelligence.

James McQuivey, analyst at Forrester, said virtual reality was destined to remain a niche technology. “Facebook’s acquisition of Oculus seems motivated more by fear than by good business alignment,” he said. “Facebook missed the shift to mobile and has played catch-up ever since.”

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Financial Times: Tim Bradshaw and Hannah Kuchler: Facebook bets $2bn on virtual reality March 26th 2014