Palmer Luckey, inventor of the virtual reality headset Oculus Rift, was literally hacking VR goggles in his garage 18 months ago. Now, he’s a billionaire. A little over a month after paying $19 billion for messaging firm, WhatsApp, Facebook said it would acquire Luckey's Oculus for a cool $2 billion (making it the first Kickstarter campaign to accomplish the feat).
The technology, the story, and its heroes (a group of gaming geeks resurrecting virtual reality) won the respect of developers and gamers alike—which is probably why the Facebook acquisition was greeted with a chorus of boos and hisses.
Meanwhile, developer Markus Persson pulled the plug on a recent agreement to make his game, Minecraft, Rift-compatible, saying, “[Facebook's] motives are too unclear and shifting, and they haven’t historically been a stable platform. There’s nothing about their history that makes me trust them, and that makes them seem creepy to me.”
So, why would a social networking firm like Facebook buy a virtual reality company?
In a blog post, Oculus admits it might not be obvious, then cites cultural compatibility, a commitment to top quality talent, and desire for a more open, connected world. (I read this as, they're not sure either.)
Facebook CEO, Mark Zuckerberg, meanwhile, wrote in a Facebook post that gaming will come first. But beyond gaming, he thinks VR may be the next big computing platform and wants in on the ground floor.
"Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face—just by putting on goggles in your home."
Although these are activities people do with other people (or avatars, as it may be), they aren't social networking. We're talking cinema, sports, telepresence, online ed. The question remains—why Oculus?
Facebook bought Oculus for the same reason Google bought eight robotics firms last year. Obsolescence happens fast—firms flush with cash and healthy share prices hope to cheat death with acquisitions. The acquired companies needn't be connected to the central product, and in fact, as a hedge, it's better if they're different and forward looking.
Some of the oldest tech companies became conglomerates to stay alive. General Electric was originally a light and power company—now you’d be hard pressed to name all the widely varying products in its portfolio. It's a concept any retiree will recognize. Social networking may not be all that in a decade. Diversify to minimize risk.
I'll admit, I would have loved to see Oculus go it alone. And frankly, I’d rather have seen a different company make the acquisition (for all kinds of totally biased reasons). But it’s just business for Facebook. And really, it's just business on the other side of the deal too.
The Rift’s potential fires the imagination, but the devil’s in the details. The Rift requires a powerful computer to run, limiting the market. It lacks a good selection of games. And the final design and manufacturing process are big unknowns. Nothing insoluble, but there was certainly no guarantee they'd deliver on the hype.
Leap Motion, a Kinect-like computer interface, is a recent example of how difficult it can be for a piece of hardware to live up to big expectations. The tech was promised as a potential replacement for the mouse and maybe even touchscreen.
Leap expected sales of 5 million devices last year. But after selling more like 500,000, they’ve since had to lay off employees. Now, they’re aiming further down the road—like ten years further—to fully realize their potential. Their technology is cool and could well prove useful in a number of applications. It just hasn't been fully fleshed out yet.
With the clock ticking, expectations and pressure building, and Sony unveiling its own VR prototype, Oculus accepted $2 billion in cash and shares, $300 million in incentives, and the promise of independence and resources.
Having never looked $2 billion in the face, it’s easy to call that a sell-out. But many a purist has a price—they just don’t know what it is until they see it.
Now that they've pulled the trigger, will either party live to regret it? Oculus will, of course, need to continue along its current trajectory. But there’s nothing hungrier than a fledgling firm trying to make its mark. They'll need to fight to stay lean, mean, and focused, amid changes that might be, let's say, a touch distracting.
And no matter how much lip service is paid to independence, ownership means control and control may mean politics and doing what’s best for the larger organization. At some point, Facebook may look at their balance sheet, and if Oculus isn’t in the black, they may change the product or simply break it down for parts.
After spending some $12.5 billion on Motorola, Google recently sold the firm at a loss—after stripping away its most valuable intellectual property and talent.
Ultimately, saying no to would-be buyers is the only surefire way to avoid compromising vision. Some of today’s biggest names in tech chose that path early on.
Facebook turned down a $1 billion offer from Yahoo in 2006, and Twitter turned down $500 million from Facebook a mere two years later. Both firms recently went public—within a year and a half of each other—and today they boast market caps of $165 billion (Facebook) and $28 billion (Twitter) apiece.
But it doesn’t always pay off, even if a company has the vision right. Execution is more than half the battle. Friendster, for example, believed they’d bring social networking to the masses and rejected a $30 million offer from Google in 2003.
They were right about social networking’s potential popularity, but dead wrong that they’d be the ones to make it happen and faded from the scene long ago.
Oculus may well be right about virtual reality (we think they are), but the question remains, would they have made it happen alone? Or would they have started a trend only to see it dominated by later, greater execution? In the end, it's a moot point. And you don't have to be a fan of Oculus's decision to be a fan of what they've started.
Sony cites Oculus as a reason it decided to push forward with its Project Morpheus virtual reality goggles. Meanwhile, Valve recently unveiled a VR prototype that by some accounts is every bit as good as the Rift. The prototype was originally meant for research only—research to be shared with Oculus. That partnership may hold up, or the Facebook acquisition may convince Valve to make their own hardware.
And you can bet there will be other competitors soon too. The Facebook deal may or may not help Oculus achieve its aims—but whatever the outcome, it seems clear recently renewed interest in virtual reality is set to continue apace.