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 The acquisition, which comes hot on the heels of its $19 billion
deal for messaging service WhatsApp, 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.
The world's largest social network was deemed late to recognize the
shift to mobile devices and the company's revenue has only recently
begun to recover from the late start.
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.
On Tuesday, Facebook said virtual-reality technology could emerge as
the next social and communications platform.
"The history of our industry is that every 10 or 15 years there's a
new major computing platform, whether it's the PC, the Web or now
mobile," Facebook co-founder and Chief Executive Mark Zuckerberg
said in a conference call with analysts and media on Tuesday to
discuss the acquisition.
"We're making a long-term bet that immersive, virtual and augmented
reality will become a part of people's daily life," the 29-year-old
Zuckerberg said, noting that wearing the Oculus goggles was
"different than anything I've ever experienced in my life."
Zuckerberg said Facebook was not interested in becoming a hardware
company and did not intend to try to make a profit from sales of the
devices over the long term. Instead, he said Facebook's software and
services would continue to serve as the company's underlying
business, potentially generating revenue on Oculus devices through
everything from advertising to sales of virtual goods.
While Oculus will operate as an independent company, Zuckerberg
stressed that Facebook's plans for Oculus extended well beyond
games.
"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," he said.
In addition to game makers, Oculus has garnered some interest from
developers keen on creating apps in areas like architecture,
automobiles, marketing and education, the company has said.
Shares of Facebook, which have risen 25 percent in the past six
months, were down nearly 1 percent at $64.36 in late trading on
Tuesday.
Facebook's recent spate of acquisitions is somewhat concerning, RBC
Capital Markets analyst Mark Mahaney wrote in a note to investors on
Tuesday. But he said that for a company of Facebook's size, the deal
did not seem "irrational."
"The question this time is whether Facebook is too early or simply
betting on the wrong platform. This won't be known for some time.
But if it gets the platform right, we're relatively confident that
Facebook will develop an effective monetization strategy for it,
thus boosting its overall financial growth," Mahaney said.
HAPPY, GO LUCKEY
The acquisition makes Oculus VR one of the most successful companies
or projects to ever 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.
Oculus VR, founded by Palmer Luckey, a self-described
virtual-reality enthusiast and hardware geek, got its start as a
Kickstarter-funded program, drawing small investments from thousands
of people on the popular fund-raising platform.
It quickly drew attention to its "Oculus Rift" virtual-reality
glasses, demoed at tech and gaming conventions around the country.
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Oculus VR raised $75 million in December in a round led by
Andreessen Horowitz, to market its virtual-reality headset for video
games and develop the product for use in areas like education, film,
architecture and design. Andreessen Horowitz partner Marc
Andreessen, who is also on Facebook's board, said in a tweet on
Tuesday that he was recused "on both sides" of the Facebook Oculus
deal.
Other venture capital backers included Spark Capital, Formation 8
and Matrix Partners. Oculus now employs more than 100 people and has
distributed some 75,000 software development kits for Oculus Rift to
game developers and others.
It recently began taking orders for new software development kits
with better graphics and features to reduce motion sickness — a
frequent complaint of the old prototype — slated to ship in July for
$350 apiece.
Oculus plans to produce commercial versions of its virtual-reality
glasses, called Oculus Rift, which users mount on their heads with a
strap. It also hopes to take its technology beyond gaming.
"Virtual reality creates a canvas that is much richer than anything
we've seen in computing so far," Antonio Rodriguez, Oculus board
member and general partner at Matrix Partners said in an interview
with Reuters on Tuesday.
He said virtual reality presents an opportunity to re-imagine
various tasks and social interactions in areas like medicine and
education.
So far, "people have done all sort of apps (outside gaming) like
body switching apps, where two bodies are scanned and you can switch
identities.
Last week, Sony unveiled a prototype for a new virtual-reality
headset accessory for its Playstation 4 games console at the annual
Game Developers Conference in San Francisco. The headset, still in
development under the name "Project Morpheus", is designed to
provide an immersive experience for gamers and is poised to compete
with Oculus' Rift once both devices are on the market.
DEAL SPREE
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.
Zuckerberg said on the call the two deals involved "incredibly rare
companies" and that Facebook was unlikely to continue making big
acquisitions at a similar pace.
Facebook ended 2013 with $11.45 billion in cash and marketable
securities. The company's $19 billion acquisition of WhatsApp
includes $4 billion in cash. The Oculus deal comprises $400 million
in cash and 23.1 million shares of Facebook common stock.
Finance Chief David Ebersman said 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.
(Additional reporting by Lehar Maan in Bangalore, writing by Edwin
Chan; editing by Don Sebastian, Andrew Hay and Ryan Woo)
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