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 The social networking company's $2 billion acquisition of Oculus VR,
a maker of virtual reality goggles, took Wall Street and technology
observers by surprise, not least because of the hefty price for a
company with no real revenue and untested technology.
But Facebook's desire to bet on "the platforms of tomorrow," as
Chief Executive Mark Zuckerberg described the deal on Tuesday, also
marks a broadening of ambition for a company that has until now
focused mainly on bolstering its existing service or defending its
turf from immediate threats.
It's a strategy more often associated with Facebook's arch-rival
Google Inc, which has established a track record of making early
bets on the next big thing. Google acquired the Android software
that now powers three out of four smartphones in 2005 when PCs were
dominant, and Google currently has projects under way involving
self-driving cars and robots.
"It's really the first acquisition of theirs which is really
thinking about the future, versus the next wave of products or
defensive," venture capitalist Jeff Clavier said of Facebook's deal
for Oculus.
"I don't know whether Oculus is as exciting as driverless cars or
things like that in terms of impact. But at least it's a future
technology that will definitively be mass market at some point,"
said Clavier, the founder and managing partner of Palo Alto-Calif-based
SoftTech VC.
Investors seemed unsure about Zuckerberg's crystal ball. Shares of
Facebook were down more than 6 percent at $60.70 in late trading on
Wednesday.
The deal, which comes less than two months after Facebook announced
plans to acquire Whatsapp for $19 billion in cash and stock, raised
fears about the beginnings of an unchecked spending spree.
"I'd be surprised if a lot of people want to spend serious time with
goggles that shut the world out entirely," said industry analyst
Roger Kay, who wrote a post on the Forbes website on Wednesday that
began "OK, I'll come right out and say it: Mark Zuckerberg is
nuts."
CRYSTAL BALL-GAZING
Detractors warn that Zuckerberg is spending shareholders' cash on a
2-year-old company that's first prototype was infamous for inducing
motion sickness, though Oculus says it has largely ironed out the
kinks. Though it has distributed some 75,000 development kits to
interested developers, it has yet to ship an actual, consumer-ready
product.
Facebook will spend $400 million in cash on the deal, with the rest
in stock. With Facebook's stock up 25 percent over the past six
months, some said it was not surprising that the company was
choosing to use its stock to place some bets on the future.
As a percentage of Facebook's nearly $160 billion market value, the
Oculus acquisition is not a "bet the company" deal, said Macquarie
Research analyst Ben Schachter.
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The most surprising thing about the Oculus acquisition was that the
buyer was Facebook, and not a hardware company like Apple Inc, said
Schachter. "It's Facebook emphasizing a much broader ambition than
people perhaps had realized," he said. Despite some of the market's
skepticism, Schachter said he believed Oculus could be a good fit
for Facebook's communications services.
"People always underestimate the value of these things when they
show they are going to be the winning platform," said Joe Lonsdale,
a founding partner of venture capital firm Formation 8, which
invested in Oculus.
Until now, Facebook's biggest deals have focused on fortifying or
defending its social networking service. Photo-sharing service
Instagram and mobile messaging app WhatsApp both competed with key
aspects of Facebook, threatening to siphon users away from
Facebook's advertising-supported website.
It recently stepped up its investments in artificial intelligence.
And Facebook was reported earlier this month to be looking at buying
drone company Titan Aerospace for $60 million, as part of an effort
to deliver online access to people in under-developed parts of the
world.
Google meanwhile, has an entire "Google X" division focused on "moonshot"
projects ranging from wearable computers to airborne wind turbines.
Working on far-reaching technology projects is a good way to
motivate engineers and to retain employees, said SoftTech VC's
Clavier.
And in the fast-moving technology industry, focusing only on today's
business can be dangerous.
"As a Larry Page or a Mark Zuckerberg, you have to be paranoid and
think about who and what is going to displace you and make you
obsolete," Clavier said, referring to Google's chief executive
officer.
"You have to build that next thing or you have to buy that next
thing before it happens. Because by the time it happens, it's too
late."
(Additional reporting by Sarah McBride; editing by Edwin Chan and
Cynthia Osterman)
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