Facebook’s investment into Instagram and WhatsApp was in an area where the company already has experience, messaging. Much as the company’s interest in Oculus is may seem alien to its business and can be compared to Google’s acquisition of Android in 2005. Both form investments into future platforms – Android represents mobile platform and Oculus, the virtual reality platform.
Discussions between the 2 companies began several months ago with Facebook valuing Oculus VR at $1.5 billion three months ago. Oculus CEO demoed the Rift to Mark Zuckerberg back in February. “The initial expectation wasn’t that he was coming down to acquire us. He just wanted to see what we were up to.” – Brendan Iribe, Oculus VR CEO.
Oculus VR was founded by Palmer Luckey, getting its initial funding from supporters on Kickstarter at $2.5 million. The company later got funded by VC’s in a campaign led by Andreesen Horowitz raising $75 million. The Oculus Rift prototype sold at $300 with developers ordering 75,000 units, the last developer version of the headset was released at the GDC 2014 for pre-order with a $350 price tag. A consumer version of the VR headset is next in the production roadmap and the newly found commitment from Facebook promises the mass production of an affordable VR headset. Facebook values Oculus at $2 billion, of this $400 million will be in cash. The rest of that money broken down: 23.1 million shares of Facebook common stock, $300 million earn-out in cash and stock based on future performance
The deal had initially been resisted by Oculus VR investors upon fears that the compnay would lose its independence under the social media giant. The buy-out however provides Oculus with enough resources to achieve its target of bringing VR to the consumer market. Its long term goal is to create an affordable VR experience and make this available in a small form factor.
“A decade or two from now, it will be nothing but sunglasses. You’d put them on and have this new virtual world.” Iribe said while speaking to Re/Code’s Eric Johnson.
Development for the VR headset is now set to go beyond gaming platforms now that Oculus has won confidence as a technology built for the future. “While the applications for virtual reality technology beyond gaming are in their nascent stages, several industries are already experimenting with the technology, and Facebook plans to extend Oculus’ existing advantage in gaming to new verticals, including communications, media and entertainment, education and other areas,” says Facebook in a press statement.
So far development of the VR headset has been driven by the mobile market. Components used to create the Rift are not particularly optimized for the headset but for the smartphones. Through Facebook’s support, Oculus can now scale up production and acquire hardware built specifically for VR therefore creating the product in greater volumes. The risk of investing in VR has now also been greatly reduced – this had been part of the reception given to Project Morpheus (“[…] with Sony getting in the mix, it really does mean there’s going to be a bigger audience, there’s going to be more people that can buy games,” Oculus VR co-founder, Nate Mitchell while speaking at Develop).
“We are excited to work with Mark and the Facebook team to deliver the very best virtual reality platform in the world. We believe virtual reality will be heavily defined by social experiences that connect people in magical, new ways. It is a transformative and disruptive technology, that enables the world to experience the impossible, and it’s only just the beginning.” – Brendan Iribe.
Oculus headquarters remain in Irvine, CA with the transaction expected to close in the second quarter of 2014.