Innovation

Is Zuckerberg Nuts To Spend $2B on Oculus VR?

Is Zuckerberg Nuts To Spend $2B on Oculus VR?
March 26, 2014 10:29AM

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The Oculus Rift has huge potential as a gaming platform, said analyst Greg Sterling, but he'll wait and see whether Facebook can further develop and popularize virtual reality as a communications and entertainment platform. He said Facebook's deal to buy Oculus VR for $2 billion is "a big speculative bet that VR can become a mainstream phenomenon."

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In a move that sparked one analyst to call CEO Mark Zuckerberg "nuts," Facebook is acquiring Oculus VR, the immersive virtual reality technology company. The price is about $2 billion, which includes $400 million in cash and 23.1 million shares of Facebook common stock.

Whether or not Zuckerberg is nuts, as Roger Kay, principal analyst at Endpoint Technologies Associates, insists, remains to be seen. One thing is certain: Oculus is developing as a heavy hitter in immersive virtual reality technology. The company has established plenty of interest among developers, having posted more than 75,000 development kit orders for the Oculus Rift, its virtual reality headset.

"Mobile is the platform of today, and now we're also getting ready for the platforms of tomorrow," Zuckerberg said. "Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate."

Virtual's Role in Social Media

Zuckerberg seems utterly convinced. He must be, or he wouldn't be investing $2 billion in the company. The company announcement noted that several industries beyond gaming are experimenting with virtual reality technology. Facebook aims to extend the technology into some of those verticals, including communications, media and entertainment, and education.

The big picture for Facebook is that virtual reality technology is a strong candidate to emerge as the next social and communications platform. Brendan Iribe, co-founder and CEO of Oculus VR, certainly believes that.

"We believe virtual reality will be heavily defined by social experiences that connect people in magical, new ways," Iribe said in a statement. "It is a transformative and disruptive technology, that enables the world to experience the impossible, and it's only just the beginning."

We caught up with Greg sterling, principal analyst at Sterling Market Intelligence, to get his take on the mega-buy. He pointed out to us that Facebook called virtual reality "the platform of tomorrow."

"The deal is mostly stock so it's not quite as expensive to the company as it appears," Sterling said. "Still, it's a big speculative bet that VR can become a mainstream phenomenon."

Zeus' Lightning Bolt

From Sterling's perspective, Oculus VR has huge potential as a gaming platform -- but he'll wait and see whether Facebook can further develop and popularize VR as a communications and entertainment platform.

"I suspect there will be many useful enterprise and commercial applications of VR over the next several years, even if it doesn't capture the public's imagination," Sterling said. "It's also interesting as a further step into the 'real world' for Facebook and especially in the context of Facebook seeing itself as a mobile-first company.

But Kay's not buying -- and he believes Facebook should not have, either. The company has no revenues, no product on the market and unproven technology, he said.

"My conclusion on the Oculus deal: I guess we have to expect arbitrariness from Masters of the Universe," Kay quipped. "Facebook's purchase of Oculus is like Zeus killing a few random people with a lightning bolt; it's just something to do on a Tuesday afternoon."

Oculus will maintain its headquarters in Irvine, Calif., and will continue development of the Oculus Rift. The transaction is expected to close in the second quarter of this year.

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