Tech companies have often boasted about having broader markets than game companies, while game makers brag about having the most engaged and financially lucrative audiences of all. Now Facebook’s $2 billion acquisition of Oculus VR will marry the social network with the hardcore tech and gaming. That’s a wake up call for anyone who thinks that the markets for tech, social, and gaming are completely separate categories.
In other words, this is a lot more than putting FarmVille into virtual reality.
The reality is that while gaming has always been viewed as a niche market, it has blossomed in the age of digital and Internet technologies to become one of the most sticky activities of all. And Oculus is working on a technology that, in its grandest ambitions, could turn everybody into a gamer. On top of that, it could lead to applications that are entertaining without having anything to do with games. The deal has the potential to weave the once separate futures of gaming, social networks, and computing into one. After all, who doesn’t want to play around in the equivalent of the Star Trek Holodeck, where it’s hard to tell the virtual from the real.
“With Oculus, there are not that many companies that are building core technologies that can be the next major computing platform,” said Mark Zuckerberg, chief executive of Facebook, in a press call after the deal was announced on Tuesday.
Brendan Iribe, CEO of Oculus VR in Irvine, Calif., echoed Zuckerberg’s comments about the broader nature of the gaming technology.
“We think there is a really great opportunity,” Iribe said, in an interview with GamesBeat. “We knew gaming would be huge. But there is an opportunity to be one of the biggest and best social communications platforms of all time. Who better to partner with than the largest social communications platform in the world?”
In an interview with GamesBeat, Iribe said that Zuckerberg was fascinated by the technology and asked to see it. He got along well with Iribe, founder Palmer Luckey, and executive Nate Mitchell. He visited Oculus for an extended demo and then asked how he could help. Iribe and team wanted to figure out a way to accelerate the acceptance of virtual reality among the masses. The idea for an acquisition came up and the deal was struck in three days.
“That’s how accelerated it was,” Iribe said.
The companies are a long way away from making their vision happen. Oculus will probably live or die based on how well it serves gamers. If it succeeds, then it can expand to satisfy virtual reality fans in entertainment (virtual cinema), education, healthcare, and other areas. And Facebook didn’t care so much about making money on the hardware. Since it makes money in other ways, it can launch the best-in-class virtual reality headsets for cost, Iribe said.
The combination of the tech, game, and social network industries has already been happening. Facebook rose to popularity on the strength of social games from companies like Zynga. Smartphones and tablets have taken off thanks to the tremendous popularity of the app stores, where most of the revenues come from games.
If virtual reality works properly, it just might bring socialites and geek gamers — the stereotypes that are inescapable — together. The gamers can enjoy the immersive experience of being in a virtual world. The socialites can chat with friends and watch virtual cinema together.
Many platform owners have minimized the importance of games. Steve Jobs started his career making a game, Breakout, with Steve Wozniak for Atari. But he grew to detest games and rarely acknowledged its contributions to the bottom line of Apple. In that way, the platform owners seemed to behave like accidental gaming empires. The intentional gaming empires — Sony, Microsoft, Nintendo, and Valve — were perfectly happy owning the gaming market. But in recent years, the accidental empires have shown the capacity to disrupt traditional gaming. After all, a free-to-play game is a lot more accessible than a $60 console game.
The initial public offering of King reinforces this point, as King’s Candy Crush Saga is one of the most accessible games ever made with 97 million daily active users. It is a huge game, and evidently hot enough to enable King to go public at a $7 billion-plus valuation.
Until now, Facebook has been a company that has been a lot broader than gaming. It acquired WhatsApp for $16 billion-plus to move into mobile messaging networks, which are replacing text messages and email. The Oculus deal is about a technology that will come in useful in the future.
Now Facebook-Oculus will compete directly with Sony, which showed off its virtual-reality headset, Project Morpheus, last week at the Game Developers Conference in San Francisco. Those who saw Sony’s tech felt like it was behind Oculus VR’s, but Sony is good for Oculus because it is sure to push the technology faster as a result of a competitive maelstrom. Facebook is likely to accelerate the technology further.
Also at GDC last week, Oculus debuted its Oculus Rift Development Kit 2, which fixed many of the problems associated with gamers getting seasick from the motion of the headset. I wore the DK2 headset, and it didn’t make me nauseous at all. Some 75,000 people have worn the headset, and many of those have bought developer kits to make games for the platform.
While the Rift isn’t perfect, the thing that Facebook and investors saw was that it was making rapid progress toward its goal of creating an immersive, believable experience. The DK2 got rid of motion blur, one of the primary problems that contributes to motion sickness. Still to come are a graphics solution that gets rid of pixellation, or the notion that you are looking through a screen door at the world, and a solution that works well with your hands, such as the Sixense motion controllers.
“The Oculus product that they have now is way ahead of anything else that’s out there,” Zuckerberg said. “Sony I think has demo’d something very early, and Microsoft hasn’t even gotten to the point where they have something to demo yet.”
“Unlike the Microsoft or Sony pure console strategy, if you want to make this a real computing platform, you need to fuse both of those things (gaming and social) together,” Zuckerberg added. “That is opportunity that we saw in working together, to transcend the traditional console opportunity to really make it more of a ubiquitous computing platform.”
The speed of Oculus VR
Oculus has had the lead since Palmer Luckey showed off the working prototype of the Oculus Rift in mid-2012. He won over John Carmack, the legendary graphics wizard and programmer at id Software, maker of Doom and Quake. After Carmack demoed the tech to press at the Electronic Entertainment Expo (E3) show in June 2012, Oculus started to become hot. It hooked Iribe as CEO and raised millions in a Kickstarter campaign.
In the summer of 2013, Oculus raised $16 million in venture capital. At the same time, tragedy struck. Oculus VR co-founder Andrew Reisse was struck and killed by a car that was fleeing the police while he was in a cross walk. His death brought everything to a halt at the close-knit startup. The funding announcement was put on hold and work on the HD demo for E3 halted. The team gathered a memorial for Reisse and helped support his family. But the company rallied together and employees at Epic Games, the partner on the virtual reality project, flew out to finish the job that Reisse was leading.
With the help, Oculus VR was able to meet its milestones. Developers began buying its prototypes by the thousands. As its momentum grew, Carmack joined the company to work on a mobile version of the Rift. Each new prototype was better, and Netscape founder Marc Andreessen’s Andreessen Horowitz led a $75 million investment round last December. That put Oculus into a much higher realm of public consciousness.
In all that time, Oculus hasn’t yet shipped a consumer unit. And it still hasn’t scheduled the final launch date, as it still has to address issues such as creating crystal clear graphics on the device’s screen. This evidently meant that Oculus, which less than two years old, wasn’t moving fast enough. And so further acceleration was in order, by means of an acquisition.
Zuckerberg suggested that the virtual reality platform could be important in five to ten years.
Zuckerberg said, “There are not that many things that are candidates to become the next great computing platform. This company Oculus has a very clear lead in doing that, and we felt that we could apply a lot of leverage to accelerate their growth.”
Zuckerberg noted that Oculus had already acquired many of the best people in the industry. The acquisition of Oculus doesn’t mean that all of this is going to come to an end.
An industry reacts
The fact that Carmack, a pioneer of 3D gaming, will now be working for Facebook is one of the odd byproducts of this acquisition.
In a tweet, Carmack said, “I have a deep respect for the technical scale that Facebook operates at. The cyberspace we want for VR will be at this scale.”
Facebook is betting on the technology in a way that seems like it is competing with Google Glass, the glasses-like headset that allows you to look at a display while you’re walking around the real world, said Phil Sanderson, a partner at the IDG Ventures venture capital firm.
“WhatsApp is strategic and immediate, but Oculus is speculative and long-term for Facebook,” Sanderson said. “I believe Oculus would have more of a chance if it weighed 44 grams like Google Glass. It reminds me of much of the virtual reality companies we saw in the late 1990s. The tech is better, but the ‘chassis’ form factor is not.”
Billy Pidgeon, a longtime gaming analyst, said, “The Oculus buy is exciting because its potential is larger than the games sector and because telepresence, virtual reality, and augmented reality are past the hype bubble and are close to ready for the consumer market. Still, it’s early enough that there is plenty of overhead for developers of all sizes and types and for a variety of service providers. Also there are other big players moving around these technologies, including platform-based plays from Google, Apple, Sony and (probably) Microsoft. Beyond the games sector, there’s an inherent connection to broad applications in consumer and enterprise sectors, including wearables in general, communication, localization, retail, and personal networks.”
Meanwhile, Peter Relan, head of the 9+ technology accelerator firm and a frequent game investor, said, “The tech industry has always underestimated the new gaming industry. The fact is it’s the majority of Apple’s App Store revenues, and it’s no more of a hit business than any mobile consumer service start up. Most of those fail too.”
Owen Mahoney, chief executive-elect of Asian online games giant Nexon, said, “Once again we’re seeing that what is moving the industry forward is not coming from the usual quarters but from teams that care deeply enough about games and gameplay to try things that are very different than what had already been in the market. Both Rift and [King’s Candy Crush] are deceptively similar to things that were tried in the past, but are in fact very differentiated.“
Margaret Wallace, CEO of Playmatics, said that the Oculus and King news were a “double rainbow” for gaming. But the double rainbow could also be a mirage.
Some gamers will be suspicious about what Facebook will do with their favorite gaming platform. Markus “Notch” Persson, the creator of Minecraft, said in a post he is very excited about virtual reality, but distrustful of Facebook.
“I understand this is purely a business deal, and I’d like to congratulate both Facebook and the Oculus owners,” Persson said. “But this is where we part ways.”
Luckey said in an interview that the knee-jerk reaction to the notion of Facebook buying Oculus is puzzlement.
“Facebook and Oculus are not the obvious fit,” he said. “Almost every developer we are working with has had a good reaction. Notch is the exception to the rule. Once he sees everything that we are going to do, I hope he will change his mind.”
Rick Thompson, former chairman of Facebook game developer Playdom and now partner at venture capital firm Signia Venture Partners, also viewed the deal skeptically.
“If Oculus was worth $2 billion, it is not anymore,” Thompson said. “Facebook does not get gaming and as a platform. Facebook has been hostile to gamers as well as game developers. Both have been burned. This is a setback for gaming and Oculus will now have a much harder time attracting developers to Rift.”
Nate Mitchell, another founder of Oculus, said in an interview, ” We know that virtual reality goes beyond games. I’ve talked about it with you. Brendan has. Facebook really gets that. One of the more exciting things about the partnership is that people don’t think of Facebook really as a gaming company.”
He added, “Brendan, Palmer and I — none of us play Facebook games. We are hardcore gamers. Part of this is we want to teach Facebook about games and game development, just as much as they are going to help us on platforms, social, scalability, and operating at a whole new level. When these partnerships happen, it only works and is healthy if we bring something new to the table. I couldn’t think of a better partner than Facebook.”
For sure, the Facebook-Oculus combo won’t be the only virtual reality gaming solution. Competitors are sure to arise. And that competition is going to be good for both gamers and nongamers, whose interests, oddly enough, may very be one in the same.