It’s a bold move for a social media giant to buy a virtual reality company in the gaming space.
But that’s what Mark Zuckerberg believes he needed to do in order to stay ahead of the market. On his Facebook wall today, the young leader explained they were late to mobile — and they’ve done a lot to catch-up — but he never wants to be in that position again.
To that end, Zuckerberg has decided to bet $400 million in cash and $1.6 billion of the company’s stock on Oculus VR. (See all the details here.)
“We have a lot more to do on mobile, but at this point we feel we’re in a position where we can start focusing on what platforms will come next to enable even more useful, entertaining and personal experiences,” Zuckerberg wrote.
The Irvine, Calif. based start-up is known for producing the Oculus Rift virtual reality display, which was the result of a wildly successful Kickstarter campaign. It has received strong support from developers strong interest among developers, having received more than 75,000 orders for development kits for the company’s virtual reality headset, the Oculus Rift.
“In the history of our industry, every 10 to 15 years there’s a new platform: PC, Web, or mobile. History suggests that there are more platforms to come. Mobile is the platform of today, and now we are starting to get ready for the platforms of tomorrow,” Zuckerberg said during the conference call announcing the acquisition. “It’s a long-term bet on the future of computing, and Oculus will be one of the platforms of the future.”
Facebook plans to bring Oculus’ technology to verticals outside gaming, including communications, media and entertainment, education and other areas. Given the broad number of applications, Facebook argues that the virtual reality technology is a strong candidate to emerge as the next social and communications platform.
“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,” Zuckerberg said. “Oculus has the potential to be the most social platform ever.”
But future proofing the company, and overspending for technology that will never hit the mass market are two different things. Analysts challenged the Facebook management team on the conference call about what the commercial applications will be for Oculus and how the market should perceive these large acquisitions the company is making.
Zuckerberg said the company’s $1 billion acquisition of Instagram is a perfect example. Two years ago, he said it was their objective for the photo-sharing mobile app to hit 100 million users. Already, it’s hit 200 million. Facebook’s CFO David Ebersman said the strategy for these companies to be the most successful is to leave them alone and “execute their road map, and taking advantage of Facebook when it makes sense.”
Besides Instagram, Facebook agreed to acquire WhatsApp for $16 billion last month, although the deal has not closed yet. During the call, Zuckerberg said frequent billion-dollar is rare, and the current rate at which they are making them won’t continue.
Zuckerberg did hint at how Oculus could make money, and it won’t be on hardware. “It’s a software and services thing, we won’t make a profit off the hardware…We need to figure that out down the line. The foreseeable future is about building product, and using the different levers to make it affordable and ubiquitous.”
Fortunately, the company does have the cash to make these bets. As of the end of 2013, it had cash and marketable securities of $11.45 billion.