Facebook spends US$2 billion on virtual reality firm, but analysts are sceptical

Sharon Gaudin
26 March, 2014
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Facebook said late on Tuesday that it is shelling out US$2 billion to scoop up a company that makes virtual reality gaming glasses.

That’s a hefty price to pay for a company that has not yet released a consumer-ready product, analysts said.

Facebook reached an agreement to buy Oculus VR Inc. for US$400 million in cash and 23.1 million shares of Facebook common stock, which today is valued at a total of US$1.6 billion. The deal, Facebook noted, includes an added US$300 million earn-out in cash and stock if certain milestones are reached.

Oculus is working on a new virtual reality headset, the Oculus Rift, which is designed to give gamers a 100-degree 3D field of view. While the headset is not yet available, the company is taking pre-orders and has released a developer kit for it.

According to Facebook, Oculus has received more than 75,000 orders for its development kits.

The social network also reported that executives there plan to extend Oculus’ reach from gaming to new verticals, including communications, media and entertainment and education.

“Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow,” said Mark Zuckerberg, Facebook’s co-founder and CEO. “Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.”

Facebook has become a popular gaming platform, with users spending a lot of their online social time playing games like Farmville 2, Candy Crush Saga and Texas Holdem Poker.

Getting into an immersive virtual reality game is a whole different prospect, however, according to Patrick Moorhead, an analyst with Moor Insights & Strategy.

This also marks the first time that Facebook has acquired a hardware company – and that will represent a different kind of challenge for the social network.

“Oculus does virtual reality headgear for PC games and that’s a far cry from Facebook and what they are doing today,” said Moorhead. “I do think Oculus is worth US$2 billion, but just not to Facebook. Farmville on Facebook and Call of Duty on Oculus is night and day difference.”

He added that he just doesn’t see a virtual reality game flying on Facebook.

“Facebook games are 2D, casual games,” said Moorhead. “There’s nothing immersive about them. Oculus literally sucks you into the action as if you are actually there. I can’t envision a Facebook gamer wearing virtual reality goggles… I don’t see this as a good move for Facebook. I expect them to underutilise the opportunity.”

Zeus Kerravala, an analyst with ZK Research, also called the purchase a bad move for the social network.

“Well, this is just a huge price tag for a company that hasn’t shipped anything yet,” he added. “And this isn’t something for the likes of Flappy Bird. This is for hardcore gamers. Plus, this puts them in the hardware market. I think this is a bad move.”

Facebook said the Oculus team will continue working on its headset out of its headquarters in Irvine, California.

The acquisition is expected to close in the second quarter of this year.

by Sharon Gaudin, Computerworld

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