Mobility

Roundtable: Facebook's $2 billion long-term bet on VR

Analysts and tech experts share their opinions on what Facebook's purchase of Oculus really means to the future of VR and crowdfunding.

oculus1.jpg
Oculus Rift VR headset
Credit: Oculus VR

Facebook's $2 billion purchase of Oculus VR has gotten plenty of attention as the tech community debates what it means to everything from the future of virtual reality, to gaming, to crowdfunding.

There has been a burst of negative responses to the purchase, which was announced on Tuesday. More than 9,500 people gave $2.4 million in Kickstarter backing in August and September 2012. The funding was to help Oculus fund the Rift, a VR (virtual reality) headset. The headset won Best of Show at CES 2014 in January.

The mindset of many of those who funded the Kickstarter campaign was that they were supporting a cool new venture, not a Silicon Valley giant. Hence the negativity toward the acquisition.

In a roundtable conversation, TechRepublic talked to analysts and others in the field, to find out their thoughts on the acquisition and the future of VR. Participants included:

  • Brian Ballard, CEO and founder, APX Labs
  • Kurt Elster, creative director, Ethercycle
  • Benjamin Lang, founder and executive editor, Road to VR
  • Chris Nicholson, head of communications, Celery
  • Jim Rapoza, senior research analyst and editorial director, Aberdeen Group
  • Patrick Salyer, CEO, Gigya
  • Ashish Singal, founder and CEO, Web Espy
  • Andrew Stephen, Ph.D., assistant professor of business administration, Joseph M. Katz Graduate School of Business, University of Pittsburgh

TechRepublic: What does the Oculus deal mean to the early Kickstarter backers?

Ballard: I'm familiar with Kickstarter because one of our joint ventures just did a crowdfunding campaign. People who fund a Kickstarter campaign aren't investors at all. That would violate SEC rules. They're paying for a reward. In this case, getting oculus to send them headset kits. These people who are backing it are hoping that this accelerates the adoption and access to true VR gaming. I think that Oculus will succeed in that, and a company like Facebook with more cash assets will help them move to market more quickly. Backers will get what they want out of it. There will be short-term changes, but overall this will be a great thing for the backers.

Lang: Kickstarter is not an investment platform, it's a pre-order platform that's designed to crowdfund products, not companies. When supporters of the Kickstarter put their money toward the Kickstarter, they knew exactly what they were promised in return depending upon how much money they put in. For most, who put in $300, that was the Oculus Rift developer kit (also called the DK1) and Oculus delivered that product to them. Once it was delivered, Oculus had no further obligations to those backers. Now of course, those same backers are still very interested in the fate of the company because many of them are developers who want to make virtual reality games and experiences for the Oculus Rift. So what does the deal mean for them? In my view, it means Oculus has significantly more resources to achieve its vision of a high quality and affordable virtual reality experience. Facebook can not only help fund Oculus, but can help them build a distribution platform for VR games and experiences. Many developers seem to fear that the worst of Facebook will become part of Oculus (ads, likes, Facebook-only login, etc.), but Facebook has so far shown its ability to stay hands-off with their acquisitions like WhatsApp and Instagram.

Nicholson: For many, it means that an indie project that they helped when it was in need has sold out to corporate America. The deal doesn't change the tech, but it changes their feelings about the tech.

Singal: Imagine you helped fund a small, local coffee shop before it opened. The proprietor was so happy that you donated some money that he gave you a few free cups of coffee and painted your name on the wall. Soon the coffee shop became a hit, and people from all over the country came to get a cup of this amazing joe. Then all of a sudden you hear that the coffee shop, which you helped start, was sold to Starbucks. The sale made the owner millions, but you were still poor. That is how the funders feel about the Oculus Rift purchase. Plus the Oculus Rift also represented an amazing piece of technology that could be molded and hacked by the gaming community because it was open source. Then Facebook, a company that doesn't stand for any of that, bought it. So not only did Oculus sell out, but they reversed their promises of gaming, open-source bliss.

Stephen: With Kickstarter, you back a company, that's not giving you any equity over what that company does. You give them maybe seed money and you might be getting something in return, depending on how it's set up. I can understand how people who backed Oculus might feel jilted when sold for such a large amount of money to Facebook. But if they think in terms of the bigger picture, if these people believe in the next generation of virtual reality headsets, they backed it because they saw the broader view of potential uses. If it were me, I'd be happy because if I believe in virtual reality, then a company with the resources of Facebook, if they allow the Oculus people to continue doing innovative stuff, it's probably better than Oculus being by itself even as a well-funded startup.

Rapoza: It basically depends on what your purpose was in investing. If you were hoping to see this kind of virtual reality device succeed and become something that could become ubiquitous, than this is a good thing. If you were hoping to see a small company become a new big company free from any outside influences (good luck with that), you probably aren't happy.

TechRepublic: Do you think the Facebook purchase is fair to Kickstarter backers?

Rapoza: It's kind of funny when you read some of the negative comments. You kind of get the feeling that some of these people would have been happier if the company just failed. I think if you help a company get started and it becomes successful, that's a good thing.

Ballard: I believe so. APX bought a number of the Oculus Kickstarter prototypes. They're great. We did some development with them and got a good understanding of what the capabilities were. Oculus still exists as a company. They have a lot of work to do. They're not going to stop their development as a result of the acquisition.

Lang: Yes, I think it's fair. Kickstarter backers got what they payed for; that said, Oculus still appears to be steadfastly pursuing their vision of making a great VR experience. The Facebook deal is a vehicle to reach their vision faster, and possibly cheaper, than they could have done it before. Oculus Founder Palmer Luckey said, "This deal specifically lets us greatly lower the price of the Rift."

Elster: The backers who pledged $2.4 million to the idea of Oculus Rift on Kickstarter should be overjoyed that the project they believed in has given an incredible opportunity with more resources (and publicity) than they could have dreamed of back in September 2012.

Singal: This is a difficult question. There is a very carefully designed legal framework around Kickstarter, and all investors know the risk when they invest. That being said, Oculus does seem to be biting the hand that feeds. If it weren't for Kickstarter and all of the funders, they would not have gotten the enormous marketing boost and they would definitely not be worth $2 billion today. I think that Kickstarter and other crowd-funding websites will probably see a backlash. Investors will think twice before they invest in a project. But there is also a business opportunity out there. If a Kickstarter-style website were able to provide some form of equity for crowd-funders, then that could become the new normal. Of course there are a slew of SEC laws that must be circumvented before such a site can exist, but the potential is absolutely there.

Nicholson: Many don't see it as fair. Kickstarter is about selling stories and a relationship to the product. When the story changes, so does the relationship. Oculus's story changed, and people feel deceived. Backers feel a sense of ownership, which Facebook showed was false. In a way, those backers were in the position of many founders in Silicon Valley who eventually get pushed out. It happens a lot, and it doesn't feel good.

TechRepublic: Do you think the negative response is overblown?

Ballard: I do. I think even if you strip away just some of the general snarkiness you get in the internet tech news and backlash, it is still overblown. If you take a step back and see the broader impact this has, I think people would be excited about it. I think people are seeing a lot of kneejerk reactions about it. Look at it this way: I can't think of anything Facebook has acquired and ruined yet.

Salyer: I've observed a lot of cynicism in the blogosphere and on Twitter and a lot of the sentiment I've seen has been knee-jerk "Facebook will just buy anything" type reactions. There are pros and cons to most major tech M&As, but I think some of the negativity isn't necessarily well founded. There are obviously some folks who are concerned about the privacy implications of Facebook becoming a part of virtual reality, but it's important to note that when brands leverage Facebook data, they need to ask for users for permission to access and use their data.

Rapoza: I think to a certain point it comes from perceptions of Facebook. I think if Oculus had been bought by a different company, there would have been less blowback.

Nicholson: Most backers don't understand that entrepreneurs go to Kickstarter to prove there's market demand, which they then show to VCs to raise money. Oculus saw huge demand, received a lot of investor attention, and finally was acquired. Backers go to crowdfunding to feel empowered, because that's where they can help new tech come into the world. Watching Oculus get acquired was not empowering.

Lang: Yes I think the reaction was a loud minority of people who felt uncomfortable because Facebook seems like it inhabits a completely different sector of technology than Oculus. Once the Oculus Rift DK2 ships in July and people start trying it for themselves, I think they'll become excited once again. And if Oculus does indeed significantly drop the price on their forthcoming consumer version, people will be glad the deal happened.

Stephen: I think it's always what happens. There's some sort of small but vocal group of people who are unhappy about something and they try to make a story about it. To me it's not surprising. If I were Oculus and Facebook behind closed doors talking about this you would expect some backlash from the Kickstarter supporters. It's a fine line. If you back something on Kickstarter you should realize that you don't have any claim over this company. It's almost like a donation and you get something in exchange for it, whether access to the product or sometimes just a T-shirt. It's a transaction without any privileges or future rights attached to it.

Singal: I think it makes sense that people are upset with Oculus. Why come to Kickstarter in the first place if you could have just gone to a game company or an internet mogul? And why Facebook of all places? If Oculus were acquired by, for example, Valve, then no one would have batted an eye. In fact, I bet people would have celebrated it. But Facebook, especially after its acquisition of WhatsApp, is synonymous with an evil corporation. That being said, will the Oculus Rift now become a terrible product because it is owned by Facebook? Probably not. Look at Instagram. They are thriving and have barely changed course since their Facebook acquisition. Oculus will be just as loved a year from now as it was days before the acquisition. The real loser here is likely Kickstarter.

TechRepublic: What do you think Facebook wants to achieve from the Oculus acquisition?

Ballard: A year ago I was talking to Brendan Iribe, who is the CEO of Oculus, and I got a much deeper understanding what they were building. They've created way more than just a headset. I think that when Facebook looks at Oculus, that they see that it's very much the same opportunity that Microsoft saw with building the Xbox. There's a whole other class of interactions that people have with the interactive world that happens through your games and immersive interactions. Look at what happened with Second Life. It was a great experiment but it did not have the immersion. People are going to connect to each other and the world in different ways. VR to the consumer market is what AR [augmented reality] can do for the enterprise. I think Facebook is making an interesting and potentially very smart bet. I don't think it's going to be anything like what we think of Facebook today. It's VR. It's real time. You're in the moment. You're going to have these really rich real time interactions. This is an incredibly complicated move with tons of moving parts. Look at the price tag Facebook put on it. They're making a very big bet on a very big play. This is way more of a broad sweeping play than what people think of when they think of social networking.

Nicholson: Facebook just became a chain of movie theaters that live on your face. It is now the most important distributor of a very important new medium. Virtual reality will be as important as photography, cinema or TV. Which means many, many millions of viewers and lots of money. As a distributor, Facebook is operating a toll road, and can take a cut from everyone involved. Oculus is its toll road.

Lang: Facebook's purchase of Oculus was an audacious but incredibly forward-thinking move. Yes, virtual reality has the power to change communication as we know it. For the people that have even heard of VR, most see its applications for gaming, but VR stands a good chance of impacting more than just the gaming industry. Facebook, as the website that we know today, won't be around forever. As time goes on and our technology progresses, something else will come along to replace it as the defacto standard in online social communication. Why? Because in the next 20 years, we're going to be moving away from the keyboard and mouse and toward natural computer input. You can already see this today with touchscreens, voice control, motion control, and even limited forms of thought control (see the Emotiv Epoc). Mark Zuckerberg seems to know that as our technology advances, we're going to move away from unnatural keyboard and mouse input and closer to natural interaction with the computing platforms that will define the future. Grabbing the leader in VR while he could was a smart move, it can keep Facebook as a company relevant long after Facebook as a website is abandoned.

Singal: Facebook has been trying to build a gaming platform. It is not outside of the realm of possibility that Facebook wants to use Oculus for a future Facebook game console or for games built on the Facebook platform. I doubt we will see a "browse your friend's timeline with the Oculus" feature.

Stephen: They're strategically placing a bet on technology and thinking this will become a big deal. It's not inconsistent with Google investing in wearables and Google Glass. To me it's all in kind of the same general category. There is a big difference, but the notion there is some general technology for a whole immersive experience or to augment their experience. But is this a pure technology acquisition for Facebook. Do they think the technology is good technology and they just want some more smart engineers, or will they let Oculus keep doing its thing but with much more power behind it from a marketing and financial standpoint. How that goes will invariably determine how this shapes up the virtual reality space.

Salyer: Facebook wants to extend Facebook identity far and wide - this means not only on websites and mobile apps but in the Internet of Things world as well. VR has the potential to be a strategic part of that effort, and unlike its late entry in mobile gaming, Facebook wants to get ahead of mainstream adoption so that it can integrate its identity-based services into VR apps so that it can begin monetizing.

Rapoza: I really believe that this is a long play. Right now I do think they will be hands off and let the Oculus team continue to do what they've been doing. And if everything pans out the way the most enthusiastic VR fans believe it will, than Facebook will be in prime position to leverage the next phase of truly virtual worlds.

TechRepublic: Do you see this as a "downpayment on gaming"?

Stephen: I think that's the obvious sort of use of this technology. I remember back when I was a teenager and they had virtual reality setups. It was as far from reality as possible because the dinosaurs were these polygons. It wasn't realistic. I think to the extent is where it needs to be so it' s a good experience, I think it's true that the technology is there. I'm interested in what Facebook or the Oculus team ... what are the uses they will come up with. When you think of Facebook over the years, they've been reasonably good at coming up with uses for their acquisitions. It will be kind of interesting to see what other ideas they come up with. Maybe it's using it to simulate things with training doctors or pilots. There are a lot of possibilities that could emerge not just from a pure video gaming context.

Salyer: That's an interesting way of framing the acquisition, but I really think this is going to be more than just a gaming play. It is a "down payment" in the sense that Facebook saw an opening to get a foothold in VR before it became a mainstream consumer technology but VR has the potential to go beyond gaming. I think there's potential for virtual reality in everything from driving simulations for people practicing for their driver's license tests, to online communities, to dating. Of course gaming is a big part of this as well, but more broadly speaking, this is a way for Facebook to extend identity and extend its ability to tie profile data, via social login, with activities in those virtual worlds for the sake of highly personalized user experiences and tailored marketing.

Lang: I don't think Facebook wants to jump into the gaming market, I think they see the potential of virtual reality for communications. That said, as VR moves forward, the line between gaming and virtual communication will become blurred. After all, if you are standing around with your friends in a virtual chat space, why not be able to play some games with them at the same time?

Rapoza: I don't really believe so. I don't think it's a high level of interest in gaming from a pure perspective. I think it's more of a belief that gaming and virtual worlds will become the next generation of social platforms.

Nicholson: Facebook made a "downpayment on gaming" with the social gaming craze a few years ago. Virtual reality is bigger than games. It encompasses everything we can see or hear in reality, and more, since it's just pixels you can shape on a screen.

Elster: Oculus Rift is an entirely new computing platform, interface, and experience. It's myopic to think of it solely as a gaming device. That's part of what doomed past virtual reality headsets. Facebook has bet on the market's infatuation with wearable technology in a big way.

TechRepublic: Is it wise for Facebook to try to enter the virtual reality market?

Singal: Why not? No one else has entered it. PlayStation has a prototype devise that is very similar to Oculus, but it isn't supposed to be as good. This would be a great way for Facebook to get a leg up against other video game companies. In 5 years, the game console market will have two new players: Valve and (likely) Facebook. Apple may even try to bump in.

Lang: Facebook going in on VR is a big bet, but it also stands to have a very big payout. VR is very likely to take off, with far reaching implications in the industries of gaming, entertainment, communication, education and plenty more. Facebook just snatched up the leader in VR, and it could be the key to their company being relevant 10 or 20 years down the road.

Rapoza: Someone made a point about how this and other recent acquisitions are letting Facebook become more than just a social networking company and I think this was very true. It's similar to how Amazon went from a bookseller to a full ecommerce company to a cloud services company to someone who does all of the above plus auctions, streaming video, hardware, etc. I think many of Facebook's moves are built around leveraging the resources they have to make sure the company can withstand future changes.

Elster: Facebook had nearly $12 billion in cash at the end of last year. They only paid $400 million in cash for Oculus Rift, and investors won't expect to see a return on that investment for 2-3 years, so it makes absolute sense for Facebook to enter this market. Right now investors are rewarding companies that make aggressive acquisitions, especially in hardware and wearable technology in particular.

Salyer: While there is some risk involved, overall I think this is a very smart move for Facebook. There is an all-out war for online identity and players like Google, Amazon and Yahoo are all making major moves to become the de facto consumer identity provider on the web. Facebook holds a sizeable advantage in the market now, but recent trends indicate that the consumer identity is becoming more competitive. It's been interesting to hear all the opinions on the Oculus acquisition, in part because I haven't seen many people discuss the identity component. To me, identity is where Facebook has been placing its bets - particularly with its recent acquisition of WhatsApp (which gives Facebook access to the payment info for millions of consumers) and now with Oculus. Identity is the key to being able to monetize many of these technologies for both Facebook and brands and as long as consumer privacy is respected and brands leveraging this data ask for explicit permissions from users, the Oculus acquisition is a smart move for Facebook and eventually, the larger marketing world.

Ballard: It's not, "is it smart for Facebook to enter the virtual reality market," but, "is virtual reality the tool they will use to enter a different market."

About Teena Maddox

Teena Maddox is a Senior Writer at TechRepublic, covering hardware devices, IoT, smart cities and wearables. She ties together the style and substance of tech. Teena has spent 20-plus years writing business and features for publications including Peo...

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