Facebook buys Oculus VR: What now?

Earlier today, Facebook announced that it had acquired virtual reality headset maker Oculus VR for $2 billion, in the form of $400 million in cash and 23.1 million shares of Facebook common stock worth $1.6 billion. Oculus VR's shareholders could earn an additional $300 million based on achieving several unspecified performance objectives. Oculus started with a Kickstarter campaign in 2012 that raised $2.4 million; last year, the company closed A and B rounds worth a total of about $93 million.

Ever since the announcement, comments about Oculus's acquisition have been flying around the Internet. The general tone is that Facebook will destroy Oculus's independence and load its software up with links to Facebook content. Some game developers have gone so far as to say that they've either stopped or won't begin software development for the Oculus Rift. My take is that Facebook's acquisition will be good for Oculus and its third-party developers, although a few years down the road, Oculus's shareholders may wish that they had kept ownership of the company.

But first, why did Facebook acquire Oculus? Facebook's not a hardware company, and when it's tried to specify smartphone hardware or design smartphone user interfaces, it's come up short. It'll take years for Oculus to become a meaningful generator of revenues and profits for Facebook, if it ever does. However, Facebook believes that VR is the next big hardware platform after mobile devices. VR is Facebook's "blue ocean," an undeveloped market opportunity that could be the basis of tens of billions of dollars in revenues. And, Facebook is buying the recognized market and technology leader: Even though there have been VR devices for almost two decades, the Oculus Rift is the first device that can truly begin to exploit virtual reality without all the physical discomfort that's come to characterize VR systems. As I've written previously, Oculus is six months to a year ahead of Sony and other VR headset manufacturers. And, Oculus is already generating revenue: Some 75,000 developers kits have been sold, at $300 each. Most other VR developers have only dozens or a few hundred developers working on their platforms.

As for Oculus and its shareholders, Facebook's $2 billion represents a nice return on their investments (Spark Capital and Matrix Partners are said by Bloomberg.com to both have received a 20-times return on investments made from a year to just a few months ago,) although I believe that if Oculus had remained independent and had become successful, the company's valuation would have easily been ten times what Facebook paid. However, Facebook brings to Oculus enormous financial resources. The company will be able to expand its development facilities and hire more aggressively. It will also have more influence on component manufacturers, because Oculus will be able to commit to much bigger purchase quantities and bigger non-recurring engineering costs than it could before Facebook. This is critical, because Oculus doesn't have the ability to build its own displays, camera and sensors, and some of the components it needs simply aren't yet available as off-the-shelf products.

Oculus's hardware development is likely to dovetail nicely with Facebook's rapid software development philosophy. At Sony's announcement of its "Project Morpheus" at GDC, the company said that it's been working on VR longer than Oculus, but most observers would agree that Oculus is still significantly ahead of Sony. The combination of Oculus and Facebook should be able to iterate hardware and software faster than Sony (and most other big companies) can even imagine. So, Oculus will most likely be able to get its first consumer version of the Oculus Rift out faster, and possibly at lower cost, with Facebook's backing.

But what about Facebook's influence on Oculus? After all, Facebook is hardly a benign presence. In Boing Boing, Dean Putney wrote a scathing takedown of the Facebook-Oculus deal; here's a quote:

The problem isn't that Facebook is going (to) ruin Oculus, by plastering it with ads and making it a pain in the ass like everything else they've shat all over. Although that wouldn't be a surprise. The problem is that this was an opportunity for something different. And it just died.

I don't think that the acquisition is as "soul crushing" as Putney believes; Facebook has said that Oculus will be run independently, and its offices will likely remain in Orange County, at least for a while. In addition, we're unlikely to see the consumer version of the Oculus Rift until next year, and that gives competitors an opportunity to catch up. However, paradoxically, the same funding that makes the Oculus Rift less risky as a development platform increases the risk that Facebook will turn it into a platform that you wouldn't want to develop for. I don't have a good counterargument to give to the people who believe that Facebook will "shit all over" Oculus, other than you should be okay if you develop for multiple headsets, not just the Oculus Rift.

Games are just the tip of the VR iceberg

At last week's Game Developers' Conference, Virtual Reality (VR) was front and center, led by Oculus VR's second (and likely final) developer's kit, and Sony's prototype Project Morpheus VR headset. At Sony's launch event, a company executive noted that there are a number of applications for VR, but that games are the biggest opportunity. Games are an obvious application for VR; existing 2 1/2 D games, such as first person shooters, can be modified to enable the player to be immersed in the field of play using a VR headset. However, while games may be the first application for VR, in the long run, they're not the biggest application.

VR, which places the participant in an immersive environment, has the potential to recreate real-world environments much more successfully than technologies such as CAVEs that project an environment on multiple walls of a cube in which the participant stands. VR can be used for a variety of simulations; for example:

• Military and police training, where recruits learn how to differentiate friend from foe and both how and when to engage with an enemy or suspect.
• Medical training, where medical students can perform tests and try out surgical techniques.
• Flight training for pilots and trainees.

There are also many applications in education. Students can be transported into ancient Rome or Greece and participate in activities as the people who lived there did. They can run science experiments that would be dangerous or deadly if they were to do them in real life, and they can observe processes at scales that would otherwise be impossible (from sub-atomic to galactic.) Students can do these things today with PCs and tablets, but the addition of VR makes them much more visceral, which should help students to learn more and retain more of what they learn.

There's also an opportunity for VR in television and movies. We think of these as passive media, but VR has the potential to immerse the viewer in the action to a much greater degree than has been possible with 3D. However, there are many questions that need to be answered, especially for live (non-computer-animated) content:

• Can the viewer participate in the action, or are they merely an observer?
• How much freedom does the viewer have in participating--can they move freely, or are their movements limited?
• How do the characters in the production interact with the viewer? Can the viewer's actions change the production's course of action? (For example, in an action/adventure production, could the viewer's character kill the hero? What happens next--roll the credits?)

I believe that ultimately, these applications with be much bigger than gaming. However, gaming technology will be very important for creating these applications, and game developers will be in an excellent position to be early developers of these applications. Gaming engines that have been adapted to support VR will be the basis of the first generation of new applications, while production and development systems built specifically for VR will come along later. In short, VR's first big opportunity will be gaming, but the application set and market opportunities will ultimately be much bigger than gaming alone.

Sony's "Project Morpheus": VR for the PS4: Good start, but far from prime time

Last night, Sony announced "Project Morpheus" at an event at the Game Developers Conference. It consists of the PS4 console, the PS4 camera, Sony's existing Move controller and a new VR headset. The presentation was spun by Sony as a major technology announcement, but in fact, it was largely a slimmed-down version of presentations over the last few months by Oculus Rift and Valve. While both companies have been quite specific about what they've found to be necessary in a VR system (not just the headset, but the sensors and content as well,) Sony stayed away from hard numbers in its presentation. For example, when asked what Project Morpheus's refresh rate is, a Sony executive replied "As fast as possible."

Engadget has gotten a chance to try out Sony's VR headset at GDC, and they found it to be not bad for a first try, but far from Sony's own goals. For example, in Sony's presentation, the company said that comfort is one of its most important objectives, but the Project Morpheus headset requires multiple manual adjustments, and when it's in the correct position, it's so tightly sealed that sweat fogs up the lenses. Screen resolution is lower than Oculus VR's new DK2 developer kit (see next post.) Vision blur is a significant problem, which suggests that Sony isn't using a low-persistence display. In addition, Sony's headset offers a 90 degree diagonal field of view vs. Oculus Rift's 110 degrees. On the other hand, one advantage that the Sony headset has over Oculus Rift is full-body tracking, but there are a lot of companies working on that.

My take is that this is Sony climbing on the VR bandwagon with a very incomplete solution. The expectation has become that if you're serious about gaming, you have to be working on VR, so Sony checked off that box. However, from Oculus's release of the DK2 earlier today, I'd say that Sony is six months to a year behind with its headset. As for audio, Sony says that it makes good headphones, but so do many other companies, and headphones aren't the problem. Will Sony's existing Move controllers and PS4 camera really work well in a VR system? I doubt it. Those devices weren't designed for VR, and I doubt that Sony put in the costs necessary to make them work at the speeds and with the accuracy needed for VR.

What we're likely to end up with is a suite of devices that Sony purpose-builds for VR--and it's not at all certain that even the PS4 will have the refresh rates necessary to drive Sony's final VR headset.