Alphabet Inc. today reports that Google’s advertising revenue rose 19.5% in the second quarter.
While gaming is the first industry the acquisition will likely impact, Facebook and experts believe that virtual reality will also play a role in advertising and e-commerce.
Facebook Inc. has made a $2 billion bet that more consumers will embrace virtual reality.
The social network late yesterday announced plans to buy Oculus VR, a virtual-reality company that's developing a 3-D gaming headset. Virtual reality gives users the illusion that they are present in a digital world.
The move could have implications for retailers and marketers.
Oculus has more than 75,000 orders out for development kits for the beta version of its Rift 3-D gaming headset, Facebook says, and the majority of those orders are from online gaming developers.
While gaming is a clear short-term area that Oculus will impact, Facebook CEO Mark Zuckerberg says virtual reality will soon have a much broader reach. He says that while “mobile is the platform of today,” virtual reality is a “platform of tomorrow.”
“The Rift is highly anticipated by the gaming community and there’s a lot of interest from developers in building for this platform,” Zuckerberg writes on his Facebook timeline. “We’re going to focus on helping Oculus build out their product and develop partnerships to support more games. Oculus will continue operating independently within Facebook to achieve this. But this is just the start. After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a courtside 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.”
The acquisition, for $400 million in cash and 23.1 million Facebook shares, is the social network’s first foray into hardware. Moving into hardware may make sense because it enables Facebook to own and control a broad-based digital platform, says Lou Kerner, managing partner of investment firm The Social Internet Fund.
“Google owns Android, which is a platform that others write apps on top of—and owning that platform is incredibly powerful,” he says. “That’s what Facebook is doing here. It is seeking to own and control a platform.”
The reason Facebook is valuable, Kerner says, is because it controls the ecosystem within its social network. Oculus gives Facebook a chance to own and control another way in which people interact with one other, he adds.
“We’re moving toward a world in which the analog and digital worlds merge—whether that’s during gameplay or during other moments in life,” he says. “We already see that that’s where we’re going with Google Glass. My guess is that over time Facebook will similarly try to make Oculus something that becomes a part of how we experience life.”
And that will enable it to present Oculus users with ads and may also represent a new channel for retailers selling online, he and others say.
“Games represent just the first market opportunity for virtual reality devices, with numerous other potential applications in communications, commerce, health care and education, among others,” says Colin Sebastian, an analyst with R.W. Baird Equity Research. “We expect software and services will eventually become the primary focus at Oculus.”
That’s more in line with the way Google treats its Android platform and Google Glass than the approach Apple Inc. takes with its mobile devices, he says.
The move is a sign that Facebook wants to stay on the offense in the changing ways that consumers interact with devices, Sebastian says.
“The deal is representative of Facebook’s desire to be at the forefront of technology, rather than playing catch-up, as was initially the case in advertising and mobile,” he says. “Oculus is reminiscent of Google's strategy to focus years ahead of the curve, with a willingness to take some risks along the way.”
Facebook expects to close the deal in the second quarter.