On March 25th 2014, Facebook’s $2 billion acquisition of Oculus sparked life in the Virtual Reality industry.
Although Virtual Reality had many waves of technological innovations since the 1960’s, this single moment of refocusing of one of the largest technology companies in the world, was like a deep underwater tectonic shift, that created on the surface a huge tsunami of market interest, financial investments and startup growth.
Many claim that Facebook overpaid for Oculus, but I would claim that had the acquisition been much smaller, the Virtual Reality giant might not have been awakened.
Since its acquisition, however, not everything has been gravy for Oculus. A clear head-start advantage on both technology and brand has been completely eroded by HTC, who, in partnering with Valve, not only launched a VR consumer product at the same time as Oculus did, but also unlocked via the Steam platform a massive existing install base among gamers (arguably the earliest of adopters).
Oculus, on its part, has had to endure the slower, natural growth of their own content platform, the Oculus Store, partially aided by the distribution of the Samsung Gear VR device. However, since the Gear VR and the Oculus Rift can’t run the same applications, it seemed more like one retail store that had a huge wall between its two departments, making it impossible for customers to move between them, without going out through the street first.
A third, dominant entrant, made things even harder for Oculus to retain its leadership position. Sony, with the PSVR device, is generating much greater interest and sales in its early days, due to its ability to activate a massive 40M PS4 customer base.
A recently published 01Consulting report shows a mere 11% market share for Oculus, who many see as having the supposed “first to market” advantage.
On the PR front, things have been difficult too. First, Oculus faced shipping delay straight out of the gates. Then, it wasn’t able to ship the touch controllers we first saw in October ‘15 at the Oculus Connect 2 conference, until recently. Lastly, Oculus’ founder, Palmer Luckey, was heavily scrutinized recently by the tech community for funding a group promoting Donald Trump and trolling Hillary Clinton.
To make things worse, time is not in Facebook’s favor. According to the expert futurist Robert Scoble, Apple is planning a massive AR/VR device launch in 10 months. Google launched its DayDream devices and platform, Magic Leap is likely getting closer to launching the most anticipated product in the world, and Microsoft is also entering into the arena with the HoloLens and a VR headset.
Lastly, this morning (12/13) Oculus’ co-founder & CEO, Brendan Iribe, announced that he’d be stepping down as CEO, and would lead the newly formed PC VR Group. Although the reason he lists is missing “the deep, day-to-day involvement in building a brand new product on the leading edge of technology”, we could safely assume that Oculus loss of market leadership is the reason behind this move.
What’s next for Oculus then?
It's Not Too Late
It would be rash to discount Oculus’ ability to lead the VR market, due to several key reasons:
- Consumer adoption is so small, it doesn’t yet exist — At the end of 2016, there will reportedly be sold about 1.8M high end VR devices (420k Vives, 350k Rifts, 1M PSVR), which is still a VERY small number. As I posted here in the past, even if VR adoption rate follows that of mobile devices, it could still take 2–3 years more for 25% for consumer market to get a VR device.
- Oculus still has Facebook — In competing against tech giants, Oculus still has the largest social network in the world on its sideline, cheering (and sponsoring). In addition, Oculus/FB has world leading visionaries such as Mark Zuckerberg, John Carmack and Michael Abrash.
- Enterprise is still greenfield — Unlike the consumer market, which is quickly turning into a battleground, the enterprise market is still completely untapped, and can actually turn into Facebook’s largest opportunity to gain market leadership, in both consumer and enterprise markets.
So How Can Oculus Win?
Deliver — Fix its supply chain
First and foremost, Oculus needs to make sure its supply chain issues are dealt with. It’s more than inventory management, making sure customers get their device fast — it’s the time takes for a product become commercially available.
I tried the touch controllers last summer, at Oculus Connect 2, and only very recently,, 14 months after, it’s finally available. Oculus recently announced “Santa Cruz”, a mid market HMD, competing with the Samsung Gear VR and the Google DayDream platform. Oculus need to make sure this is commercially available as soon as possible, so they don’t continue to lose market share.
Innovate — Go back to being ahead of the curve
When Facebook acquired Oculus, it had its DK1 (Developer Kit 1) system ready. Back then, no other large company had anything remotely close to what Oculus had. Fast forward 2 years to April of 2016, HTC launches its Vive device only 7 days after Oculus releases its first commercial Rift device, and HTC even has a superior device, with “Room Scale” support and unique controllers, while Oculus, at that point, was a “seating or standing” VR experience, and only supported the Xbox controller for movement, a far less immersive experience.
In Q4 of this year, at its annual conference, Oculus announced that they finally caught up and now support “Room Scale VR” with multiple cameras, which is when HTC announced it now has support for a wireless experience.
If Oculus wants to regain market leadership, it has to be ahead of the curve, rather than play catch-up. A terrific product road map can be found in one of Michael Abrash’s slides from OC3, depicting how the VR devices of year 2021 would look like. Sign me up.