Adding Up Billions: Is Oculus Worth Its Cost?

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Adding Up Billions: Is Oculus Worth Its Cost?
January 20, 2017
Facebook CEO Mark Zuckerberg uses the Oculus Rift headset

 

In 2014, Facebook CEO Mark Zuckerberg spent $2 billion to purchase the virtual reality startup Oculus and its Rift headset. The deal was huge, not just from a price standpoint, but because it was proof of momentum behind the nascent VR industry.

 

Nearly three years later, though, it looks like that $2 billion was just a down payment for the VR company, as Facebook will likely have to shell out billions more until the social network can get the Oculus’ technology to a point where Zuckerberg and co. are satisfied.

 

The Facebook founder said as much while on the witness stand for a lawsuit that accuses Oculus of stealing some of its VR technology from video game company ZeniMax Media, according to The New York Times.

 

From $2 billion to $11 billion.

 

That initial $2 billion payment for Oculus wasn’t even the entire amount Facebook paid for the company. The social networking giant also paid $700 million to keep certain Oculus employees and promised an additional $300 million if the company met specific milestones, according to the report.

 

On top of that, Zuckerberg said Facebook might have to dump an additional $3 billion into Oculus to shore up its technology.

 

Why commit to spending nearly $7 billion — plus an extra $2 billion if Oculus loses its lawsuit — on a technology that has yet to blow up in the consumer market? Well, because Zuckerberg is looking beyond VR in the traditional sense. See, where the Rift, HTC’s Vive and Sony’s PlayStation VR are primarily designed as gaming systems, the Facebook founder has his sights on making virtual reality a more social experience.

 

During the Oculus Connect 3 conference in October, Zuckerberg took the stage to show off a kind of virtual/augmented reality system the company was working on. In the demo Zuckerberg showed how he, through a digital avatar, could interact with friends and family in real time in a digital space as if they were all in the same room.

An example of how Facebook envisions the future of social networking and VR.

 

Price is still a barrier.

 

It’s an interesting gambit, but it’s still far from complete. What’s more, the cost of VR systems like the Rift is still prohibitively high for many consumers. The company is working to bring prices down, though.

 

For instance, when Oculus launched the Rift in 2016, you needed to purchase a $1,000 to $1,500 PC to run the headset, plus another $600 for the device itself. Since then, the company has worked to ensure the Rift can run on systems that cost as little as $500. Still, at $1,100 for the whole setup, the Rift isn’t exactly cheap.

The Oculus Rift is still prohibitively expensive for most consumers.

 

HTC’s Vive costs $800 and still requires a powerful PC, while Sony’s PSVR costs $400 and only works with that company’s PlayStation 4 console. Sure, gaming enthusiasts might not have a problem spending that kind of cash on a top-notch gaming experience, but none of these headsets is quite there yet. There’s no “killer app” for high-end VR systems.

 

The most successful headsets, so far at least, have been Samsung’s Gear VR, which costs $100 plus the price of a compatible Samsung smartphone, and Google’s Cardboard, which costs $15 in addition to the cost of a smartphone.

 

Zuckerberg’s big bet.

 

Zuckerberg is obviously keenly aware of the importance of mobile platforms — the majority of Facebook’s traffic comes from mobile users and that will only continue to grow. Which is why Facebook split Oculus into two divisions, one primarily focused on PC-style VR and the other focused on mobile VR.

 

The hope is that Facebook and Oculus will be able to create a system impressive enough for all consumers to want to use. How long will it take for the company to get there? If Zuckerberg’s prediction on the stand holds up, it could take anywhere from 5 to 10 years.

 

Still, Oculus will be in an enviable position if Zuckerberg’s prognostications prove correct. That’s because the Facebook CEO sees gaming as just the tip of the VR iceberg. In its ultimate form, Zuckerberg sees virtual reality as a means to share experiences with others in real time and feel as though you’re actually there.

 

In a July interview with Bloomberg, Zuckerberg explained how virtual reality is the natural progression from sharing experiences via video, just as video was the natural progression of sharing experiences via photos. VR, then, will almost literally allow us to stand in another person’s shoes as they explore the world.

 

And with Facebook’s enormous audience — it has roughly 1.8 billion monthly active users, already sharing everything from selfies to wedding videos — the social network is just about the only company that can help push VR forward as a means to connect the masses. If that all works out, and Facebook becomes the VR company just as it is the social network, the billions Zuckerberg spent on Oculus will surely have been worth it.

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