Seeing the significance behind the Facebook-Oculus deal

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Social media was abuzz over the last 24 hours with news of Facebook buying virtual reality headset maker Oculus VR for $2 billion in stock and cash.

Umar Ruhi is a professor with the University of Ottawa's Telfer School of Management.

By Umar Ruhi

Reactions ranged from optimism from those who’d like to see virtual reality get the mainstream adoption it has so far lacked, to disappointment from those who see Oculus’ move as another bright tech startup selling out to a corporate giant.

Others, however, asked why a social networking firm like Facebook would be interested in Oculus – which has yet to commercially release its first product – at all. But first, let’s look at the deal from the smaller company’s perspective.

It makes sense for Oculus to avail itself of the established tech presence and public mind-share that Facebook commands. On its own, Oculus may not have been able to sustain a profitable business model, especially in the wake of increasing competition from the likes of Sony and Microsoft, both of which are deeply rooted in the video game industry and are currently working on virtual reality peripherals for their own respective gaming consoles.

Competing with the likes of Sony and Microsoft would be challenging for Oculus because these companies are well positioned in the marketplace. They also exert significant control over the video game industry value chain, from development and production to the distribution of software titles as well as hardware platforms.

From a technology perspective, virtual reality has been regarded as the holy grail of gaming for as long as video games have been around. With the promise to offer revolutionary gameplay experiences through digital immersion, various market players in the interactive entertainment industry have been keen on being first-to-market with virtual reality products, with no significant success thus far.

Facebook’s interest in Oculus, however, probably stems from virtual reality applications other than gaming. Take, for example, the potential applications to use virtual reality as a social platform for rich and immerse communication experiences. In the words of Facebook CEO Mark Zuckerberg, the technology may be used for “playing a game, watching a movie, reading a book or even chatting your friends 'face-to-face' despite being on the other side of the world.”

With recent investments in Instagram and messaging service WhatsApp, Facebook has also been positioning itself as a major player in the mobile content delivery and communication channel space. The Oculus deal will further bolster its grip on current and upcoming computing platforms – virtual reality being the next generation after desktop and mobile.

We heard similar rhetoric when Google announced Glass, the augmented reality eyewear display that the search engine giant claimed would transform many of our daily interactions.

Google Glass and the Oculus VR headset are currently geared towards different uses and applications. However, there are similarities in the vision of the two companies. Both Google and Facebook are approaching augmented and virtual reality as a medium and not just as a peripheral. The technologies are poised to offer rich immerse experiences for the end uses, whether it is for interactive communication, contextual searching or for sharing experiences and adventures with friends.

So for those who’re wondering why a social network company would invest in virtual reality, the proverbial rabbit hole goes much deeper than just using virtual reality for gaming applications. If Facebook has its way, it will take virtual reality to the next level and shape it into a social platform. Let’s see where it leads us.

Umar Ruhi is an assistant professor at the University of Ottawa's Telfer School of Management.

Organizations: Sony, Microsoft, Google University of Ottawa Telfer School of Management

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  • SteveB
    March 27, 2014 - 10:34

    I think it is short sighted to presume a new player couldn't disrupt Microsoft and Sony in the gaming market. Game developers signed on with Oculus as it was to be an independent platform on which they could release their games, in a VR format no less… Microsoft and Sony have chained the users to their box, abused their game developers, and offended many with their DRM schemes, which makes them ripe to be picked off, with gaming moving to mobile platforms, not a tethered box. The real question is valuation on the deal… Zuck and Facebook are creating ridiculous valuation outliers, which clearly will never create return. On the bright side, you will be able to creep Facbook in VR. I guess that's something.