Facebook betting big on virtual reality: A look at the Oculus VR deal


When Facebook bought Instagram for $1 billion back in 2012, industry experts believed the social media giant overpaid for the photo app. The same brand of thinking followed Facebook’s $19 billion acquisition of WhatsApp in February this year. Regarded as the tech deal of the century, industry opinion was split down the middle on whether the deal made any sense, or Facebook massively overpaid for WhatsApp.

And then in March, Facebook announced its plan to acquire Oculus VR, the maker of virtual-reality for $2 billion (the deal was approved by the FTC in May); the acquisition was completed in July. Needless to say, the deal evoked polarized reactions from the industry in general, Oculus’ Kickstarter backers and the stock markets.

This led to a fresh round of debates and discussions about Facebook’s penchant for making deals that don’t make immediate sense.  The keyword here is ‘immediate.’ Dig a little deeper and the acquisitions start making sense (at least people start to tell themselves that they make sense).

Facebook seems to know what it is doing, a fact that is reflected in its latest earnings reports. With $2.91 billion dollars in revenue and $0.42EPS in Q2 2014, the company’s earnings have surpassed market expectations.  Mark Zuckerberg used the second-quarter earnings call to stress Facebook’s commitment for investing heavily in virtual reality (VR).

Clearly, Facebook is betting big on VR and doesn’t think of it as “gamble” that might or might not pay off in the long run.

The question is – Why?

Is there an answer?

Yes and no.

Yes, because there is no harm in making a few informed deductions and no, because it is early days yet and it will be a long time before we know exactly how the company plans on leveraging virtual reality moving forward.

Heck, we aren’t really sure how Facebook plans on making WhatsApp count, so commenting authoritatively on how Facebook plans to win its bets on VR is out of the question.

So, let’s do a bit of deduction shall we, a’ la Sherlock Holmes (not unlike Sherlock Holmes we have very little to go on, but we can see and observe and try digging a little deeper).

Facebook’s very own computing platform

Yes, Facebook is a social media giant and one of the biggest companies in the world; it sits atop a formidable cash pile, and is considered one of the most important tech companies in the world.

But, the man on the street still sees Facebook as a website with a collection of user friendly apps. It still doesn’t have its own platform, like the Android of Google or Apple’s iOS. In the long run, this can impede Facebook’s race to the goalpost; Facebook, it seems, has got an answer to its platform in Oculus, read VR.

Facebook’s sterling growth has resulted from its concerted efforts to turn social media into the next big thing and tapping into social media’s exponential growth to generate revenue. The world’s biggest and most popular social platform is also one of the fastest growing advertising platforms for businesses. It’s already making good use of mobile, its revenue jumping 61% purely on the brunt of its mobile ad strength.

But what Facebook lacks is a computing platform to call its own and one which it can optimally leverage for next generation growth. It knows competing against Google’s Android and Apple’s iOS might not provide the returns it is looking for. So, it’s begun thinking of a platform that will come after mobile. It’s looking at the future and its put its bets on VR; Oculus, for all intents and purposes, might be an essential stepping stone towards this future.

Recommended articles