Not for the first time this year, Facebook brought the tech news cycle to a screeching halt yesterday afternoon, when the company announced its latest big-money start-up acquisition.
A month after its blockbuster $19 billion deal for WhatsApp, the social network made a less modest, but nonetheless, highly significant deal in acquiring virtual reality company Oculus for $2 billion.
The cash and stock offer was a shock to many for different reasons than usual. Nearly every big-money acquisition comes as a surprise these days. Facebook's deal with Oculus was particularly special because Facebook never looked like a likely candidate to be interested in the virtual reality company.
"At first glance, it might not seem obvious why Oculus is partnering with Facebook, a company focused on connecting people, investing in internet access for the world and pushing an open computing platform," a press release from Oculus stated.
When it comes to start-up acquisitions, where there is shock, there will always be speculation as to whether or not the move in question was wise. Take a closer look, however, and you just might find that Facebook's deal for Oculus is genius piece of business. Here are the 10 reasons why:
Bringing Facebook's Presence To Life
Facebook has quickly become the king of all things mobile. In fact, after the Menlo Park-based company suffered an unimpressive year after debuting on the stock market in 2012, it was the mobile advertising dollars attracted by the Facebook app that helped Mark Zuckerberg and the social network regain its value.
Furthermore, with such a heavy investment in WhatsApp, Facebook was expected to be going all in on mobile, with Zuckerberg even hinting in the aftermath of that deal that he probably wouldn't be looking into any more acquisitions for a while.
So much for that. With Oculus on board, Facebook has an opportunity to venture away from computer and cell phone screens to contribute to the building of a fascinating product that people can touch, feel and experience.
New Competition Against Sony And Microsoft
In the past two decades, we've seen improved graphics, online multiplayer modes, expanded entertainment packages (think Netflix and Hulu), voice commands and motion censors come to the most popular gaming consoles. The future now is clearly virtual reality, particularly experienced with the use of headsets.
It's part of the reason Sony had already revealed plans of selling its own, while Microsoft sits on its hands. Regardless, Facebook's CEO made it clear that he believes, with the Oculus acquisition, he now has the upper hand in the gaming industry when it comes to virtual reality.
"What we’ve seen is the Oculous product that they have now is way ahead of anything else that’s out there," Zuckerberg said in a conference call. "Sony, I think, has demo’d something very early. Microsoft hasn’t even gotten to the point where they have anything to demo yet. Not only that but the team is way ahead in terms of just having so many talented people at Oculus, that we feel good about that."
Virtual Reality Is More Than "Just Games"
While Zuckerberg has said that Oculus' primary focus will remain on gaming, he also indicated that the company had much more potential. Its virtual reality (VR for short) headsets can open the doors for new experiences, which, for Facebook, means new ventures.
"After games, we’re going to make Oculus a platform for many other experiences. Imagine enjoying a court side 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. This is really a new communication platform."
And That's Exactly What Oculus Was Thinking
When Oculus CEO Brendan Iribe visited Elite Daily's New York offices in November, he, like Zuckerberg, harped on the potential for Oculus to provide more than strictly gaming experiences.
“In VR, you look up and you’re still there. You look around you and 360 degrees, you’re still there. So it really opens a lot of potential for new experiences. Virtual vacations, medical simulations, surgery training; I think you’re going to see a lot of experiential applications and games made. So we’re super excited about what people will create with VR and I think it will go far beyond gaming,” Iribe said.
With Iribe on the same wavelength, Mark Zuckerberg has the option of bringing on the startup without having to shift and change or go through the trouble of bringing in his own people to make the Oculus agenda fit that of Facebook. He can leave Oculus as is, quite simply, because their agendas already align.
Facebook Now Has Its Foot Firmly Planted In The Future
When Google CEO Larry Page spoke at TED 2014 last week in Vancouver, he said that, for huge companies, one of the most common mistakes made is "missing the future" and not doing enough to plan for it. As if it was not abundantly clear already, Facebook's acquisition of such a futuristic company means few can accuse Zuckerberg of making a similar mistake.
While the future of gaming and every other technology sector might see a rise of new players and powers, if Facebook gets things right with Oculus, the company is essentially ensuring that its standing in Silicon Valley won't change with time.
Oculus Is The Type Of Product That Can Benefit From Internet.Org
Facebook has spent the last couple of years cleverly collecting start-up acquisitions that will help it become a dominating force. When traced, the company's focuses all share a common theme. At first glance, few might expect Oculus to fit everything Facebook has done prior, but it is just the type of product that could capitalize off one of Zuckerberg's biggest initiatives: Internet.org.
Internet.org seeks to make Internet one of the most commonly shared and cheap commodities on earth. The greats ambitions of Oculus and Facebook (remember, "more than games") will undoubtedly require the most basic of WiFi connections. In a world where such connectivity is everywhere and easier to access than ever (which is the future that Facebook envisages) the potential for Oculus to be used all over becomes that much greater.
The Oculus Rift Headset Gives Facebook The One (Potentially) Meaningful Wearable Device
… Of the crop of wearables currently on the market. Google Glass and the various number of smart watches that have been demoed, previewed or released this year, an Oculus Rift headset would undoubtedly be the coolest product of them all. Sure, it isn't as lightweight as the others, but for a piece of technology that's supposed to be new, the Rift headset has the promise of a product that actually has a sense of novelty to it.
The others, meanwhile, simply seem to make your phone only slightly more accessible by functioning from a device on your wrist, rather than a device sheltered in your pocket.
If it could be regarded as such, the Oculus Rift headset would unquestionably be the best wearable on the market.
With nearly every big tech acquisition these days, there is always one big question: How will this be monetized? It's a question that's mainly unique to the tech space where most startups operate while generating little to no revenue. While the same can be said for Oculus -- the company generated around the same amount that WhatsApp did last year, over $20 million -- its path to monetization is much clearer than the messenger service that Facebook acquired last month.
Once Oculus Rift headset hits stores, Facebook's money will be raked in the old-fashioned, uncomplicated and traditional way, through sales in stores (*gasps*). Perhaps more important, though, is the potential for revenue beyond that point. If Facebook really is interested in providing experiences like "courtside seats" through Oculus, the company won't be doing so in making money off of them.
Increasing Facebook's Stature
If Facebook succeeds in making Oculus as big as it can be (and the startup does, indeed, have lots of potential), it will become more than the world's largest social network. It will become a company that is that much closer to a true tech giant, full stop. Perhaps the mark of a great company turning a corner is when it is strong enough to venture further away from its primary focus.
In the same way that Apple became that much bigger after making iPods and iPhones, and in the same way that Google is making similar shifts with its work on Android, Facebook has the opportunity to gain the advances and power to move into spaces that aren't social media-centric.
Flex Of The Muscles
Perhaps the most important takeaway from this deal is that it proves, once again, what a master of negotiation Mark Zuckerberg is. From keeping his poker face during the WhatsApp saga when asked if Facebook would be making any acquisitions soon, to pulling off months of courtship with another company he wanted, Facebook's CEO is showing a knack for pulling off the big money deals he wants.
Even more impressive is the fact that he's done so with companies that have maintained the anti-sellout stance: WhatsApp, a free and ad-less service, and Oculus, originally a project backed by Kickstarter, both with fan bases that were against the "mainstream." Yet, after coming out of negotiations with Zuckerberg, both companies fell in love with Facebook.
"Most important, Facebook understands the potential for VR. Mark and his team share our vision for virtual reality’s potential to transform the way we learn, share, play, and communicate. Facebook is a company that believes that anything is possible with the right group of people, and we couldn’t agree more," Iribe said.
In the case of both WhatsApp and Oculus, Zuckerberg has convinced two (let's face it) hipster companies to join the ranks of the Facebook empire, and those instances are unlikely to be the last time the CEO flexes his muscles.