Alternate Explaination behind Oculus Sell-Out

Emotions are running high and many people seem very angry with Palmer and Oculus. I'd like to present an alternative explanation of the sale that might explain why Palmer thought this was the best thing for his company. But I'd also like to examine this from Facebook's perspective, and try and address some of their motives behind the purchase too.

Why Facebook bought Oculus?

Alternate Explaination behind Oculus Sell-Out
Google entered the smartphone market on the ground floor by developing the Android operating system. Amazon took a different route and developed the Kindle. Microsoft has developed the Surface, and Apple has branched out from its iPods and iPhones into music software and cloud storage services.

Google, Amazon, Microsoft, Apple. What these firms all have in common is that they have strategically positioned themselves (with varying degrees of success) to have products in both hardware and software, and they all use the sales of one to drive profit in the other:
  • Amazon developed the Kindle - not because they thought they'd make lots of money off selling the devices - but because they wanted a platform to drive the sales of their e-books.
  • Google's Android phones drive their users to Google accounts and Google search, which increases Google's revenue from ads. They don't make money off the operating system or phones themselves.
  • Microsoft attempted to increase uptake of Windows 8 with their flagship "Surface" device
  • Apple is the odd one out in this group - they use their software (iTunes and the iCloud) to drive sales of their hardware, not the other way around.
Facebook missed the boat that these other technology firms have embarked on. Their Facebook phone failed leaving them without any hardware to encourage users to frequent their social networking service. They are slowly bleeding users with no easy way to stem the tide.

From this perspective, Facebook's purchase of Oculus looks like an attempt to get in on the ground floor with a brand new technology that has massive sales potential, with the intent of using it to drive people toward their online services. Zuckerberg has decided that not only is all the hype around VR tech here to stay, but there's also a decent chance that 10 years down the line VR headsets will be as ubiquitous as televisions. He has made a careful risk-benefit calculation and decided to gamble on the possibility that VR tech will revolutionize media consumption. Facebook is hoping that Oculus will become a household name, and they think there's a good chance that the Oculus Rift will become their equivalent of the Google's Android.

Facebook hasn't bought Oculus so they can plaster ads in every game. Nor are they looking for a "get-rich-quick" piece of tech that they can churn out for a profit. On the other hand, I think they will integrate Facebook into the Rift somehow, because that is what will drive people to the Facebook social space, and that is where Facebook makes its money. This is strategic purchase with a lengthy ROI period, and Facebook wants Oculus to succeed as much as we do.

Why Oculus sold out  ?

Alternate Explaination behind Oculus Sell-Out
Back when Palmer first floated the idea of a VR headset, he thought that there might be a small community of technology enthusiasts who were interested.

After running the Kickstarter campaign, he discovered that there were actually quite a few people who were willing to back the idea - so many in fact, that Oculus needed to mass produce Devkit 1. As more people became interested and Oculus cropped up in the media more and more frequently, Palmer was able to secure some serious investor funding ($100 million) and the vision of CV1 changed from a hand-crafted headset for enthusiasts to a polished, high tech VR experience for the masses.
 
Palmer has always had a vision of VR tech spreading until every household has one. He's always dreamed of revolutionizing media consumption. But... he didn't think it would happen this quickly. No-one did. Instead of gradually developing the knowledge and technology through multiple consumers versions and interations, now Oculus has to get it perfect the first time. And they have to do it quickly - because the competition smells blood. Just as Facebook has realized the huge potential of VR, so have the likes of Sony, Valve and other hardware companies. They are all rushing to produce their own headsets, and they have the advantage of billions of dollars in revenue behind them.

So Oculus is, in many ways, a victim of its own success. If there hadn't been so much public interest in the possibility of VR, no-one would have bothered to develop a competing product, and Oculus would be free to trundle along at their own pace. But now that Sony and Valve have upped the ante (not to mention other potential companies who may be developing VR products in secret) Oculus risks falling into obscurity. Their relative lack of funding - million vs. billions - hamstrings their ability to be the first ones onto the market and produce the highest quality VR device.

Oculus faced a choice: sell to a company with the resources to make huge investments in R&D and manufacturing, or become a second-rate company whose technology is inferior to the offerings from bigger players and whose products are purchased only by open-source enthusiasts.

Why facebook ? 


Yes, Facebook. Facebook has several qualities that are attractive to Oculus:

  • Lots of cash to put into R&D and manufacturing.
  • NO other public hardware products. Oculus is now Facebook's flagship hardware device, simply by virtue of there being no other hardware announced at present. Hopefully it will receive attention and funding commensurate to its position. On the other hand, if Google had picked up Oculus, the team would now be one of a dozen recent hardware acquisitions alongside walking robots and fancy thermostats.
  • Little experience in hardware development. This is a potential advantage, as the Oculus team will likely be left alone to develop the Rift. On the other hand, if Samsung had picked up Oculus, the team would be subsumed into Samsung's massive hardware development division and retain very little independence.
  • Facebook is thinking long-term. As I mentioned in the first section of this post, Facebook has not acquired Oculus with a view to making a quick buck. They want to integrate Oculus into their long-term strategic vision - in other words, they have a vested interest making Oculus into a leading VR tech firm rather than having immediate profit as their driving motive.

What this means for the future of Oculus and VR as a whole?

 Let's get the negative stuff out the way first:
  • The Rift will almost certainly have some degree of integration with the Facebook platform. Whether this means a mandatory Facebook login, or something slightly less onerous, remains to be seen.
  • The Rift is unlikely to be completely open-source.
  • Oculus no longer has control over its own future (bear in mind, however, that this already happened to a certain degree after they sold part ownership in the firm to investors.)
  • Some people don't like Facebook. And there is the potential, however unlikely, for Facebook to be a real dick about the whole thing and slap adverts across a Rift login screen.
But I think this is actually generally a positive announcement:

  • Oculus now has serious, billion-dollar muscle behind its vision. They can now compete with Sony and Valve's R&D potential.
  • With that muscle comes the potential for mass-produced custom high-def screens and more.
  • There is the possibility that with this purchase, Facebook is turning over a new leaf. They have tried the strategy of wringing every last dollar out of their online platform and have found it doesn't work. Instead they seem to be pursuing the more holistic Google-esque growth strategy, which doesn't cramp hardware with ads but instead uses it to drive revenue on the software side.
  • Most importantly, Oculus no longer has to worry about turning a profit off CV1. With Facebook's financial backing they can choose to sell at a lower price point in order to increase uptake, or else increase the quality of the rift without increasing the sale price. They just gained a whole lot of financial flexibility.
Ultimately, the winners from this sale are all those who want to buy a high-quality VR device at a low price point as soon as possible. The losers are those who believed in an open-source, community-driven future - who believed that Oculus could revolutionize the technology landscape and usher in a new era of crowd-sourced tech development.

I really do feel for those people who hoped that Oculus represented the latter vision. That future is now essentially gone. But I think many of you are forgetting that Palmer is not an open-source enthusiast, he's a virtual reality enthusiast. If you're like Palmer, and if what you desire above all is to hold in your hands an amazing VR headset, then I would argue that this sale is a good thing for you.
Alternate Explaination behind Oculus Sell-Out Alternate Explaination behind Oculus Sell-Out Reviewed by Kanthala Raghu on April 19, 2014 Rating: 5

No comments:

Theme images by hdoddema. Powered by Blogger.