For record: I was recused on both sides of Facebook/Oculus.
Mark Zuckerberg is not afraid to get out his check book these days.
A little more than a month after paying $19 billion for messaging service WhatsApp, Facebook said today it would acquire Oculus VR, a company that builds the Oculus Rift virtual reality headset, for $2 billion. At the time of the WhatsApp acquisition, it seemed like Zuckerberg was looking to purchase platforms that posed an existential threat to Facebook — but it looks like he isn’t stopping at current-day platforms.
“Mobile is the platform of today, and now we’re also getting ready for the platforms of tomorrow,” Zuckerberg said as part of the announcement. “Oculus has the chance to create the most social platform ever, and change the way we work, play, and communicate.”
“We believe communication drives new platforms; we want to contribute to a more open, connected world; and we both see virtual reality as the next step,” the Oculus VR team added in a post about the announcement.
Once again, Facebook was willing to part with an even higher sum than what it paid to acquire Instagram — which now looks dirt cheap at $1 billion compared to some of the company’s recent acquisitions. As part of the deal, Facebook is paying $400 million in cash, along with $1.6 billion in stock as of Facebook’s current market value. The company has also agreed to a $300 million earn-out clause for its employees in cash and Facebook stock.
The conversations began a few months ago between the founders and included Facebook VP of Product Chris Cox, according to one person familiar with the discussions. Zuckerberg and the Facebook team continued to converse with Oculus VR over the following months, and eventually came to the conclusion that it would make sense to purchase the company — as often happens in the case of deals like this.
Prior to this, Oculus VR was in discussions for exclusive partnerships with a number of other large tech firms, though nothing on the scale of the Facebook acquisition at the time, according to two people familiar with the deal. The company was not looking to sell, but Zuckerberg was able to woo the founders with a strong case, one person familiar with the discussions said.
It also marks one of Facebook’s first big pushes into the consumer hardware sector, which the company has somewhat dabbled in — such as in the case of the mythical Facebook Phone — but never invested heavily in outside of data and infrastructure. Oculus VR has already processed 75,000 orders for its virtual reality headset — so the company was clearly in good shape.
“It seems like a really interesting company, and I think pun intended, it maybe enables us to see a little bit into the future as to how Facebook envisions things playing out,” said Scott Kessler, senior equity analyst at S&P Capital IQ. “Mark Zuckerberg was talking about every 15 years some type of major technology paradigm emerges… I guess he’s thinking that perhaps virtual reality is that next platform. It’s very early, but when you’re Facebook and you have a lot of forward thinkers and available capital you’re able to make these kinds of decisions.”
In the past two years, Facebook has spent more than $22 billion on big-ticket acquisitions including Oculus VR, WhatsApp, and Instagram. Oculus Rift started as a Kickstarter project and has taken in about $100 million in funding, making this another rather substantial payout that Zuckerberg has funded. Among its investors are Spark Capital, which just got a huge return on its investment in Twitter, and the ever-present Andreessen-Horowitz, which both invested in Oculus VR’s most recent $75 million funding round. (Andreessen also invested in Facebook.)
The applications of a product like Oculus Rift in Facebook’s arsenal aren’t immediately clear, but there are some clues. As part of that last round, Andreessen-Horowitz founder Marc Andreessen and partner Chris Dixon joined the company’s board of directors. “Facebook’s support will dramatically accelerate the development of the virtual reality ecosystem,” Dixon said in a blog post about the announcement today.
Zuckerberg also added further clues in a post on Facebook: “When you put it on, you enter a completely immersive computer-generated environment, like a game or a movie scene or a place far away,” he wrote. “The incredible thing about the technology is that you feel like you’re actually present in another place with other people. People who try it say it’s different from anything they’ve ever experienced in their lives.”
Zuckerberg said that the company would continue its plans to build out its virtual reality gaming headset to start things off, but plans to expand that over time as the team gets access to Facebook’s resources. “Imagine enjoying a courtside 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,” he wrote.
And, as he often says, Oculus VR will remain independent within Facebook, much in the same way that the company plans for WhatsApp and Instagram. The team will also remain in Irvine, Calif., in a move that’s a little unusual for Facebook but still implies the level of independence Oculus VR will continue to have.