Okay, I’ll come right out and say it: Mark Zuckerberg is nuts.
Even with all the froth in the M&A and IPO markets, this one overflows with suds. Facebook, Inc. is paying $2 billion for Oculus VR, a company with no revenue, no product on the market, and unproven technology. At least, WhatsApp has real users. All Oculus has managed to do is put out a prototype virtual-reality headset. The company’s a 21-year-old founder, aptly named Palmer Luckey, first showed the headset in the summer of 2012.
Before Zuck gave the green light for this one, his diligence appears to have consisted of a few days of mulling it over. After all, there were hardly any operations to check out.
Upon trying out the headset, he thought he was seeing the future and decided to buy the company. Antonio Rodriguez, an early Oculus funder from Matrix Partners, was quoted in the Wall Street Journal as saying “At a gut level, within 30 seconds, you know you’re looking at the future.” He decided to invest immediately. So, that was 30 seconds of diligence for one funding source.
I first saw the Oculus VR goggles at an Advanced Micro Devices (AMD) developer summit in November 2013, where I tried them on and played around with the demo software. I found the experience rather disorienting and had to remove the goggles fairly quickly to get rid of the nausea they caused.
They were again featured, along with the Virtuix’s Omni virtual-reality interface, at Dell World in Austin in December 2013. The Omni consists of a curved surface on which the user “walks” and a surrounding barrier that keeps him or her from having a bad encounter with actual reality.
Check out this video of the Hydra Cover Shooter by Teddy Lipowitz to get an idea of what the experience is like. Note how wacko he looks stalking around in his lab with all these wires trailing off of him.
While it’s clear that heavy-duty gamers like this technology, it’s not obvious that norms are going to want to hop around and make fools of themselves all geared up in front of their peers this way. But let’s just say that ultimately Facebook manages to sell a million headsets at $300 each (somewhat below the price of the developer kits now available). That’s $300 million in revenues or about 20% of Oculus’s purchase price. And that’s years from now, since product isn’t expected on the market until late 2014 or 2015.
And we haven’t even begun to talk about how Facebook has no experience in hardware manufacture, distribution, and service. This is a company that you can’t reach by telephone.
Zuck has promised to integrate the technology into other areas of experience, things like virtual tours of historic or scenic places. But, in order for this expansion to happen, ordinary people are going to have to decide to don the goggles. And I ain’t convinced.
Back in 1986, when the Cold War was still on, I went to the Soviet Union on a state-sponsored trip. There was still an ideological battle going on between the East and the West, and when our hosts took us to the Moscow Circus, one act took a pretty good dig at American culture. Three clowns followed each other around the ring with plastic TVs strapped to their faces and big earphones covering their ears. The message was: Americans are blinded by their own pop culture.
A year before, a 9-year-old girl named Sarah Pryor was abducted from a public street in our town and never seen again. The police drawing of her, showing what she was wearing when she left her parents’ house, included a Sony Walkman and a set of earphones. For years, the case went unsolved, and I sometimes wondered whether the fact that she couldn’t hear her abductor’s approach played any role in the crime.
But I digress.
My conclusion on the Oculus deal: I guess we have to expect arbitrariness from Masters of the Universe.
Facebook’s purchase of Oculus is like Zeus killing a few random people with a lightning bolt; it’s just something to do on a Tuesday afternoon.