Facebook announced today that it was acquiring virtual reality darling Oculus Rift for $2 billion in cash and stock. The transaction left a lot of people scratching their heads: Oculus has been focused on high-end gaming applications, a market where Facebook has little to no experience.
According to sources familiar with the deal, Oculus investors had offered the company more money to go it alone, but trying to compete with titans like Sony — which just showed its Project Morpheus headset last week — would've required an enormous additional investment that Facebook can provide out of the gate. Sources say that several big companies other than Facebook had also made overtures to Oculus about a potential acquisition, which could've accelerated Facebook's bid. Matrix Partners investor Antonio Rodriguez says the deal happened very quickly: "Mark Zuckerberg has been aware of the company for perhaps the last few months, and he got very interested in the last seven days."
Other bidders were in the mix
For now, the company plans to stay in Los Angeles and continue to operate as before. "Keep on doing what you're doing, back to changing the world, we're still on target," CEO Brendan Iribe wrote to employees in an internal memo, according to a source at the company.
So, why Facebook? Oculus investor Chris Dixon, a partner at Andreessen Horowitz, says the best way to think of the deal is to compare it to a big acquisitions from a decade ago. "The way to understand this purchase is to think of Google buying Android in 2005. That confused a lot of people at the time. Facebook believes that virtual reality will become the next major platform, the same way mobile computing did, and they want to make sure they have a big stake in that."
Facebook's founder seems to agree. "There are not that many companies building technologies that could be the next computing platform, and Oculus is the clear leader," Mark Zuckerberg noted on a conference call about the acquisition Tuesday afternoon. He expanded on this logic in a Facebook post: "Our mission is to make the world more open and connected. For the past few years, this has mostly meant building mobile apps that help you share with the people you care about. We have a lot more to do on mobile, but at this point we feel we're in a position where we can start focusing on what platforms will come next to enable even more useful, entertaining and personal experiences."