Here's How Facebook Inc. Can Dominate VR Gaming

The social media king's decision to spend $2 billion for virtual reality manufacturer Oculus left some scratching their heads. But it's onward and upward.

Jul 10, 2014 at 4:00PM

Even as a lawsuit alleging "unauthorized access" to the intellectual property of game developer ZeniMax continues, soon-to-be Facebook (NASDAQ:FB) virtual reality headset manufacturer Oculus is moving forward with its ambitious plans to go mainstream. Dropping $2 billion on a non-social media asset like Oculus caught more than a few industry pundits by surprise.

But upon further review, Oculus would appear to open a series of new revenue-generating doors for Facebook, which will benefit tremendously by further diversifying its revenue streams. As it stands, a tad over 90% of Facebook's $2.5 billion in revenue last quarter – which was an impressive 72% increase from Q1 2013 – comes directly from advertising. At its core, Facebook will always be driven by digital ads, but enhancing revenue streams is never a bad idea, and Oculus is taking steps to pad Facebook's financial statements sooner, as opposed to later.

There's a theme developing here
Facebook isn't alone in its efforts to branch out into new markets. Online digital king Google (NASDAQ:GOOG) (NASDAQ:GOOGL) finds itself in a similar situation. Google also generated 90% of its $15.42 billion in quarterly revenue from ads. And, like Facebook, Google is taking steps to spread the revenue risk a bit.

In addition to its Glass initiative, self-driving cars, and Fiber, Google is working diligently to ramp up another source of revenue: gaming. Once again pitting the two online heavyweights directly in each other's path. But games are where Oculus can, once its VR headset is made available to the masses, differentiate Facebook from Google and its widely popular Google Play-which now boasts 1.5 million downloadable apps – and every other online gaming alternative.

Gaming in general, and Oculus in particular, are not simply Facebook whims. It was late March of this year when Zuckerberg announced the deal for Oculus. Coincidentally enough, it was about three weeks prior to the Oculus news that Facebook said it would once again host its F8 developers conference, primarily to boost the number of app developers for Facebook.

Almost certainly Zuckerberg and team were in talks with Oculus execs when the news broke that the first F8 conference in three years was coming in late April. Clearly the timing of these two important Facebook announcements were coordinated. Facebook has a revenue diversification plan, and now with Oculus' Rift VR set in the fold, gaming is an ideal first step.

Going forward
Many tech investors know that today, Facebook is first and foremost a mobile entity. It's taken a concerted two-year effort, but Zuckerberg has successfully transformed the former desk-top reliant site into the 21st century. Google, with its ridiculously large Android OS market share, isn't wanting in the mobile arena, either. What do gaming and Oculus have to do with mobile? Turns out, everything.

As it stands, the Rift headset, even though it's not ready for mass production, is the gadget of choice for online gamers. That's why Oculus has been able to sell 100,000 dev kits already, 40,000 since news of Facebook's acquisition in March. The only thing close is Sony's Morpheus VR set, but that's intended strictly for its PlayStation 4 game console. According to a recent study, the only gaming device that grew share in 2013 was -- you guessed it -- smartphones. And the fastest growing segment of the gaming market were those gamers that lost sight of reality on multiple platforms.

The shift to mobile gaming, particularly smartphones, needs to be addressed by Oculus. As it stands, the Oculus Rift set is designed for PC's, not exactly a burgeoning market. That may be one reason Oculus has announced its own developers conference, Oculus Connect, coming in Sept. Like Facebook's F8 conference before it, Connect is a chance to enlist the developer community in bringing a dynamic, cross-platform Rift to the masses.

Final Foolish thoughts
Zuckerberg recognizes there are considerably more applications for Rift than games. The health, construction, and educational communities have all been mentioned, and rightfully so. But getting a ready-to-use VR set onto the heads of gamers is easily the shortest distance to getting a return on its $2 billion Oculus investment. Enlisting the help of developers at the Content conference should be viewed by investors as a great first step to monetizing Oculus -- particularly if it results in mobile gaming alternatives.

Another possible game-changer: Apple's next smart device
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

 

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Facebook, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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