Facebook (NASDAQ:FB) recently partnered with Chinese smartphone maker Xiaomi to produce a Chinese variant of its upcoming Oculus Go VR headset. The Go, which was initially introduced last October, is a $199 stand-alone VR headset that doesn't require a smartphone or PC. At the time, Facebook stated that it would start shipments in early 2018.

Xiaomi will produce a Chinese version called the Mi VR Standalone, which shares the same technology as the Oculus Go with support for Oculus' mobile software developer kit.

The Mi VR Standalone and Oculus Go.

Image source: Xiaomi.

Both devices will be powered by Qualcomm's (NASDAQ:QCOM) Snapdragon 821 processor. With the exception of the Mi and Oculus logos, the two devices look identical.

How this partnership helps Facebook

Facebook has had a tricky relationship with China ever since its social network was blocked in 2009 following the Urumqi Riots. Facebook repeatedly expressed interest in returning to China, but prior attempts via Instagram and WhatsApp failed, and its "stealth" Colorful Balloons photo-sharing app flopped.

The Chinese government often asks foreign companies in certain strategic markets to form joint ventures with domestic ones. By working with Xiaomi, a major Chinese company gets valuable VR tech while Facebook gains a foothold in China.

Partnering with Xiaomi was an unsurprising choice, since Facebook's VR chief Hugo Barra was previously Xiaomi's international chief. Barra called Xiaomi Facebook's "hardware partner for launching Oculus Go globally," indicating that the Mi VR Standalone might eventually reach other markets beyond China.

The Oculus Rift.

The Oculus Rift. Image source: Oculus.

Facebook likely hopes the Oculus Go and Mi VR Standalone headsets will address the most common complaints about the Oculus Rift -- its high price tag ($399), the need for a high-end gaming PC, and complex wired setups which restrict a user's movements.

Those issues caused the Rift to remain a niche device, with just 210,000 units shipped during the third quarter of 2017 according to research firm Canalys. That's a far cry from Facebook CEO Mark Zuckerberg's long-term goal of one billion VR users.

But if Facebook sells more headsets to mainstream users, even at lower margins, it can expand its Oculus software ecosystem. That ecosystem already includes its Oculus Home launcher, an integrated app store, videos, social games, and the Spaces platform -- which lets users "visit" each other in virtual spaces. If Facebook can tether more mainstream users to that ecosystem -- in North America, China, and the rest of the world -- its social network could eventually evolve into a major VR platform.

How this partnership helps Xiaomi

As for Xiaomi, partnering with Facebook will help the company pivot away from the saturated smartphone market and gain more recognition ahead of its widely rumored IPO later this year. Xiaomi was once the top smartphone maker in China, but was eventually overtaken by its domestic rivals Huawei, Oppo, and Vivo.

To diversify away from smartphones, Xiaomi launched new devices, like wearables, smart TVs, audio devices, connected home devices, and mobile accessories. It also launched the Xiaomi IoT (Internet of Things) platform -- a dedicated platform for IoT devices -- which works with products from over 400 companies.

It also dabbled in virtual reality with its Mi VR Play, Mi VR Play 2, and Mi VR headsets. The Play and Play 2 headsets were basically cloth-covered versions of Cardboard, while the Mi VR offered a higher-end experience with a dedicated motion sensor, ultra-low latency display, and 9-axis controller. Xiaomi launched these devices with the hope of expanding its fledgling MIUI ecosystem of VR apps.

Xiaomi's Mi VR headset will be tethered to the platform's Mi VR Store instead of Oculus Home. However, the company stated that it was "working with developers to bring some of the popular games, videos, and apps from the Oculus Store to the Mi VR Store."

A win-win situation

The partnership between Facebook and Xiaomi probably won't generate much meaningful revenue for either company, but it establishes the foundations of a VR ecosystem that straddles the North American and Chinese markets.

Facebook's Oculus developers can gain access to the lucrative Chinese market via Xiaomi, while Xiaomi gains a next-gen VR device that surpasses its previous Cardboard and Gear VR-like efforts. Therefore, this partnership looks like a win-win deal for both companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.