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Is Facebook Doubling Down on Virtual Reality?

By Keith Noonan - Dec 3, 2019 at 9:42AM

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The social-media leader just bought a VR game developer, and more acquisitions in the space could follow.

Facebook ( FB 2.40% ) acquired virtual reality (VR) headset maker Oculus in 2014 at a price somewhere in the range of $3 billion, with hopes that VR would emerge as the next big computing platform. Success in the space hasn't been easy to come by, with weaker-than-expected consumer headset sales and a shortage of must-have content resulting in headsets not seeing much adoption outside a niche audience. But Facebook is still committed to the space and its Oculus division.

The latest sign of that commitment came late last month when the social media giant announced it is acquiring Beat Games, the maker of Beat Saber, a music-based game that's become one of the most popular and critically games for VR platforms. No price on the deal has been reported, but it's an intriguing move, and Facebook could be making more big virtual-reality investments in the not-too-distant future.

Facebook's Oculus Quest.

Image source: Oculus.

The Beat Games acquisition is just the beginning

The announcement of the Beat Games acquisition was paired with a comment from Oculus' director of content, Mike Verdu: "We're exploring many ways to accelerate VR. This is just the beginning." That comment suggests that more acquisitions in the VR space are on the horizon.

Facebook didn't buy Oculus with the limited goal of selling hardware. Beat Games has said that Beat Saber will continue to be available across all VR devices despite the purchase by Facebook, and that it will continue to ship games for all currently supported platforms, so the acquisition clearly didn't hinge solely on getting exclusive content for the Oculus hardware line. 

Facebook is probably much more interested in driving mass adoption for a new display medium will pave the way for it to dominate a new mode of social media platforms and expand its advertising business with engaging and immersive new experiences. Virtual reality has sometimes been criticized for being isolating, with headset users being closed off from their real-world surroundings, but Mark Zuckerberg once stated a belief that VR has the potential to be the most social platform ever.

A screenshot from Beat Games' Beat Saber.

Image source: Beat Games.

Virtual reality was never dead

Underperformance for early headsets from Oculus and HTC prompted plenty of speculation from analysts and media outlets that VR was dead, but Zuckerberg has always had a long-term outlook on the space and never showed signs of giving up on it. "We're making a long-term bet that immersive virtual and augmented reality will become a part of people's daily lives," he said in 2016. More recently, he said his company's bet on Oculus has taken longer than expected to pay off, but he appears to believe the tide will turn eventually.

The VR installed base has gradually been climbing, and improved computer and headset hardware combined with better software should ensure that the new display medium continues to gain ground. The relatively weak rollout for virtual reality is causing some analysts and industry watchers to overlook that the platform seems to be picking up momentum, but it's not shocking that Facebook is still betting big on its future.

Market research published by SuperData Research at the end of October suggested that the company had sold 400,000 units of its Oculus Quest headset since its launch in May. That's better than many were expecting, and the company's big-budget, virtual-world game Horizon could help further spur Oculus headset sales when it launches next year. Valve's upcoming triple-A game in the beloved Half-Life gaming series that will only be playable on VR is another sign that suggests that the display medium may be approaching a turning point. 

There's a good chance that Facebook will make more big acquisitions in the VR space within the next couple years, and it wouldn't be surprising if many of those buys are concentrated in game development. Video games remain one of the best vehicles for promoting VR adoption and help pave the way for the type of mass-appeal social experiences that Facebook has in mind. 

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.

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