Facebook (NASDAQ: FB) wants to buy game studios and sign exclusive deals with publishers for virtual reality (VR) versions of popular games, according to The Information. The Wednesday report, which cites two people familiar with the matter, claims that Facebook plans to invest less than $1 billion on this new initiative.
That's a fairly small figure for Facebook, which generated $55.8 billion in revenue and $22.1 billion in profits last year. But it indicates that its long-term VR plans, which stem from its $2 billion acquisition of Oculus VR in 2014, remain on track.
Image source: Oculus VR.
Reviewing Facebook's VR ambitions
Facebook launched the first commercial version of the Oculus Rift in 2016, but the headset's high launch price of $600, its need to be paired to a high-end gaming PC, awkward tethering cables, and lack of compelling software throttled its sales. The price was gradually reduced to $400.
Facebook only shipped about 700,000 Rifts in 2017, according to SuperData. The following year it launched the Oculus Go, a $199 stand-alone VR headset that didn't require a phone, PC, or cables. Facebook shipped nearly one million Go headsets last year, according to SuperData, and that figure could hit 1.02 million this year.
In May, Facebook launched the Oculus Quest, another stand-alone headset with beefier specs than the Go, for $449 (64GB) and $549 (128GB). SuperData expects the Quest to surpass the Go with 1.08 million shipments this year, making it the market's best-selling VR device.
That sounds impressive, but 1.08 million devices represent a tiny sliver of Facebook's 2.38 billion monthly active users. It's also dwarfed by the 1.4 billion smartphones which were shipped worldwide last year, which indicates that VR remains a niche platform.
During that same May launch, Facebook released the Oculus Rift S, a high-end successor to the original Rift. The $400 device adds a slightly wider field of view with better hardware, but it's still tethered to a gaming PC -- which prompted The Verge to call the device a "swan song for first-generation VR."
Image source: Oculus VR.
Expanding the Oculus ecosystem with new deals
In 2017, Facebook CEO Mark Zuckerberg claimed that VR would become the next big computing platform with more than a billion users over the next decade. That's a lofty goal, but Zuckerberg believes that better gaming, media, and social experiences will drive that growth. However, the ecosystem which hosts those apps is still fragmented.
Oculus Home, which lets users create virtual homes and invite friends over, is only available on the Rift. Oculus Rooms and Venues -- which add mini-games, social apps, and shared VR video viewing -- only run on the Oculus Go and Samsung's Gear VR.
Facebook Spaces, which lets users chat and share Facebook content, draw in 3D, and launch video chats with non-VR users via Messenger, only works on the Oculus Rift and HTC's Vive. Meanwhile, the Oculus Quest runs a new platform that is inexplicably cut off from its older platforms, leaving it to third-party app makers to bridge the awkward gaps between its headsets.
But for now, the new Quest platform seems to be taking precedence over the older platforms. Facebook's hardware chief Andrew Bosworth recently claimed that Oculus Quest users bought $5 million in digital content within the device's first two weeks on the market.
That's a drop in the pond for Facebook, but it indicates that Quest users are hungry for new content. That's why Facebook wants to scoop up some game studios and land exclusive deals for fresh VR content.
What's Facebook's next move?
Facebook reportedly already partnered with Ubisoft (NASDAQOTH: UBSFF) to produce VR versions of Assassin's Creed and Tom Clancy's Splinter Cell, and other publishers might follow suit. Facebook could also acquire smaller VR gaming studios to expand the Quest's launch library of just over 50 games.
It's unclear when Facebook will start shopping around, but high expectations for the Quest, solid spending from early adopters, and growing competition in the VR gaming market indicate that the tech giant should strike while the iron's hot.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.