Facebook wants to dominate virtual reality

Facebook (NASDAQ: FB) virtual reality (VR) has begun to be taken very seriously in recent years. The company no longer only manufactures headphones; has become one of the largest developers in the industry after acquiring the most successful virtual reality studios. Facebook expects virtual reality to be its next growth platform despite having a relatively small base of a few million users.

What is still unclear is whether it is a virtual reality platform i a content developer will be the best long-term strategy. The following explains virtual reality for the social media giant and how Facebook hopes to create the dominant virtual reality platform.

Image source: Oculus

Beginnings with Oculus

Facebook went into virtual reality when it acquired Oculus in 2014. The $ 3 billion deal was followed by the launch of the Rift headphones in 2016, but sales were relatively low until the independent Oculus Quest was launched on 2019.

The Quest does not require a computer to run and can run almost anywhere. Quest 2 sold about a million devices in the fourth quarter of 2020, making it the most successful headset for volume capture, about 87% of the market, according to SuperData.

Facebook’s virtual reality spending

Facebook doesn’t just sell headphones. Games and other content are sold through Oculus Store. And content is where Facebook could make money. In theory, making sure the best content is on the Oculus platform and not on competing platforms like Steam or virtual rooms will make Oculus more attractive. To this end, Oculus has acquired the largest content studios in the business:

  • In 2019, Facebook began buying content with the purchase of Beat Games, the creator of the popular Batega To know.
  • In February 2020, Facebook acquired Sanzaru Games, which it created The wrath of Asgard.
  • In June 2020, Facebook acquired Ready at Dawn, which it created Lonely echo.
  • Downpour Interactive was created in April 2021 Forward, was acquired.
  • Last month, Facebook said it was buying BigBox VR, which it manufactured Smashbox Arena and the most recent Population: one, which is a Fortnite-like the virtual reality game.

The content of these companies is not yet entirely exclusive to Oculus, but Facebook is starting to outperform competitors. After acquisition, commercial content licenses are quickly extracted from virtual rooms, prompting customers to purchase headphones instead of using them in commercial spaces. And that’s not all Facebook does to earn revenue and spread its virtual reality experience from competing tech companies.

The Facebookification of virtual reality

About a year ago, Facebook began requiring a Facebook account to sign in to an Oculus headset. This led to many setbacks from users who wanted to be anonymous or did not have Facebook accounts. But the company persisted in forcing Facebook into virtual reality.

The next step is advertising. Oculus is already testing advertising on RV experiences and the number of ads is likely to grow. Again, this brings together everything Facebook knows about users connected to their accounts and their extensive advertising network.

Facebook is also developing a social experience, which it expects people to use for group meetings and even business meetings, called Facebook Horizon. It’s a product that Oculus wants users to “explore, play and create in extraordinary ways,” building virtual spaces and a social network within virtual reality. Horizon is still in beta, but Facebook has high hopes that this will be a great product as more headphones are sold.

What is clear is that there is an Oculus Facebookification right now. Try to leverage everything Facebook knows about users, advertisers, and their financial strength to master virtual reality.

Platforms Vs. integration

Facebook could adopt its current strategy in several directions in VR. One could try to create a platform like Microsoft did with your Windows operating system. Microsoft wanted third-party developers to not only create products for their platform, but also be successful. If the content were great on Windows computers, it would be a long-term victory for Microsoft because it was Windows platform this was the greatest value of computers. Bill Gates once said, “A platform is when the economic value of everyone who uses it exceeds the value of the company that creates it. Then it’s a platform.” In that sense, Facebook is not really a platform because it sells its own hardware, its own content, and owns the app store. But yes I could be a platform as defined by Gates.

Oculus could also go in that direction apple, creating a proprietary operating system for your own hardware and including key software that makes your device more attractive to competitors for free. It now looks a lot like the company’s plans, except that Oculus still charges for the content of your property. The virtual reality app store also looks similar to Apple’s, so Facebook may be trying to replicate some of what Apple did with its smartphone.

What’s a little weird is that Facebook seems to be adopting a pricing strategy for Android. Android generates little or no revenue in hopes of getting more people on the platform, ultimately generating revenue for browsing searches, maps, and other tools. It is even possible that Oculus is selling its latest unattractive headphones to attract more users. Once there, Facebook can earn revenue through the app store or content ads. The overall system looks like a combination of Apple’s hardware strategy (integrated hardware and software) with the monetization strategy of Android or Facebook (ads).

Competitors arrive

I also think Facebook and Oculus are in a weird strategic position. Oculus is the clear leader in RV today, but it still has no competition. As competitors emerge, the company will have to decide whether it wants to be a platform that is the best place for content developers, an exclusive walled ecosystem, or an advertising gaming device. Right now, it’s a bit of each, which seems to leave many weaknesses open to competitors offering more privacy (Apple) or better business services (HTC Live).

As Facebook launches its virtual reality strategy, competitors are building their own ecosystems. Apple has reportedly been working on both virtual reality and augmented reality headphones for years with a rumored release for 2022. HTC and Valve have also released new headphones recently more advanced (and priced higher) than Oculus Quest, though most still need computer to run. Both companies are building their strategies around high-end players or business customers who want operational flexibility without Facebook blocking.

All three companies are far behind Facebook in the headphones sold, but they have a clear strategy. And if Apple, in particular, comes out with headphones that are appealing to consumers, it could quickly become the preferred device for developers and business customers.

Facebook wants to own RV, but right?

As Facebook buys more virtual reality ecosystem, it’s clear that the company wants to do everything from selling headphones to creating a social experience and even posting ads. Here is a list of what you want to do in virtual reality:

  • Sell ​​the headphones
  • He owns the store where the developers sell content
  • It owns the largest content studios and sells its content (potentially exclusively) to Oculus
  • Create a Facebook social / meeting platform
  • Requires users to sign in instead of Facebook
  • Post ads to RV users

Facebook wants to own almost every valuable part of the virtual reality industry. If successful, the company could be dominant in the industry for a decade, which could be worth a lot of money. Industry size estimates are very divergent, but Grand View Research estimates that the global RV market was valued at $ 15.8 billion in 2020 and will grow by 18% compounded annually by 2028. With an approximate market share 80% on new headphones, this is a great opportunity for Facebook.

But the company also leaves some strategic openings for users, developers and businesses who want more privacy, more flexible distribution and content, or different headset features, such as accessories and higher resolution. It’s still unclear which strategy will win, but Facebook is laying the groundwork to dominate the industry and we’ll see if any of the other tech companies interested in virtual reality respond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Questioning an investment thesis (even one’s own) helps us reflect critically on investment and make decisions that help us be smarter, happier, and richer.

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