Imagine that, over the past year, Facebook had managed to acquire the Battle Royale game Fortnite, the Roblox child-centered game creation engine, and the best-selling game of 2020, Call of Duty: Black Ops Cold War.
For many reasons, a lot of acquisitions would never happen. One of the most important is that antitrust control has made it increasingly difficult for Facebook to acquire anything that resembles a social network. More than a year ago the company bought the dying GIFhy GIF search engine, which had little prospect of success as an independent company; so far, the UK competition watchdog has blocked the closing of the deal, warning that the acquisition would somehow harm Facebook’s competitors.
And yet, if you look at the virtual reality landscape, Facebook has made a number of acquisitions that are roughly analogous to the fictional purchases I describe above, if on a much smaller scale:
The company’s other VR studio acquisitions include Sanzaru Games and Ready at Dawn.
Alex Heath, journalist of The Verge which has closely covered the rise of RA and VR technologies, recently observed on Twitter that Facebook’s acquisitions in space resembled its most famous bets on nascent technology years ago: the purchases of Instagram and WhatsApp, which helped the company consolidate its position as a dominant player in the social networks.
“Facebook will likely have a near monopoly on virtual reality software even before that matters,” Heath tweeted. “Facebook will have literally reinvented itself for a new paradigm shift in computing by the time regulation comes to address it in its current state.”
Whether or not you believe Congress should step in to regulate technology acquisitions, it is undeniable that the process is moving slowly. Facebook bought Instagram in 2012 and WhatsApp in 2014; an antitrust investigation by Congress did not begin until five years later; and a bill that would require intense scrutiny of technology platform acquisitions was not introduced in Congress until … Friday. (Okay, okay, insurrectionist Mr. Josh Hawley introduced a bill to ban all platform acquisitions, period, in April, but his bills are better regarded as Fox News posts than as serious efforts to regulate the industry).
I think the Federal Trade Commission should be more skeptical of tech giants acquiring their direct competitors, but I’m not sure a bill that prevents a ban on acquisitions is the best approach. Acquisitions are part of Silicon Valley’s vital spirit and the money returned to investors is reinvested in the next generation of entrepreneurs and technologies. You can foster competition in many ways without prohibiting mergers and acquisitions. And in any case, it’s hard to imagine a bill like this that gets a lot of support from Republicans, despite Hawley’s bill.
At the same time, let’s assume you believe that Facebook’s Instagram and WhatsApp acquisitions left consumers ’internet network behind for a few years, until TikTok emerged. Wouldn’t you like to apply as much control to your current Facebook purchases as you do to the moves you made nine years ago?
The answer to this question probably depends on the size you think the virtual reality headset market and its corresponding software ecosystem will one day reach. Currently the market is small: Facebook’s Oculus platform had sold less than 10 million units in January. By contrast, PlayStation 4 has sold more than 115 million units in its lifetime; Apple alone sold nearly 80 million iPhones in the last quarter of 2020 alone.
If you think virtual reality will increase to about the size of a major console gaming platform, you may not care how many studios Facebook buys. Console makers buy gaming studios all the time: Microsoft’s acquisition of ZeniMax Media, which owns Bethesda Software and its many popular franchises, was last year’s mega-deal in space, and no one seems to have too many worries about developing a console. a monopoly.
If, on the other hand, you think Oculus could reach a size more similar to a major desktop computer maker like Dell, you might look at its acquisitions more closely. To put my cards on the table: I think he will finally do it.
Facebook hasn’t posted the Quest 2 headset sales figures yet, and I’m told Playstation VR has sold more units overall. But we know that Quest 2 drove a 156% year-over-year increase in Facebook’s non-advertising revenue in the last quarter of 2020. Even with a relatively small revenue base, this could become the business of more fast growing Facebook of VR.
Everywhere you look, you’ll find signs of Facebook’s growing confidence in its virtual reality platform. CEO Mark Zuckerberg has conducted frequent interviews on the subject over the past twelve months, among other things positioning AR and VR as a business software platform as well as a place to play. The company has hired more than 10,000 people to work in its hardware division of Facebook Reality Labs.
In short, there is more evidence that virtual reality will be huge amid Facebook acquisitions today than there is evidence that Instagram would be huge when Facebook bought it in 2012, before the app had as many as 50 million users .
None of this means that I think virtual reality will surpass smartphones as the world’s largest computing platform. And it’s also clear that Facebook has real competition as it tries to build the future of mixed reality. Snap is also building awesome hardware and software in this space, focusing on its Spectacles glasses and the growing ecosystem of developers around it. Apple, which works on its own headphones, has made at least four acquisitions of mixed-reality companies in recent years.
He may also do Epic Games Fortnite the Fortnite of VR, and Roblox turns its platform into the Roblox of VR, and Facebook’s efforts in that space are marked.
Facebook told me that its reasons for acquiring so many gaming studios are simple: it wants to accelerate the growth of a still fledgling industry by ensuring that top-notch gaming experiences are widely available. It is a very small player in the gaming industry, the company said, but expects its acquisitions to be good for both developers and users.
“Everything is true, but that doesn’t mean it won’t be a problem in six or eight years,” Heath told me by phone Wednesday. From Heath’s perspective, the most consistent aspect of Facebook’s acquisitions is that it will link a significant amount of VR talent to a company for at least four years, while its acquisition options will be invested.
“There aren’t that many companies that do that,” Heath said of the virtual reality industry, “And good people either work on Facebook or buy them.”
None of this will matter much if the virtual reality industry fails to live up to its latest advertising wheel. And not living up to the hype is perhaps the main feature of the virtual reality industry throughout its life so far.
But if virtual reality becomes a part of our daily workflow as well as our daily entertainment, and Facebook becomes the market leader in this space, we may be in another global conversation about how a tech giant is successfully use their market power to take over an adjacent industry. If that’s the case, it seems to me that now is the time to hold this conversation, while the foundations are still being laid, a seemingly minor acquisition at a time.