When it comes to acquisitions, Facebook Inc (NASDAQ:FB) has an enviable track record. The deals for companies like Instagram and WhatsApp have been transformative. No doubt, they have been critical in propelling the FB stock price.
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But of course, there is one deal that has been a notable flub: the March 2014 purchase of Oculus VR for $2 billion. Here’s a case where FB really misjudged the market.
Just look at the press release. In it, Facebook CEO Mark Zuckerberg confidently boasted that “Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate.”
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Wow! Bring it on!
Unfortunately, the reality — actual reality, that is — has been much different. Despite substantial investments in the Oculus platform, sales have been a major disappointment. According to a report from IDC, FB shipped a mere 246,900 units during the third quarter even though the company has twice reduced their price. Facebook is currently the No. 3 player in the market behind Samsung Electronics Co Ltd (KRX:005930) and Sony Corp (ADR)(NYSE:SNE).
Why the lackluster performance? As IDC tells it, “Growth in the VR market has been rather sluggish compared to other recently introduced technologies as the amount of investment and, more importantly, the need for end user education is extremely high for VR.”
It also doesn’t help that there are few must-have applications and that using VR can often be unwieldy. If anything, there will probably be much more interest in augmented reality (AR) since this technology does not require a headset. Apple Inc. (NASDAQ:AAPL) and Alphabet Inc (NASDAQ:GOOGL) have also launched their own AR platforms to make it easier to develop applications on mobile devices.
Getting to a Billion Users
Now FB is not throwing in the towel. Consider that Zuckerberg has set the goal of getting a billion people to use VR!
And to help this along, he has been innovating. The next product line innovation to hit the market — scheduled for early 2018 — will be the Oculus Go headset. The price tag will be at $199 and there will be no need to wire the device to a PC.
So will this be the silver bullet? It’s tough to tell. But the market is already saturated with headsets. Instead, to get more mass appeal and closer to that billion-user target, VR needs compelling content. Yet FB really has not been particularly good at doing this.